<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FRONT ROYAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6359 56-1719109
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
2200 GATEWAY BLVD.
SUITE 205
MORRISVILLE, NC 27560
(919) 469-9795
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
J. ADAM ABRAM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2200 GATEWAY BLVD.
SUITE 205
MORRISVILLE, NC 27560
(919) 469-9795
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With copies to:
<TABLE>
<S> <C>
KENNETH L. HENDERSON, ESQ. GARY I. HOROWITZ, ESQ.
ROBINSON SILVERMAN PEARCE ARONSOHN & BERMAN LLP SIMPSON THACHER & BARTLETT
1290 AVENUE OF THE AMERICAS 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10104 NEW YORK, NEW YORK 10017
PHONE (212) 541-2000 PHONE (212) 455-7113
FAX (212) 541-4630 FAX (212) 455-2502
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value per share..... -- -- $25,000,000 $7,576
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE , 1998
PROSPECTUS
, 1998
SHARES
Front Royal, Inc.
COMMON STOCK
Of the shares of Common Stock, no par value per share (the
'Common Stock'), of Front Royal, Inc. ('Front Royal' or the 'Company') offered
hereby (the 'Offering'), shares are being sold by the Company and
shares are being sold by the Selling Shareholders (as defined herein).
The Company will not receive any of the proceeds from the sale of Common Stock
by the Selling Shareholders. See 'Principal and Selling Shareholders.'
Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $ and $ per share. See 'Underwriting' for information relating
to the factors considered in determining the initial public offering price.
Application will be made to list the Common Stock on the Nasdaq National
Market under the symbol 'FRYL.' There can be no assurance that such listing
application will be approved.
SEE 'RISK FACTORS' BEGINNING ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share................................. $ $ $ $
Total(3).................................. $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See 'Underwriting.'
(2) Before deducting expenses estimated at $ , which will be paid by the
Company.
(3) The [Company] [Selling Shareholders] [has] [have] granted the Underwriters a
30-day option to purchase up to additional shares of Common Stock, at the
Price to the Public less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions, Proceeds
to the Company and Proceeds to the Selling Shareholders will be $ ,
$ , $ and $ , respectively. See 'Underwriting.'
The shares are being offered by the several Underwriters, when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made in New York, New York,
on or about , 1998.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
BT ALEX. BROWN
WHEAT FIRST UNION
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
------------------------
FRONT ROYAL, A NORTH CAROLINA CORPORATION, PRIOR TO THE CLOSING OF THE
OFFERING WILL OWN ALL OF THE SHARES OF CAPITAL STOCK OF CERTAIN INSURANCE
COMPANIES DOMICILED IN THE STATES OF OHIO, PENNSYLVANIA, VIRGINIA AND FLORIDA.
THE INSURANCE LAWS OF THOSE STATES REQUIRE PRIOR APPROVAL BY THEIR RESPECTIVE
STATE INSURANCE COMMISSIONERS OF ANY ACQUISITION OF CONTROL OF A DOMESTIC
INSURANCE COMPANY OR OF ANY COMPANY WHICH CONTROLS A DOMESTIC INSURANCE COMPANY.
'CONTROL' IS GENERALLY PRESUMED TO EXIST THROUGH THE OWNERSHIP OF, OR THE
HOLDING OF PROXIES WITH RESPECT TO 10.0% (5.0% IN FLORIDA) OR MORE OF THE VOTING
SECURITIES OF A DOMESTIC INSURANCE COMPANY OR OF ANY COMPANY WHICH CONTROLS A
DOMESTIC INSURANCE COMPANY. ACCORDINGLY, ANY PURCHASE RESULTING IN A PURCHASER'S
HOLDING THE POWER TO VOTE 10.0% (5.0% IN FLORIDA) OR MORE OF THE OUTSTANDING
SHARES OF COMMON STOCK WOULD REQUIRE PRIOR APPROVAL BY THE INSURANCE
COMMISSIONERS OF THE ABOVE-REFERENCED STATES. SEE 'RISK FACTORS--ANTI-TAKEOVER
CONSIDERATIONS, INCLUDING POSSIBILITY OF FUTURE ISSUANCE OF PREFERRED STOCK.'
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA OR ANY OTHER STATE, NOR HAS ANY
STATE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS
DOCUMENT.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), Washington, D.C., a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended (the 'Securities Act'), with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is hereby made to such Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or any other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at its principal office
located at 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional
Office located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and the Chicago Regional Office located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates and from the
Commissions website, at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined and reported upon by
independent certified public accountants and with quarterly reports containing
unaudited interim financial information for each of the first three fiscal
quarters of each fiscal year.
------------------------
2
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus may include forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
When used in this Prospectus, the words 'estimates,' 'targets,' 'projects,'
'intends,' 'expects,' 'anticipates' and similar expressions are intended to
identify forward-looking statements under the Private Securities Litigation
Reform Act of 1995. The statements which are not historical facts contained in
this Prospectus are forward-looking statements that involve risks and
uncertainties, including, but not limited to, the impact of competitive products
and other competitive factors, the effect of controlling stockholders and
conflicts of interest, the effect of economic conditions, including interest
rates, investment portfolio developments and the reaction to market conditions,
the impact of adverse legislation, the effects of the Company's holding company
structure, rating agency policies and practices (as each term is hereinafter
defined), regulatory changes and conditions, development of claims and the
effect on loss reserves, compliance with year 2000 issues by the Company and its
suppliers, insureds, and bond obligees, risk of insolvency of the Company's
insurance subsidiaries, limitations on change in control of the Company, the
impact of shares eligible for future sale, product and policy demand and market
response risks, policies and pricing, product and policy development, the
performance of reinsurance companies under reinsurance contracts with the
Company's insurance subsidiaries, the results of financing efforts, the
identification of potential transactions and the actual consummation of
contemplated transactions or agreements, including the Preferred National
Acquisition (as is hereinafter defined), and other risks. All such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements. For a
discussion of such risks see 'Risk Factors.' Readers are cautioned not to place
undue reliance on forward-looking statements. The Company does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the historical and pro
forma financial statements, including the notes thereto, appearing elsewhere in
this Prospectus. Unless otherwise specified, all financial information is
presented in accordance with generally accepted accounting principles ('GAAP').
Financial information presented in accordance with statutory accounting
practices ('SAP') is identified as such. Unless the context otherwise requires,
all references in this Prospectus to: (i) 'Front Royal' or the 'Company' refer
to Front Royal, Inc. and, depending on the context, its subsidiaries on a
consolidated basis; (ii) 'Colony' refers to Colony Holdings, Inc. and its
subsidiaries including Colony Insurance Company ('Colony Insurance') and its
subsidiary, Front Royal Insurance Company ('FRIC'); (iii) 'Rockwood' refers to
Rockwood Casualty Insurance Company and its subsidiary, Somerset Casualty
Insurance Company; (iv) 'Redwoods' refers to The Redwoods Group, Inc.; (v)
'Preferred National' refers to Preferred National Insurance Company and the
'Preferred National Acquisition' refers to the announced acquisition by the
Company of all of the capital stock of Preferred National as well as certain
assets and liabilities of Wycon Corporation, United American Financial Services
Corporation ('UnaMark') (the business of which will become a part of Redwoods)
and Americlaim Adjustment Corp.; (vi) 'Subsidiaries' refers to Colony, Rockwood,
and Redwoods; and (vii) 'Insurance Subsidiaries' refers to Colony and Rockwood.
Unless otherwise indicated, the information contained in this Prospectus assumes
that: (i) the underwriters over-allotment option (the 'Over-Allotment Option')
is not exercised; (ii) the Recapitalization, other than the Reverse Split, each
as defined in 'The Recapitalization,' has been completed; (iii) the Preferred
National Acquisition has not been completed; and (iv) the initial public
offering price is $ per share. Certain terms used herein are defined in
'Glossary of Selected Insurance Terms.'
THE COMPANY
GENERAL
Front Royal is an insurance holding company which acquires and operates
property and casualty insurance companies that underwrite specialty coverages.
The Company's strategy is to acquire companies with particular marketing,
underwriting and claims expertise in their markets, which enables them to
achieve superior underwriting results. Since commencing operations in 1992, the
Company has acquired Front Royal Insurance Company in May 1992, Colony in
December 1994, Rockwood in December 1996 and Redwoods in January 1998. In March
1998, the Company announced the Preferred National Acquisition, which it expects
to complete in July 1998. See 'Business--General.'
The Subsidiaries provide commercial liability, professional liability and
other insurance to targeted types of businesses, primarily on an excess and
surplus lines ('E&S') basis, and workers' compensation insurance for non-union
coal mines and other specialized risk classes. The Company's primary operating
objective is to achieve consistent profits from its core business of
underwriting insurance, as evidenced by an average SAP combined ratio from 1995
through 1997 of 98.8%. The Company pursues this goal by focusing on niche
markets in which it has particular expertise, adhering to disciplined
underwriting and claims practices and utilizing various distribution channels,
including wholesale agents, retail agents and direct marketing, depending on
which channel most effectively reaches the Company's targeted customers in each
market. The Company manages the Subsidiaries on a decentralized basis to enable
them to respond effectively to changing conditions in the markets in which they
operate, while consolidating investment, financial, actuarial and other support
functions to achieve operating efficiencies. The Company believes that generally
there are fewer companies competing in the specialty markets it pursues than in
the standard lines markets because the specialty markets are relatively small
and require specialized underwriting and targeted distribution.
The Company's acquisition strategy has resulted in significant growth, and
its operating strategy, which emphasizes disciplined underwriting over premium
growth, has produced consistent underwriting profitability. The Company's gross
written premiums have increased from $500,000 in 1992 to $43.6 million in 1995
and $100.2 million in 1997. The Company's net operating income/(loss) (excluding
after-tax realized gains) has grown from $(800,000) in 1992 to $3.0 million in
1995 and $11.7 million in 1997. Pro forma 1997 gross written premiums and net
operating income, assuming the Preferred National Acquisition had been completed
on January 1, 1997, were $146.4 million and $12.8 million, respectively. In
1995, 1996 and 1997, the Company achieved an
4
<PAGE>
average return on equity of 26.3%, 24.1% and 20.8%, respectively. From 1995
through 1997, the Company's average SAP combined ratio was 98.8%.
DESCRIPTION OF THE SUBSIDIARIES AND PREFERRED NATIONAL
Colony. Colony provides commercial liability, commercial property,
products liability and environmental liability coverages to commercial
enterprises, including restaurants, artisan contractors, day-care centers and
manufacturers, and professional liability coverages for health care providers
(other than physicians) and other professionals. Colony operates primarily on an
E&S basis and focuses on insureds who generally cannot purchase insurance from
standard lines insurers due to the perceived risks related to their businesses.
Colony offers its coverages through 133 wholesale agent offices (representing 69
agencies) located throughout the U.S. These agents, in turn, solicit and receive
premiums from over 30,000 retail agents. Colony is an admitted insurer in nine
states and is approved as a non-admitted insurer in 44 states. Colony has an
'A-' rating from A.M. Best. See 'Business--Colony.'
Preferred National. The Company announced the Preferred National
Acquisition in March 1998 and expects that it will be completed in July.
Preferred National focuses on many of the same coverages and risk classes as
does Colony. In addition, Preferred National offers surety, property and inland
marine coverages not offered by Colony. Approximately 60% of Preferred
National's business is written on an admitted basis in Florida. The Company
believes that Preferred National, which will be managed by Colony's management
team, will enhance Colony's business by increasing the scale of Colony's
operations and by broadening the scope of the Company's product offerings.
Preferred National offers coverage through 154 wholesale agent offices, 40 of
which also have an appointment with Colony. Preferred National's largest
wholesale agent is UnaMark, a captive agency the business of which will be
acquired in the Preferred National Acquisition and thereafter operate as a
division of Redwoods. Through UnaMark and its other wholesale agents, the
Company believes that Preferred National has access to over 20,000 retail
agents. Preferred National's surety business is produced directly through retail
agents. A substantial portion of the professional liability business written by
Preferred National is produced through four risk purchasing groups that have
direct communications with accountants, lawyers, title agents and dentists.
Preferred National is an admitted insurer in Florida and Illinois and is
approved as a non-admitted insurer in 36 states. Preferred National is rated
'B++' by A.M. Best. See 'Business--Preferred National.'
Rockwood. Rockwood primarily writes specialty workers' compensation
insurance for non-union coal mines, other mining businesses and small premium or
specialty commercial accounts. Rockwood operates principally in Pennsylvania,
Maryland and, to a lesser extent, in four other states. Rockwood also offers
commercial coverages, generally for insureds covered by Rockwoods workers'
compensation policies, including general liability, property, automobile and
surety. Rockwood offers its coverages through 659 independent agents and
brokers. Rockwood is an admitted insurer in six states and has a 'B++' rating
from A.M. Best. See 'Business--Rockwood.'
The following table shows the gross written premiums of the Insurance
Subsidiaries and Preferred National in 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------
GROSS WRITTEN PERCENT
PREMIUMS OF TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Colony................................................................ $ 50,562 34.5%
Preferred National.................................................... 46,133 31.6
Rockwood.............................................................. 49,684 33.9
------------- --------
Total.......................................................... $ 146,379 100.0%
------------- --------
------------- --------
</TABLE>
5
<PAGE>
The following table compares the SAP combined ratios of Colony and
Preferred National to the property and casualty insurance industry as a whole
and the SAP combined ratios of Rockwood to the workers' compensation industry as
a whole for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SAP COMBINED RATIOS:
Colony................................................... 99.6% 97.2% 98.4% 117.8% 109.3%
Preferred National....................................... 98.7% 81.7% 105.5% 103.1% 76.2%
Property and Casualty Insurance Industry (1)............. 101.6% 105.8% 106.5% 108.4% 106.9%
Rockwood................................................. 102.0% 102.0%(2) 100.6% 105.5% 111.8%
Workers' Compensation Insurance Industry (1)............. N/A 99.7% 97.0% 101.4% 108.8%
</TABLE>
- ------------------
(1) Source: A.M. Best.
(2) Excludes loss reserve redundancies of $23.8 million recognized prior to its
acquisition by the Company. The actual combined ratio, including these
redundancies, was 64.0%.
Redwoods. The Company acquired Redwoods in January 1998. Redwoods, which
was a start-up business when acquired by the Company, is a managing general
underwriter which provides brokerage, underwriting and claims management
services to insurance companies. Redwoods produces business for the Insurance
Subsidiaries and for third party insurers not affiliated with the Company. The
Company acquired Redwoods in anticipation of acquiring substantially all of the
assets and liabilities of UnaMark, which in 1997 produced approximately 36.0% of
Preferred National's gross written premiums. Following the anticipated
completion of the Preferred National Acquisition, UnaMark will operate as a
division of Redwoods. See 'Business--Redwoods.'
BUSINESS STRATEGY
Focus on Specialty Insurance Markets. The Company believes that it can
continue to operate profitably and earn attractive returns on its capital by
focusing on specialty insurance markets in which it has particular marketing,
underwriting and claims expertise and in which generally there are fewer
competitors than in standard lines markets. The Company manages the Subsidiaries
on a decentralized basis to enable them to respond effectively to changing
conditions in the markets in which they operate, while consolidating investment,
financial, actuarial and other support functions to achieve operating
efficiencies. The Subsidiaries utilize various distribution channels, including
wholesale agents, retail agents and direct marketing, depending on which channel
most effectively reaches their targeted customers in each market.
Acquire Additional Specialty Insurance Businesses. The Company has
achieved significant growth and profitability by pursuing its acquisition
strategy. The Company intends to pursue additional acquisitions of specialty
insurance businesses which have particular expertise in profitable markets. The
Company seeks acquisitions which are accretive to its earnings per share and
book value per share, as have been all of the insurance company acquisitions the
Company has completed to date.
Achieve Superior Underwriting Results. The Company seeks to achieve
consistent underwriting profitability through disciplined underwriting, pricing
and claims management. The Company pays incentive compensation to the senior
management of each Insurance Subsidiary primarily based on underwriting
profitability. In addition to standard commissions, the Company provides
incentives to its agents to produce profitable business through a contingent
commission structure which is substantially tied to underwriting profitability.
Expand Existing Insurance Operations. The Company intends to grow the
businesses of its Subsidiaries through enhanced product offerings, additional
coverages, geographic expansion and increased penetration in its existing
markets. The Company believes that agents and other customers generally find it
most efficient to transact business with a limited number of insurers who
provide most or all of the products they require. The Company, therefore,
focuses on continually enhancing the quality and broadening the scope of its
products in order to better serve the needs of agents and customers.
Manage Capital Actively. The Company actively manages its capital
structure in order to maximize returns to its stockholders. The Company expects
to finance its future acquisitions with a combination of debt and equity and
does not seek to raise or retain more capital than it believes it can properly
deploy. In 1997, the Company operated at a ratio of net written premiums to
surplus of 1.2:1. On a pro forma basis for the three
6
<PAGE>
months ended March 31, 1998, the Company operated at a ratio of net written
premiums (on an annualized basis) to surplus of 1.4:1. As of March 31, 1998, the
Company had a ratio of total debt to total capitalization of 35.9%. The Company
plans to use a portion of the net proceeds from the Offering to repay a
substantial portion of its existing indebtedness. Concurrent with the Offering,
the Company intends to obtain a $70.0 million bank credit facility to support
future acquisitions. See 'Use of Proceeds' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
PREFERRED NATIONAL ACQUISITION
On March 6, 1998, the Company executed a definitive agreement to purchase
the stock of Preferred National, substantially all of the assets and business of
UnaMark and certain other assets and liabilities for a total purchase price of
$35.0 million in cash, subject to adjustment, 500,000 shares of Class A Common
Stock and warrants to purchase 1,050,000 shares of Class A Common Stock at an
exercise price of $10.00 per share, which warrants will be exercisable for seven
and one-half years following the closing of the Preferred National Acquisition
(the 'Preferred National Warrants'). The Preferred National Acquisition is
subject to regulatory approvals, and the cash portion of the purchase price is
subject to adjustment based on Preferred National's levels of GAAP book value,
SAP surplus, and cash and invested assets as of the month end immediately prior
to closing. While the Company believes that completion of the Preferred National
Acquisition is highly probable, there can be no assurance that the acquisition
will be completed. See 'Business--Preferred National.'
SIGNIFICANT EQUITY OWNERSHIP OF EXECUTIVE OFFICERS
The Company's executive officers currently beneficially own approximately
8.2% of the Common Stock and will beneficially own % of the Common Stock
after completion of the Offering. The significant equity ownership of the
Company by its officers demonstrates their commitment to the Company's future
success and aligns their interests with those of other shareholders. J. Adam
Abram, the Company's President and Chief Executive Officer, intends to purchase
$250,000 of additional shares of Common Stock in the Offering, which will result
in his beneficial ownership of % of the Common Stock, assuming completion of
the Offering. See 'Principal and Selling Shareholders.'
CORPORATE INFORMATION
The Company is a North Carolina corporation whose corporate offices are
located at 2200 Gateway Boulevard, Suite 205, Morrisville, North Carolina 27560.
The Company's telephone number is (919) 469-9795. Colony's principal offices are
located in Richmond, Virginia, and Rockwood's principal offices are located in
Rockwood, Pennsylvania. See 'Business--Facilities.' As of June 15, 1998, the
Company had approximately 190 employees. See 'Business--Employees.'
RISK FACTORS
No assurances can be given that the Company's objectives or strategies will
be achieved. Prospective investors should consider carefully the factors
discussed in detail elsewhere in this prospectus under the caption 'Risk
Factors.' See 'Cautionary Statement Regarding Forward-Looking Information.'
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................ shares
Common Stock offered by the Selling Shareholders............... shares
Common Stock to be outstanding after the Offering(1)........... shares
Use of Proceeds................................................ The net proceeds to the Company from the
Offering, after deducting underwriting discounts
and commissions and estimated offering expenses,
are estimated to be approximately $ million.
The Company expects to use the net proceeds from
the Offering to repay existing bank debt and for
general corporate purposes, including
acquisitions. The Company will not receive any
of the proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See
'Use of Proceeds.'
Proposed Nasdaq National Market Symbol......................... FRYL
</TABLE>
- ------------------
(1) Assumes no exercise of outstanding stock options and warrants. As of the
date of this Prospectus, there are outstanding options and warrants to
purchase 1,576,376 shares of Common Stock at a weighted average price of
$2.81 per share, excluding certain price adjustment warrants which the
Company does not expect will be exercised. In addition, upon the closing of
the Offering, the Company currently intends to grant options to purchase an
additional approximately shares of Common Stock at the initial public
offering price. Does not include an aggregate of an estimated shares of
Common Stock reserved for future issuance under the Company's employee stock
plans. See 'Capitalization,' 'Description of Capital Stock,' 'Management--
Stock Option Plans' and Note 12 of Notes to the Front Royal, Inc. and
Subsidiaries Consolidated Financial Statements.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables set forth certain summary historical financial
information for the Company and certain unaudited pro forma financial
information giving effect to the Preferred National Acquisition as if it had
occurred on the dates and for the periods indicated herein, and after giving
effect to the pro forma adjustments described in the notes to the unaudited pro
forma financial statements appearing elsewhere in this Prospectus. The pro forma
financial information is not necessarily indicative of the results that actually
would have occurred had the Preferred National Acquisition been consummated on
the dates indicated or that may be obtained in the future. See 'Pro Forma
Condensed Combined Financial Statements.'
The historical operating results data, per share data and balance sheet
data for the Company are derived from the consolidated audited financial
statements of the Company for the three year period ended December 31, 1997. The
historical operating results data, per share data and balance sheet data set
forth below for the three months ended March 31, 1997 and 1998 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals only, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for the three months
ended March 31, 1998 are not necessarily indicative of results that may be
expected for the entire year ending December 31, 1998.
All historical operating results data, per share data and balance sheet
data set forth below should be read in conjunction with the consolidated
financial statements of the Company, combined financial statements of Preferred
National, together with related notes and other financial information of the
Company and Preferred National, respectively, included in this Prospectus.
The unaudited pro forma financial data presented do not reflect any future
events that may occur after the Preferred National Acquisition has been
consummated. The Company believes that, once combined, the Company and Preferred
National can be operated less expensively. However, for the purposes of the
unaudited pro forma financial data presented herein, these anticipated expense
savings have not been reflected.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------ ------------------------------------------
PRO PRO
FORMA FORMA
1998(1) 1998 1997 1997(1) 1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues:
Gross written premiums.................. $ 32,881 $ 22,968 $ 27,407 $146,379 $100,246 $ 49,948 $ 43,571
Net written premiums.................... 28,460 19,879 24,200 128,480 88,031 43,404 37,655
Net earned premiums..................... 29,105 20,167 24,308 119,102 90,523 42,115 36,537
Net investment income................... 4,788 4,265 4,266 19,097 17,984 5,867 5,449
Net realized capital gains/(losses)..... 44 4 42 (477) (480) (1) 838
Other income............................ 509 56 27 3,643 331 631 726
-------- -------- -------- -------- -------- -------- --------
Total revenues........................ 34,446 24,492 28,643 141,365 108,358 48,612 43,550
Losses and expenses:
Loss and loss adjustment expenses....... 17,562 12,187 15,791 73,352 56,196 26,110 22,566
Policy acquisition costs amortized...... 7,869 5,763 6,457 30,511 25,829 12,729 11,133
Other underwriting expenses............. 2,132 1,171 956 7,829 3,471 2,074 2,076
Interest expense........................ 1,013 881 1,155 4,410 3,883 2,029 1,645
Dividends to policyholders.............. 737 737 1,130 3,603 3,603 -- --
Other expenses.......................... 1,093 206 40 6,176 1,806 538 1,314
-------- -------- -------- -------- -------- -------- --------
Total losses and expenses............. 30,406 20,945 25,529 125,881 94,788 43,480 38,734
-------- -------- -------- -------- -------- -------- --------
Income before income taxes................ 4,040 3,547 3,114 15,484 13,570 5,132 4,816
Income tax expense........................ 1,325 1,133 791 2,954 2,211 621 1,264
-------- -------- -------- -------- -------- -------- --------
Net income................................ 2,715 2,414 2,323 12,530 11,359 4,511 3,552
Dividends to preferred shareholders....... 271 271 271 1,085 1,085 -- --
-------- -------- -------- -------- -------- -------- --------
Net income available to common
shareholders............................ $ 2,444 $ 2,143 $ 2,052 $ 11,445 $ 10,274 $ 4,511 $ 3,552
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net operating income(3)................... $ 2,686 $ 2,411 $ 2,296 $ 12,840 $ 11,671 $ 4,512 $ 3,007
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------ ------------------------------------------
PRO PRO
FORMA FORMA
1998(1) 1998 1997 1997(1) 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net income per share--basic............... $ 0.25 $ 0.23 $ 0.23 $ 1.19 $ 1.13 $ 0.79 $ 0.62
Net income per share--diluted............. $ 0.20 $ 0.18 $ 0.18 $ 0.94 $ 0.88 $ 0.70 $ 0.56
Net operating income per
share--diluted(3)....................... $ 0.20 $ 0.18 $ 0.18 $ 0.96 $ 0.91 $ 0.70 $ 0.47
Weighted average common shares
outstanding............................. 9,876 9,376 8,890 9,625 9,125 5,724 5,711
Weighted average common and common stock
equivalent shares outstanding........... 13,697 13,197 12,647 13,361 12,861 6,446 6,396
BALANCE SHEET DATA (AT END OF PERIOD)(4):
Cash and invested assets.................. $318,826 $279,513 $261,626 $318,837 $280,629 $253,555 $ 89,162
Total assets.............................. 417,827 357,325 343,909 415,405 356,315 339,987 113,527
Senior bank debt.......................... 41,571 35,295 38,000 42,820 36,545 38,000 13,384
Shareholders' equity(5)................... 68,998 62,998 49,583 66,762 60,762 48,654 17,409
Book value per share(5)(6)................ $ 5.77 $ 5.27 $ 4.32 $ 5.58 $ 5.08 $ 4.24 $ 3.05
SAP AND OTHER DATA(2):
Loss ratio................................ 60.4% 60.5% 65.0% 63.0% 63.9% 61.8% 61.5%
Expense ratio............................. 35.9 34.2 30.8 34.6 32.8 35.4 36.9
Dividend ratio............................ 2.9 4.2 4.7 3.2 4.2 -- --
-------- -------- -------- -------- -------- -------- --------
Combined ratio............................ 99.2% 98.9% 100.5% 100.8% 100.9% 97.2% 98.4%
Ratio of net written premiums to statutory
surplus(7).............................. 1.4x 1.0x 1.4x 1.6x 1.2x 0.7x 1.4x
SAP surplus (at end of period)............ $ 81,914 $ 76,149 $ 68,716 $ 79,169 $ 74,417 $ 65,852 $ 26,150
Return on equity(8)....................... 16.7% 15.6% 18.9% 21.7% 20.8% 24.1%(9) 26.3%
</TABLE>
- ------------------
(1) Assumes that the Preferred National Acquisition had occurred on January 1,
1997 for purposes of income statement presentation and March 31, 1998 and
December 31, 1997, respectively, for all balance sheet amounts presented.
The Company believes that, once combined, the Company and Preferred National
can be operated less expensively. However, for the purposes of the unaudited
pro forma financial data presented herein, these savings have not been
reflected.
(2) Includes operations of Rockwood from January 1, 1997.
(3) Net operating income is equal to net income/(loss) excluding after-tax
realized gains or losses at a 35.0% marginal tax rate.
(4) Includes assets and liabilities of Rockwood from December 31, 1996.
(5) Assumes the Recapitalization, including the conversion of the Company's
Series A Redeemable Convertible Preferred Stock (the 'Series A Redeemable
Convertible Preferred Stock') into Common Stock, but not including the
Reverse Split, has occurred at the end of the period.
(6) Excludes the exercise of all warrants and options then exercisable.
(7) Interim period amounts are presented on an annualized basis.
(8) Calculated based on the average of the beginning and ending shareholders'
equity for the period.
(9) Excludes $28.6 million of equity raised on December 31, 1996, in connection
with the acquisition of Rockwood. Absent this adjustment, the average return
on equity for 1996 would have been 13.7%.
10
<PAGE>
RISK FACTORS
In addition to the other information in the Prospectus, the following risk
factors should be considered carefully by prospective investors in evaluating
the Company before purchasing the Common Stock offered hereby.
CERTAIN BUSINESS CONSIDERATIONS
Factors affecting the sectors of the insurance industry in which the
Company operates may subject the Company to significant fluctuations in
operating results. These factors include competition, catastrophic losses and
general economic conditions, including interest rate changes, as well as
legislative initiatives, the frequency of litigation and the size of judgments.
The property and casualty insurance market is influenced by many factors,
including state insurance laws, market conditions for property and casualty
insurance and state assigned risk and residual market plans. Additionally, an
economic downturn in the states in which the Company operates could result in
less demand for property and casualty insurance. Downturns in the financial
prospects of industries targeted by the Company could also result in less demand
for the Company's products. The impact of these factors can dramatically affect
demand for the Company's products, insurance capacity, pricing and claims
experience and, consequently, the Company's business, results of operations or
financial condition.
Historically, the financial performance of the property and casualty
insurance industry has tended to fluctuate in cyclical patterns of soft markets
followed by hard markets. Although an individual insurance company's financial
performance depends in part upon its own specific business characteristics, the
profitability of most property and casualty insurance companies tends to follow
this cyclical market pattern. At present, the property and casualty insurance
industry is experiencing a prolonged soft market, and the extension of current
market conditions could have an adverse effect on the Company's business,
results of operations or financial condition. There can be no assurance that a
hard market will emerge or, if it does emerge, that it will have a favorable
impact on the Company. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
The Company has grown rapidly over the last few years. The Company believes
that a substantial portion of its future growth will depend on its ability,
among other things, to: (i) identify and acquire on favorable terms insurance
companies or books of business which the Company believes can be operated
profitably; (ii) increase its business through continued marketing efforts;
(iii) expand its business in states where it presently does business and into
additional states; and (iv) expand its business by offering additional products
and programs. Such future growth is contingent on various factors, including the
availability of adequate capital, the Company's ability to target, acquire and
integrate insurance companies or lines of business which the Company believes
can be operated profitably, the Company's ability to hire and train additional
personnel, regulatory requirements and rating agency considerations. As the
Company's mix of business and territories changes, there can be no assurance
that the Company will be able to maintain its profit margins or other operating
results. There is no assurance that the Company will be successful in expanding
its business, that the existing infrastructure will be able to support such
additional expansion or that such new business will be profitable. See '--Risks
of Acquisitions' and 'Business.'
COMPETITION
The Company competes in the property and casualty insurance business with
numerous domestic and international insurers. Many of the Company's existing or
potential competitors are larger, have considerably greater financial and other
resources, have more licenses, have more experience in the insurance industry
and offer a broader line of insurance products than the Company. The Company may
compete with new entrants in the future. Competition is based on many factors,
including the perceived market strength of the insurer, pricing and other terms
and conditions, services provided, the speed of claims payment, the reputation
and experience of the insurer and ratings assigned by independent rating
organizations. Although the Company's business strategy is to achieve an
underwriting profit by identifying niche markets and specialty coverages which
it believes have relatively fewer competitors than in standard lines, it
nevertheless encounters competition from carriers engaged in insuring risks in
broader lines of business which encompass the Company's niche and specialty
markets. Competition is expected to increase as the Company expands its
operations. Larger carriers may have lower expense ratios allowing them to price
their products more competitively than the Company. Ultimately, this
11
<PAGE>
competition could affect the Company's ability to attract business at rates
likely to generate underwriting profits, which could have a material adverse
effect on the Company. See 'Business--Competition.'
Colony writes virtually all of its business as an approved non-admitted
carrier, and has nine admitted licenses. Preferred National also writes a
material portion of its business in states other than Florida and Illinois, as
an approved non-admitted carrier. Increasingly, there is regulatory and market
pressure to write business that has historically been written on a non-admitted
basis on an admitted basis. The principal difference between writing on an
admitted basis and a non-admitted basis is that as a non-admitted carrier, a
company is subject to less regulation regarding the wording of its insurance
policies and the prices it charges for insurance. When writing on a non-admitted
basis, Colony and Preferred National are generally exempt from assessments made
to support the guaranty funds maintained by certain state regulatory
authorities. These assessments can be substantial. Over time, the Company
expects that more of its traditional business will be written on an admitted
basis, and the Company has a strategy to increase the number of states in which
it is admitted. However, if the market moves more rapidly than anticipated
toward admitted carriers to the detriment of approved non-admitted carriers,
Colony's and Preferred National's business may be adversely affected.
The competitive environment for Colony and Preferred National has also been
affected as many reinsurers have elected to bypass primary companies such as
Colony and Preferred National and make arrangements to work directly with
wholesale agents. As a result, Colony and Preferred National sometimes compete
with reinsurers and reinsurance intermediaries for business from wholesale
agents. Management regards this trend as a competitive threat to carriers such
as Colony and Preferred National. The Company responds in part by structuring
incentive compensation arrangements with its agents. However, if this trend
continues it could have a material adverse effect on the Company.
Rockwood, which writes on an admitted basis, also has very few admitted
licenses and often competes with carriers that are part of groups which own
several admitted carriers that have broad licensure. This allows those
competitors more rate flexibility than Rockwood currently enjoys because these
competitors can have various members of their group file different rates for
workers compensation insurance and then channel business to the member of its
group which has the appropriate rate filed for the business being underwritten.
In many cases, Rockwood has only one rate filed and is unable to react as
flexibly as its competitors. This can cause Rockwood to lose desirable business
to competitors. In addition, Rockwood's rating from A.M. Best is lower than the
A.M. Best rating of many of its competitors.
ADEQUACY OF LOSS RESERVES
The liabilities for unpaid losses and loss adjustment expenses ('LAE') are
estimated by management utilizing methods and procedures which it believes are
reasonable and in compliance with regulatory requirements. The reserves held by
the Insurance Subsidiaries are reviewed annually by independent actuaries.
Nevertheless, reserve estimates are subject to the impact of loss development
and changes in claims severity, as well as numerous other factors, such as
judicial and legislative trends and actions, economic factors and estimates of
future trends in claims frequency. Most or all of these factors are not directly
quantifiable, particularly on a prospective basis. Although management believes
the estimated liabilities for losses and LAE are reasonable, the subsequent
development of these liabilities may not conform to the assumptions used in
making these estimates. Accordingly, actual results may vary significantly from
the estimated amounts included in the Company's financial statements. Any
variation of actual from estimated liabilities could have a material adverse
effect on the Company. Such adjustments, to the extent they occur, are reported
in the period recognized. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations,' 'Business--Colony--Reserves,'
'Business--Rockwood--Reserves' and Note 6 of the Notes to the Consolidated
Financial Statements included elsewhere in this Prospectus.
The Company has owned and supervised the operation of the Insurance
Subsidiaries for less than their entire operating history and has not yet
acquired Preferred National. The Insurance Subsidiaries and Preferred National
are responsible as a matter of law and contractual obligation for losses which
arise from policies written by prior management personnel who are no longer
employed by the Company. There can be no assurance that adjustments to reserves
may not be required in the future.
Rockwood uses a 4.0% discount factor when establishing its reserves for
workers' compensation business (Rockwood does not discount its reserves on any
of its other lines and Colony does not discount any of its reserves). Such
discounting is a common practice among workers' compensation insurers; however,
it does
12
<PAGE>
expose the Company to additional risk. Essentially, Rockwood has set its
reserves using an assumption that the Company will be able to consistently earn
a 4.0% rate of return on its workers' compensation reserves, and has assumed
that these additional revenues will be available to supplement those reserves.
If the Company is unable to earn a consistent return of 4.0% or if the Company
were required to use a lower discount rate, or to cease discounting, Rockwood
would have to raise its reserve levels. This could have a material adverse
effect on earnings in a future year.
The Company has performed extensive reviews of its records to identify
insured accounts for which unintended environmental exposure and exposure for
asbestos-related illnesses might exist. As a result of this review, the Company
identified three insured accounts with policy terms of up to five years (the
latest of which expired in 1987) where an asbestos-related exposure exists. In
addition, the Company has three insured accounts (with policy terms of up to
seven years) in which claims have been asserted arising out of alleged exposure
to lead-based paint. Reserves for such environmental and asbestos-related
exposures cannot be estimated with traditional loss reserving techniques. Case
reserves (and the costs of related litigation) have been established based on
information that has been developed on known claimants. In addition, incurred
but not yet reported ('IBNR') reserves have been established to cover additional
exposure on both known and unasserted claims. Those reserves are reviewed and
updated continually by management and outside actuaries. In establishing
liabilities for claims for environmental exposure and asbestos-related
illnesses, management considers facts currently known, the current state of the
law and litigation arising from coverage issues. However, courts and
legislatures have, in the past, attempted to expand coverage and liability.
Although the Company believes that this amount should be limited by the very
small number of identified insured accounts, limited policy terms, already
partially exhausted policy limits, and the existence of significant applicable
reinsurance, there can be no assurance that adjustments to such environmental
and asbestos-related reserves may not be required in the future.
RISKS OF ACQUISITIONS
Following the Offering, the Company will continue to pursue acquisitions of
insurance companies and lines of business that can be acquired on acceptable
terms and which the Company believes can be operated profitably. Some of these
acquisitions could be material in size and scope. The Company's future growth
depends, in large part, upon the successful implementation of this strategy.
While the Company will continually be searching for acquisition opportunities,
there can be no assurance that the Company will be successful in identifying
suitable acquisitions. If any potential acquisition opportunities are
identified, there can be no assurance that the Company will consummate such
acquisitions, including the Preferred National Acquisition, or, if any such
acquisition does occur, including the Preferred National Acquisition, that it
will be successful in enhancing the Company's business or be accretive to either
the Company's profitability or book value. The Company may in the future face
increased competition for acquisition opportunities which may inhibit its
ability to consummate suitable acquisitions. In addition, to the extent that the
Company's acquisition strategy results in the acquisition of businesses, such
acquisitions could pose a number of special risks, including the diversion of
management's attention, the assimilation of the operations and personnel of the
acquired companies, the integration of acquired assets with existing assets,
adverse short-term effects on reported operating results, the amortization of
acquired intangible assets and the loss of key employees.
The Company may, in the future, issue additional Common Stock in connection
with one or more acquisitions, which may dilute its shareholders, including
investors in the Offering. Common Stock and options to purchase Common Stock
will be issued in connection with the Preferred National Acquisition. See
'Business--Preferred National.' Additionally, with respect to future
acquisitions, the Company's shareholders may not have an opportunity to review
the financial statements of the entity being acquired or to vote on such
acquisitions.
RATINGS
Increased public and regulatory concerns with the financial stability of
insurers have resulted in greater emphasis by agents and policyholders upon
insurance company ratings, resulting in a potential competitive advantage for
carriers with higher ratings. Colony's rating from A.M. Best was recently raised
from 'B++' to 'A-' and each of Rockwood and Preferred National currently has a
'B++' rating from A.M. Best. A.M. Best bases its ratings on factors that concern
policyholders and not upon factors concerning investor protection. Such ratings
are subject to change and are not recommendations to buy, sell or hold
securities. There can be no assurance that such ratings or future changes
therein will not affect the Company's competitive position. There
13
<PAGE>
can be no assurance that Colony, Rockwood or Preferred National will maintain
their ratings, and any downgrade could have a material adverse effect on their
respective operations. See '--Competition' and 'Business--Ratings.'
DEPENDENCE UPON KEY PERSONNEL
The Company's business involves the identification and completion of future
acquisitions, the development and innovative underwriting of insurance coverage
for niche markets and the continuing evaluation of the programs insured. The
Company depends upon its executive management, including executive management of
Colony and Rockwood, to perform such services. The loss of any of these
individuals or a reduction in the time devoted by such persons to the Company's
business could have a material adverse effect on the Company's business. The
Company does not have any key-man life insurance on most of its executive
officers. The Company's future success will depend in part upon its ability to
attract and retain highly qualified personnel. The Company faces competition for
such personnel from other companies, many of which have significantly greater
resources than the Company. There can be no assurance that the Company will be
able to attract and retain the necessary personnel on acceptable terms. See
'Business' and 'Management.'
REINSURANCE
To moderate the impact of severe or frequent losses, the Insurance
Subsidiaries and Preferred National cede (i.e., transfer) a portion of their
gross written premiums to reinsurers in exchange for the reinsurers' agreements
to share covered losses with such Insurance Subsidiaries. This also allows the
Company to write more direct insurance and at greater limits than it otherwise
could. Although reinsurance makes the assuming reinsurer liable to the extent of
the risk ceded, the ceding insurance company is not relieved of its primary
liability to its insureds and, therefore, bears a credit risk with respect to
its reinsurers. Although the Subsidiaries and Preferred National place
reinsurance with reinsurers they believe to be financially sound, there can be
no assurance that such reinsurers will pay all reinsurance claims on a timely
basis, if at all. At March 31, 1998, the Company and Preferred National had net
reinsurance recoverables of approximately $28.0 million and $6.3 million,
respectively. Further, although the Company has reinsurance it believes to be
adequate, there can be no assurance it will continue to be able to obtain such
reinsurance on satisfactory terms. The Company may choose in the future to
re-evaluate the amount of risk it cedes to reinsurers. See
'Business--Reinsurance.'
RISKS ASSOCIATED WITH BINDING AUTHORITY OF AGENTS
In 1997, Colony underwrote approximately 71.5% of its commercial policies
on a binding authority basis. In the event that a wholesale agent exceeds its
authority by binding Colony on a risk which does not comply with Colony's
underwriting guidelines, Colony is at risk for that policy until it receives the
policy and effects a cancellation or modification. Colony generally requires its
agents to deliver all policies to Colony within 30 days of the date written.
There can be no assurance that the wholesale agents will bind Colony within the
limits of Colony's underwriting guidelines or deliver policies to Colony in a
timely manner. As a result, Colony may be bound by a policy which does not
comply with its underwriting guidelines and may incur loss and LAE related to
that policy. Although Colony requires its agents to maintain errors and
omissions insurance coverage with limits of at least $500,000, there can be no
assurance that such insurance is in place, or, if in place, that it will be
adequate. Although Preferred National's agents currently have more limited
binding authority than Colony's agents, Preferred National is subject to the
same risks associated with binding authority as Colony. In the future, the
Company may provide greater binding authority to Preferred National's agents.
See 'Business--Colony--Marketing and Distribution' and 'Business--Preferred
National--Marketing and Distribution.'
REGULATION
The Company is subject to regulation under applicable insurance statutes,
including insurance holding company statutes, of the various states in which the
Insurance Subsidiaries write insurance. Insurance regulation is intended to
provide safeguards for policyholders rather than to protect shareholders of
insurance companies or their holding companies. Regulators oversee matters
relating to trade practices, policy forms and coverage interpretation, claims
practices, mandated participation in shared markets, including guaranty funds,
types and amounts of investments, reserve adequacy, insurer solvency, minimum
amounts of capital and surplus, transactions with related parties, changes in
control and payment of dividends. The rates that the Insurance Subsidiaries can
charge for certain lines of admitted business are also subject to regulation
and, therefore, may
14
<PAGE>
not keep pace with inflation. Any changes in these laws and regulations, or the
failure of the Company to comply with such laws, could materially adversely
affect the Company's operations. As a writer of admitted coverages, Preferred
National is subject to assessments from the Guaranty Fund in Florida, the
amounts of which can be substantial. An approved non-admitted carrier in New
Jersey, Preferred National is subject to assessments from a similar fund in New
Jersey. See 'Business--Regulation.'
RISKS OF CONCENTRATION OF BUSINESS
Rockwood's business is heavily concentrated in workers' compensation
insurance in Pennsylvania and is further concentrated in coal-mining operations.
This makes Rockwood vulnerable to changes affecting the economy of Pennsylvania
or to economic cycles in which the coal business in Pennsylvania is depressed.
By concentrating a substantial portion of its business in mining operations,
Rockwood is exposed to substantial losses due to accidents and occupational
disease. Preferred National's business is heavily concentrated in commercial and
multi-peril insurance in Florida. This makes Preferred National vulnerable to
changes affecting the economy of Florida. By concentrating a substantial portion
of its business in property insurance, Preferred National is exposed to
substantial losses due to natural disaster, including hurricanes. The Company
attempts to moderate these risks by the purchase of reinsurance and by
underwriting and pricing accounts with these risks in mind. However, there can
be no assurance that these precautions are adequate and that the Company will
not be exposed to greater than anticipated losses arising from the hazardous
nature of the business conducted by its insureds. See 'Business--Preferred
National' and 'Business--Rockwood.'
DEPENDENCE UPON AGENTS AND RELATIONSHIPS WITH RISK PURCHASING GROUPS
Rockwood, Colony and Preferred National depend upon outside agents to
produce their business. The renewal rights of all of such business written are
owned by the agents, and not by the Company. While Colony, Preferred National
and Rockwood believe that their relationships with their agents are generally
excellent, there can be no assurance that agents will not move business
currently written by the Company to another carrier. If renewal rates were to
drop significantly at Colony, Rockwood or Preferred National as a result of
agents moving this business, the earnings of the Company could be adversely
affected.
Approximately $11.8 million (23.5%) and $12.9 million (25.4%) of Colony's
gross written premiums for the years ended December 31, 1996 and 1997,
respectively, were derived from one agency which currently sells Colony's
products in 26 of its offices. Approximately $14.9 million (21.5%) and $13.0
million (26.2%) of Rockwood's gross written premiums were derived from two
agents for the years ended December 31, 1996 and 1997, respectively. The loss of
any of these agents could have a material adverse effect on the Company. See
'Business--Colony--Marketing and Distribution' and
'Business--Rockwood--Marketing and Distribution.'
Approximately 36.0% of Preferred National's business is produced by
UnaMark, which, in turn, receives premiums from retail agents. If UnaMark's (or,
following the Preferred National Acquisition, Redwoods') relations with retail
agents deteriorated, resulting in a reduced premium flow, this could have an
adverse impact on Preferred National. Approximately 46.0% of Preferred
National's gross written premiums in 1997 was produced by wholesale agents other
than UnaMark. The largest amount of premiums produced by any single agent other
than UnaMark represented 3.0% of Preferred National's 1997 premiums.
Forty agent offices represent both Colony and Preferred. The deterioration
of these relationships could have an adverse effect on the Company's
performance. See 'Business--Preferred National.'
Approximately $5.4 million (11.6%) of Preferred National's gross written
premiums in 1997 was associated with professional liability insurance. Most of
this business arises out of Preferred National's relationship with four risk
purchasing groups. These risk purchasing groups are not required to endorse
insurance policies written by Preferred National and could endorse a
competitor's product. If this occurred, Preferred National might suffer a loss
of a substantial portion of this business.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
Because Front Royal is a holding company, its cash flows will depend, to a
significant degree, on the ability of the Subsidiaries to pay dividends to Front
Royal. In addition, Front Royal relies on dividends from its Subsidiaries to pay
operating expenses, debt service, taxes and other payments which may include
dividends on the Common Stock, if any. The jurisdictions of incorporation of the
Insurance Subsidiaries and Preferred National place limitations on the amount of
dividends or other distributions payable by insurance companies in
15
<PAGE>
order to protect their solvency. There is no assurance Front Royal will be able
to obtain dividends from the Insurance Subsidiaries in the future. The payment
of dividends and distributions by the Insurance Subsidiaries also may affect the
Insurance Subsidiaries' ratings. See 'Business--Regulation.'
YEAR 2000 COMPLIANCE
Many existing application software products in the marketplace were
designed to accommodate only a two-digit date position which represents the year
(e.g., '95' is stored on the system and represents the year 1995). As a result,
the year 1999 ('99') could be the maximum date value these systems will be able
to process accurately. To the extent the Company's systems are not fully year
2000 compliant or the Company's computer systems must interact with the computer
systems of other entities which are not year 2000 compliant, there can be no
assurance that potential systems interruptions or the resulting costs necessary
to remediate systems and to compensate for any losses would not have a material
adverse effect on the Company's business, financial condition, results of
operations, cash flows and business prospects.
Although the Company has not received any claims based on losses resulting
from the year 2000 issues, there can be no assurance that insureds will not
suffer losses of this type and seek compensation under the Company's policies.
If any claims are made, the Company's obligations, if any, will depend on the
facts and circumstances of the claim and provisions of the policy. At this time,
the Company is unable to determine whether the adverse impact, if any, in
connection with the foregoing circumstances would be material to the Company.
NO PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The stock market
generally, and securities of insurance companies in particular, have from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of any particular company. The Company believes
factors such as quarterly fluctuations in results of operations, announcements
of new products and acquisitions by the Company or by its competitors, changes
in earnings estimates by research analysts, changes in accounting treatment or
principles and other factors may cause the market price of the Common Stock to
fluctuate, perhaps substantially. These fluctuations, as well as general
economic, political and market conditions, may adversely affect the market
prices of the Common Stock. See '--Certain Business Considerations' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.' The initial public offering price of the Common Stock will be
determined by negotiations among the Company and the Underwriters and may not be
indicative of the prices that may prevail for the Common Stock in the public
market, and is not necessarily related to the Company's asset value, net worth,
results of operations or any other established criteria of value. See
'Underwriting.'
DILUTION
The initial public offering price of the Common Stock offered hereby is
substantially higher than the net tangible book value of the currently
outstanding Common Stock (giving effect to the Preferred National Acquisition).
Therefore, purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of the Common
Stock in the amount of $ per share ( %). See 'Dilution.'
Purchasers of Common Stock in the Offering may experience dilution in the
future as a result of Common Stock issued in connection with future acquisitions
or for other purposes. See 'Business--Company Strategy.' Common Stock and
options to purchase Common Stock will be issued in connection with the Preferred
National Acquisition. See 'Business--Preferred National.'
16
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock
and currently does not expect to pay cash dividends. See 'Dividend Policy.'
ANTI-TAKEOVER CONSIDERATIONS, INCLUDING POSSIBILITY OF FUTURE ISSUANCE OF
PREFERRED STOCK
Upon consummation of the Offering, the Company's Amended and Restated
Articles of Incorporation will authorize the Board of Directors to issue up to
5,000,000 shares of Preferred Stock and to fix the rights and preferences
thereof without shareholder approval. Issuance of shares of Preferred Stock
could have the effect of delaying or preventing a change of control of the
Company otherwise desired by the shareholders. See 'Description of Capital
Stock--Preferred Stock.'
The North Carolina Business Corporation Act (the 'Business Corporation
Act') contains a 'Shareholder Protection Act' which, with certain exceptions,
requires approval of certain business combinations between a North Carolina
corporation and any beneficial holder of more than 20.0% of the voting shares of
the corporation by the holders of at least 95.0% of the voting shares of the
corporation. Certain North Carolina public corporations are also subject to 'The
North Carolina Control Share Acquisition Act,' which provides that shares
acquired in a transaction that would cause the acquiring person's voting
strength to meet or exceed any of three thresholds (20.0%, 33.3% or a majority)
of voting power, depending on the circumstances of the transaction, have no
voting rights unless granted by a majority vote of all the outstanding shares of
the corporation (not including interested shares) entitled to vote for the
election of directors. The provisions of the Shareholder Protection Act and The
North Carolina Control Share Acquisition Act were designed to deter certain
takeovers of North Carolina corporations. See 'Description of Capital
Stock--Statutory Provisions.'
In addition, under applicable state insurance laws and regulations, no
person may acquire control of the Company, or any of the Insurance Subsidiaries,
unless such person has filed a statement containing specified information with
appropriate regulatory authorities and approval for such acquisition has been
obtained. Under applicable laws and regulations, any person acquiring, directly
or indirectly, or holding proxies with respect to, 10.0% (5.0% in Florida) or
more of the voting stock of any other person is presumed to have acquired
control of such person. Accordingly, any purchase resulting in the purchaser
owning 10.0% (5.0% in Florida) or more of the outstanding Common Stock of Front
Royal, in the Offering or otherwise, would require prior approval by applicable
regulatory authorities. Such prior approval requirement also would apply to an
acquisition of proxies to vote 10.0% (5.0% in Florida) or more of the
outstanding Common Stock of Front Royal and, therefore, in a proxy contest,
could delay or prevent a stockholder from acquiring such proxies. See
'Business--Regulation.'
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. In addition, any such sale or perception could make
it more difficult for the Company to sell equity securities or equity related
securities in the future at a time and price that the Company deems appropriate.
Upon consummation of the Offering, the Company will have a total of
shares of Common Stock outstanding, of which the shares of Common
Stock sold in the Offering and an additional shares currently outstanding
will be eligible for immediate sale in the public market without restriction,
unless they are held by 'affiliates' of the Company within the meaning of Rule
144 under the Securities Act, and of which shares will be
'restricted' securities within the meaning of Rule 144 under the Securities Act.
Additionally, the Company has granted options to certain directors and officers
and employees of the Company to purchase an aggregate of 750,000 shares of
Common Stock and there are currently outstanding warrants exercisable into
1,082,148 shares of Common Stock. The Company, certain officers, directors and
major shareholders, who hold an aggregate of shares of Common Stock
and options and warrants to purchase shares of Common Stock, have agreed
that they will not without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation ('DLJ'), directly or indirectly offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or any other equity security of the Company, or any
securities convertible into or exercisable or exchangeable for, or warrants,
options or rights to purchase or acquire, Common Stock or any other equity
security of the Company, or enter into any agreement to do any of the foregoing,
for a period of 180 days from the date of this Prospectus. As a result of the
foregoing, shares of Common Stock will become eligible for resale on
, subject to such additional restrictions to the extent
applicable and subject
17
<PAGE>
to Rule 144. No prediction can be made as to the effect, if any, that future
sales of shares of Common Stock, or the availability of shares for future sales,
will have on the market price of the Common Stock from time to time or the
Company's ability to raise capital through an offering of its equity securities.
See 'Principal and Selling Shareholders,' 'Description of Capital Stock,'
'Shares Eligible for Future Sale' and 'Underwriting.'
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting
underwriting discounts and commissions and estimated offering expenses, are
estimated to be approximately $ million (approximately $
million if the Over-Allotment Option is exercised in full). The Company expects
to use approximately $ million of the net proceeds from the Offering
to repay a substantial portion of the Company's term loan with certain lenders,
including First Union National Bank ('First Union') which acts as agent and as a
lender (the 'Term Loan'). The remaining net proceeds will be used by the Company
for general corporate purposes, including acquisitions.
Pending such uses, the net proceeds may be invested in short-term
income-producing investments such as investment grade commercial paper,
government and government agency securities, money market funds that invest in
government securities, certificates of deposit and interest-bearing bank
accounts. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
The Term Loan had a principal amount as of June 15, 1998 of $35.3 million.
The Term Loan bears interest at a maximum rate of 8.65%, and is due and payable
in installments which conclude on December 1, 2003. The Term Loan was incurred
to finance a portion of the acquisition of Rockwood (the 'Rockwood
Acquisition'), refinance an outstanding senior term loan and repay or prepay
certain other indebtedness of the Company, and may be increased by up to $9.0
million to fund a portion of the purchase price of the Preferred National
Acquisition. The Company currently anticipates that simultaneously with the
closing of the Offering, it will enter into a $70.0 million revolving credit
facility with certain lenders (the 'Credit Facility'), which Credit Facility
will be available for, among other things, future acquisitions. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
The Company will not receive any of the net proceeds from the sale of
Common Stock by the Selling Shareholders. See 'Principal and Selling
Shareholders.'
DIVIDEND POLICY
Since its inception, the Company has not paid any dividends on the Common
Stock and currently does not expect to pay cash dividends. Any decision as to
the future payment of dividends will depend on the results of operations and
financial position of the Company and such other factors as the Company's Board
of Directors, in its discretion, deems relevant.
As an insurance holding company, Front Royal will depend on dividends and
other payments from its subsidiaries for the payment of cash dividends to its
shareholders. In the case of the Insurance Subsidiaries, such payments are
restricted by the insurance laws of each such Subsidiary's state of domicile,
and insurance regulators have authority in certain circumstances to prohibit
payments of dividends and other amounts by the Subsidiaries that would otherwise
be permitted without regulatory approval. See 'Risk Factors--Holding Company
Structure; Dividend Restrictions,' 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources'
and 'Business--Regulation.'
18
<PAGE>
THE RECAPITALIZATION
As at the date of this Prospectus, the Company has outstanding three
classes of common stock and one series of redeemable convertible preferred
stock. See 'Capitalization.' Simultaneously with the consummation of the
Offering: (i) the Company will convert each outstanding share of its existing
Class A Common Stock, no par value ('Class A Common Stock'), Class B Common
Stock, no par value ('Class B Common Stock'), and Class C Common Stock, no par
value ('Class C Common Stock') (collectively, the 'Existing Common Stock'), into
shares of Common Stock on the basis of one share of Existing Common Stock for
one share of Common Stock (collectively, the 'Common Stock Conversion'); (ii)
the existing shares of Series A Preferred Stock will be converted into shares of
Common Stock, and the Series A Preferred Stock will be retired (the 'Preferred
Stock Conversion') and (iii) the Company will effect a ____ for ___ reverse
stock split (the 'Reverse Split'). The Common Stock Conversion, the Preferred
Stock Conversion and the Reverse Split are referred to collectively herein as
the 'Recapitalization.' In connection with the Recapitalization, it is
anticipated that the Board of Directors will adopt, and the shareholders will
approve, a Plan of Recapitalization (the 'Plan of Recapitalization') and
concurrently with the closing of the Offering the Company will amend and restate
its Articles of Incorporation to, among other things, reflect the
Recapitalization. See 'Capitalization' and 'Description of Capital Stock.'
The holders of the currently outstanding Class C Common Stock are entitled,
among other things, to elect two members of the Company's Board of Directors, to
approve, as a class, certain corporate transactions and, in the event of a
liquidation of the Company or similar transaction, to receive from the proceeds
available to holders of all common stock an amount equal to the greater of $4.00
per share of Class C Common Stock or the pro rata amount distributable to all
common shareholders assuming all three classes of common stock were a single
class. Under the terms of the Plan of Recapitalization and a separate agreement
entered into for the benefit of the existing holders of Class C Common Stock, in
the event of a liquidation of the Company the existing holders of the Class C
Common Stock will continue to be entitled to an effective liquidation preference
of $4.00 per share for their shares of Common Stock received in exchange for the
Class C Common Stock. This right to receive a minimum liquidating distribution
as a preference over other holders of Common Stock does not attach to the shares
of Common Stock issued in exchange for the Class C Common Stock and cannot be
transferred by any of the existing holders of Class C Common Stock. In the event
any of the existing holders of Class C Common Stock transfers any of the Common
Stock to which the preference relates, the liquidation preference will terminate
as to the shares so transferred. As a result of the Recapitalization, the
holders of the Class C Common Stock will no longer have the right to elect any
specific number of members of the Board of Directors or to vote as a separate
class on any corporate transactions. Upon the completion of Recapitalization and
the Offering, the current holders of Class C Common Stock will hold
approximately shares of Common Stock.
19
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the consolidated capitalization of the
Company at March 31, 1998 without giving effect to the Recapitalization; (ii)
the pro forma capitalization after giving effect to the Preferred National
Acquisition without giving effect to the Recapitalization and; (iii) the pro
forma capitalization as adjusted after giving effect to the Preferred National
Acquisition, the Recapitalization, other than the Reverse Split, and the
Offering.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
PRO FORMA FOR
PREFERRED NATIONAL PRO FORMA
ACTUAL ACQUISITION(1) AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior bank debt.................................................... $35,295 $ 41,956 $
Series A Redeemable Convertible Preferred Stock, no par value . 15,500 15,500 --
155,000 shares authorized; 155,000 shares outstanding, actual;
155,000 shares outstanding, pro forma for Preferred National
Acquisition; and no shares outstanding, pro forma as adjusted.
Shareholders' equity:
Common Stock:
Common Stock, no par value .................................... -- --
30,000,000 shares authorized; no shares outstanding, actual;
no shares outstanding, pro forma for Preferred National
Acquisition; and shares outstanding, pro forma as
adjusted.
Class A Common Stock, no par value ............................ 13,740 19,740 --
5,859,144 shares outstanding, actual; 6,359,144 shares
outstanding, pro forma for Preferred National Acquisition;
and no shares outstanding, pro forma as adjusted.
Class B Common Stock, no par value ............................ 557 557 --
268,482 shares outstanding, actual; 268,482 shares
outstanding, pro forma for Preferred National Acquisition;
and no shares outstanding, pro forma as adjusted.
Class C Common Stock, no par value ............................ 12,993 12,993 --
3,248,300 shares outstanding, actual; 3,248,300 shares
outstanding, pro forma for Preferred National Acquisition;
and no shares outstanding, pro forma as adjusted.
Retained earnings................................................. 16,956 16,956 16,956
Accumulated other comprehensive income............................ 3,418 3,418 3,418
Notes receivable from officers.................................... (166) (166) (166)
------- ------------------ --------------
Total common shareholders' equity and redeemable convertible
preferred stock........................................... 62,998 68,998
------- ------------------ --------------
Total capitalization.................................... $98,293 $110,954 $
------- ------------------ --------------
------- ------------------ --------------
</TABLE>
- ------------------
(1) The pro forma amounts for the Preferred National Acquisition assume an
aggregate purchase price based on a value of $9.00 per share of Common
Stock.
20
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1998 was
approximately $61.7 million or $4.47 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets less total
liabilities, divided by the sum of (i) the number of shares of issued and
outstanding Common Stock, (ii) the number of shares of Common Stock issuable
upon conversion of the Company's outstanding redeemable preferred stock and
(iii) the number of shares of Common Stock issuable upon exercise of outstanding
stock options and warrants to purchase Common Stock. After giving effect to the
Preferred National Acquisition, the Recapitalization, other than the Reverse
Split, and the sale of the shares of Common Stock offered hereby at
the initial public offering price of per share and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the net tangible book value of the Company, as of March 31,
1998, would have been approximately $ or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing shareholders and an immediate decrease of $ per share to new
investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1)........................................ $
Net tangible book value per share of Common Stock at March 31, 1998........... $
Increase per share attributable to new shareholders........................... $
Net tangible book value per share of Common Stock after the Offering............
----------
Dilution per share to new investors............................................. $
----------
----------
</TABLE>
- ------------------
(1) Before deducting estimated underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.
The following table summarizes on a pro forma basis, as of March 31, 1998,
the differences between existing shareholders and new investors with respect to
the number of shares purchased from the Company, the total consideration paid to
the Company and the average price paid per share by existing shareholders and
new investors.
<TABLE>
<CAPTION>
TOTAL AVERAGE
SHARES OWNED CONSIDERATION(1) PER SHARE
------------------ ------------------- ---------
NUMBER PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C>
Existing shareholders.................................. % % $
New investors.......................................... $
------- ------- -------- -------
Total................................................ 100.0% $ 100.0%
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
- ------------------
(1) Before deducting estimated underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.
21
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1998 and the unaudited Pro Forma Condensed Combined Statements of
Income for the three months ended March 31, 1998 and for the year ended December
31, 1997 (the 'Pro Forma Financial Statements') are based upon the financial
statements of the Company and of Preferred National, which are included herein.
See 'Index to Financial Statements.'
The Pro Forma Condensed Combined Balance Sheet as of March 31, 1998 is
presented as if the Preferred National Acquisition had occurred on March 31,
1998. The Pro Forma Condensed Combined Statements of Income for the three months
ended March 31, 1998 and the year ended December 31, 1997 are presented as if
the Preferred National Acquisition had occurred on January 1, 1997. The Pro
Forma Financial Statements give effect to the Preferred National Acquisition
under the purchase method of accounting in accordance with Accounting Standards
Board Opinion No. 16.
The Pro Forma Financial Statements are presented for comparative purposes
only and are not necessarily indicative of what the actual financial position of
the Company would have been at March 31, 1998 had the Preferred National
Acquisition occurred on January 1, 1997 nor indicative of the results of
operations in future periods. The Pro Forma Financial Statements should be read
in conjunction with, and are qualified in their entirety by, the respective
unaudited financial statements and notes thereto of the Company and of Preferred
National for the three months ended March 31, 1998 and the respective historical
financial statements and notes thereto of the Company and of Preferred National
for the year ended December 31, 1997.
The Pro Forma Financial Statements presented do not reflect future events
that may occur after the Preferred National Acquisition has been consummated.
The Company believes that once combined, the Company and Preferred National can
be operated less expensively. However, for the purposes of the Pro Forma
Financial Statements presented herein, these savings have not been reflected
because their realization cannot be assured.
22
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FRONT PREFERRED PRO
ROYAL NATIONAL PRO FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS RESULTS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Investments............................................ $ 277,945 $ 61,094 $ (28,000)(A1) $311,885
846(H)
Cash................................................... 1,568 3,873 2,000(A4) 6,941
(500)(I)
Reinsurance recoverable on unpaid and paid losses and
loss adjustment expenses............................. 25,535 3,938 -- 29,473
Deferred federal income tax............................ 9,307 767 525(D) 10,599
Deferred policy acquisition costs...................... 8,666 4,489 -- 13,155
Intangible assets, net................................. 5,788 -- 6,304(B) 12,092
Other assets........................................... 28,516 6,036 (870)(I) 33,682
---------- ---------- ----------- --------
Total assets...................................... $ 357,325 $ 80,197 $ (19,695) $417,827
---------- ---------- ----------- --------
---------- ---------- ----------- --------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Reserve for losses and loss adjustment expenses........ $ 197,093 $ 24,997 $ -- $222,090
Unearned premiums...................................... 35,378 19,567 -- 54,945
Accrued policyholders' dividends....................... 5,919 -- -- 5,919
Accrued preferred stock dividend....................... 1,356 -- -- 1,356
Other liabilities...................................... 19,285 2,163 500(C) 22,948
1,500(C)
(500)(I)
Senior bank debt....................................... 35,296 -- 6,275(A4) 41,571
---------- ---------- ----------- --------
Total liabilities................................. 294,327 46,727 7,775 348,829
Series A Redeemable Convertible Preferred Stock........ 15,500 -- -- 15,500
Common shareholders' equity:
Common Stock--Class A................................ 13,740 3,501 4,500(A2) 19,740
1,500(A3)
(3,501)(A)
Common Stock--Class B................................ 557 -- -- 557
Common Stock--Class C................................ 12,993 -- -- 12,993
Additional paid-in capital........................... -- 23,160 (23,160)(A) --
Notes receivable from officers....................... (166) -- -- (166)
Retained earnings.................................... 16,956 6,725 (6,725)(A) 16,956
Accumulated other comprehensive income............... 3,418 84 (84)(A) 3,418
---------- ---------- ----------- --------
Total common shareholders' equity................. 47,498 33,470 (27,470) 53,498
---------- ---------- ----------- --------
62,998 33,470 (27,470) 68,998
---------- ---------- ----------- --------
Total liabilities, redeemable convertible
preferred stock and common shareholders'
equity.......................................... $ 357,325 $ 80,197 $ (19,695) $417,827
---------- ---------- ----------- --------
---------- ---------- ----------- --------
</TABLE>
See Notes to the (Unaudited) Pro Forma Condensed Combined Financial Statements.
23
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FRONT PREFERRED PRO
ROYAL NATIONAL PRO FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net premiums earned.............................................. $ 20,167 $8,938 $ -- $29,105
Net investment income............................................ 4,265 964 (441)(E) 4,788
Net realized gains on investments................................ 4 40 -- 44
Other income..................................................... 56 453 -- 509
---------- ---------- ----------- -------
Total revenues................................................ 24,492 10,395 (441) 34,446
Losses and expenses:
Net losses and loss adjustment expenses.......................... 12,187 5,375 -- 17,562
Policy acquisition costs amortized............................... 5,763 2,106 -- 7,869
Other underwriting expenses...................................... 1,171 961 -- 2,132
Dividends to policyholders....................................... 737 -- -- 737
Interest expense................................................. 881 -- 132(F) 1,013
Other operating costs and expenses............................... 207 833 53(B) 1,093
---------- ---------- ----------- -------
Total losses and expenses..................................... 20,946 9,275 185 30,406
---------- ---------- ----------- -------
Income before federal income taxes................................. 3,546 1,120 (626) 4,040
Federal income tax expense/(benefit)............................... 1,133 274 (82)(G) 1,325
---------- ---------- ----------- -------
Net income/(loss).................................................. 2,413 $ 846 $ (544) 2,715
---------- -----------
---------- -----------
Dividends to preferred shareholders................................ 271 271
---------- -------
Net income available to common shareholders........................ $ 2,142 $ 2,444
---------- -------
---------- -------
Net income per share--basic........................................ $ 0.23 $ 0.24 $ 0.25
---------- ---------- -------
---------- ---------- -------
Net income per share--diluted...................................... $ 0.18 $ 0.20
---------- -------
---------- -------
Weighted average common shares outstanding......................... 9,376 3,501 9,876
Weighted average common and common stock equivalent shares
outstanding...................................................... 13,197 13,697
</TABLE>
See Notes to the (Unaudited) Pro Forma Condensed Combined Financial Statements.
24
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FRONT PREFERRED PRO PRO
ROYAL NATIONAL FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Net premiums earned........................................... $ 90,523 $ 28,579 $ -- $119,102
Net investment income......................................... 17,984 2,877 (1,764)(E) 19,097
Net realized gains/(losses) on investments.................... (480) 3 -- (477)
Other income.................................................. 331 3,312 -- 3,643
---------- ---------- ----------- --------
Total revenues........................................... 108,358 34,771 (1,764) 141,365
---------- ---------- ----------- --------
Losses and expenses:
Net losses and loss adjustment expenses....................... 56,196 17,156 -- 73,352
Policy acquisition costs amortized............................ 25,829 4,682 -- 30,511
Other underwriting expenses................................... 3,471 4,358 -- 7,829
Dividends to policyholders.................................... 3,603 -- -- 3,603
Interest expense.............................................. 3,883 -- 527(F) 4,410
Other operating costs and expenses............................ 1,806 4,160 210(B) 6,176
---------- ---------- ----------- --------
Total losses and expenses................................ 94,788 30,356 737 125,881
---------- ---------- ----------- --------
Income before federal income taxes.............................. 13,570 4,415 (2,501) 15,484
Federal income tax expense/(benefit)............................ 2,211 812 (69)(G) 2,954
---------- ---------- ----------- --------
Net income/(loss)............................................... 11,359 $ 3,603 $(2,432) 12,530
---------- -----------
---------- -----------
Dividends to preferred shareholders 1,085 1,085
---------- --------
Net income available to common shareholders..................... $ 10,274 $ 11,445
---------- --------
---------- --------
Net income per share--basic..................................... $ 1.13 $ 1.03 $ 1.19
---------- ---------- --------
---------- ---------- --------
Net income per share--diluted................................... $ 0.88 $ 0.94
---------- --------
---------- --------
Weighted average common shares outstanding...................... 9,125 3,501 9,625
Weighted average common and common stock equivalent shares
outstanding................................................... 12,861 13,361
</TABLE>
See Notes to the (Unaudited) Pro Forma Condensed Combined Financial Statements.
25
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
EXPLANATION OF PRO FORMA ADJUSTMENTS
A. This pro forma adjustment reflects the issuance of Common Stock and related
warrants, debt and the payment of cash in connection with the acquisition of
Preferred National resulting in:
<TABLE>
<CAPTION>
RECORDED
VALUE
----------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
1. Payment of cash from internal sources........................................... $ 28,000
2. Issuance of 500,000 shares of Class A - Common Stock at a price of $9.00 per
share........................................................................... 4,500
3. Issuance of 1,050,000 Class A - Common Stock warrants with an exercise price of
$10.00 per share................................................................ 1,500
4. Record the increase to the Company's credit facility for the portion of the cash
purchase price above the $28.0 million raised from internal sources ($4.3
million), assumed transaction costs of $0.5 million, and estimated assimilation
costs of $1.5 million (See Note J).............................................. 6,275
----------------
Total recorded purchase price (See Notes H and I)............................... $ 40,275
----------------
----------------
</TABLE>
B. To record goodwill of approximately $6.3 million and related amortization
over 30 years.
C. To accrue $0.5 million of assumed transaction costs and $1.5 million of
estimated assimilation costs (See Note J).
D. To record deferred federal income taxes at the federal statutory rate of
35%.
E. To record decrease in investment income as a result of cash paid by Front
Royal to purchase Preferred National based on the approximate yield of the
investment portfolio of 6.3%.
F. To record interest expense on the incremental borrowings under the credit
facility at an annual rate of 8.4%.
G. To adjust Preferred National's effective federal income tax rate to 35% and
to record federal income tax on all pro forma adjustments at the federal
statutory rate of 35%.
H. For purposes of calculating the Pro Forma Financial Statements, the
Company has assumed a July 1998 closing date. In order to estimate
Preferred National's net assets at June 30, 1998, the Company used recorded
net income for the three month period ended March 31, 1998 as an addition to
March 31, 1998 net assets to approximate the June 30, 1998 amounts.
I. The Preferred National Purchase Agreement contains provisions providing for
potential adjustment of the cash portion of the purchase price. Based on the
March 31, 1998 GAAP financial statements of Preferred National as adjusted
(see Note H above), management has estimated the cash portion of purchase
price to be $32.3 million. The Pro Forma Condensed Combined Balance Sheet
excludes certain assets and liabilities that the Company is not acquiring.
J. Pursuant to EITF 95-3, the Company has included in the Pro Forma Condensed
Combined Balance Sheet, a pro forma adjustment of $1.5 million relating to
assimilation costs. It is anticipated that the assimilation plan will be
finalized shortly after the Preferred National Acquisition is consummated
and will be completed within one year from that date. Any adjustments to the
$1.5 million accrual for assimilation costs will result in an adjustment to
the Preferred National purchase price.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth certain selected historical financial
information for the Company. The historical operating results data, per share
data and balance sheet data for the Company are derived from the consolidated
audited financial statements of the Company for the five year period ended
December 31, 1997. The historical operating results data, per share data and
balance sheet data set forth below for the three months ended March 31, 1997 and
1998 are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals
only, which the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the three months ended March 31, 1998 are not necessarily indicative
of results that may be expected for the entire year ending December 31, 1998.
All historical operating results data, per share data and balance sheet
data set forth below should be read in conjunction with the consolidated
financial statements, related notes and other financial information of the
Company and Preferred National, respectively, included in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues:
Gross written premiums............................... $ 22,968 $ 27,407 $100,246 $ 49,948 $ 43,571 $ 1,171
Net written premiums................................. 19,879 24,200 88,031 43,404 37,655 1,054
Net earned premiums.................................. 20,167 24,308 90,523 42,115 36,537 916
Net investment income................................ 4,265 4,266 17,984 5,867 5,449 317
Net realized capital gains/(losses).................. 4 42 (480) (1) 838 (171)
Other income......................................... 56 27 331 631 726 459
-------- -------- -------- -------- -------- --------
Total revenues..................................... 24,492 28,643 108,358 48,612 43,550 1,521
Losses and expenses:
Loss and loss adjustment expenses.................... 12,187 15,791 56,196 26,110 22,566 593
Policy acquisition costs amortized................... 5,763 6,457 25,829 12,729 11,133 275
Other underwriting expenses.......................... 1,171 956 3,471 2,074 2,076 498
Interest expense..................................... 881 1,155 3,883 2,029 1,645 595
Dividends to policyholders........................... 737 1,130 3,603 -- -- --
Other expenses....................................... 206 40 1,806 538 1,314 1,351
-------- -------- -------- -------- -------- --------
Total losses and expenses.......................... 20,945 25,529 94,788 43,480 38,734 3,312
-------- -------- -------- -------- -------- --------
Income/(loss) before income taxes...................... 3,547 3,114 13,570 5,132 4,816 (1,791)
Income tax expense/(benefit)........................... 1,133 791 2,211 621 1,264 (378)
-------- -------- -------- -------- -------- --------
Net income/(loss)...................................... 2,414 2,323 11,359 4,511 3,552 (1,413)
Dividends to preferred shareholders.................... 271 271 1,085 -- -- --
-------- -------- -------- -------- -------- --------
Net income/(loss) available to common shareholders..... $ 2,143 $ 2,052 $ 10,274 $ 4,511 $ 3,552 $ (1,413)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net operating income/(loss)(2)......................... $ 2,411 $ 2,296 $ 11,671 $ 4,512 $ 3,007 $ (1,053)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
PER SHARE DATA:
Net income/(loss) per share--basic..................... $ 0.23 $ 0.23 $ 1.13 $ 0.79 $ 0.62 $ (0.63)
Net income/(loss) per share--diluted................... $ 0.18 $ 0.18 $ 0.88 $ 0.70 $ 0.56 $ (0.63)
Net operating income per share--diluted(2)............. $ 0.18 $ 0.18 $ 0.91 $ 0.70 $ 0.47 $ (0.47)
Weighted average common shares outstanding............. 9,376 8,890 9,125 5,724 5,711 2,249
Weighted average common and common stock equivalent
shares outstanding................................... 13,197 12,647 12,861 6,446 6,396 2,249
BALANCE SHEET DATA (AT END OF PERIOD) (3):
Cash and invested assets............................. $279,513 $261,626 $280,629 $253,555 $ 89,162 $ 76,799
Total assets......................................... 357,325 343,909 356,315 339,987 113,527 105,178
Senior bank debt..................................... 35,295 38,000 36,545 38,000 13,384 13,315
Shareholders' equity/(deficit) (4)................... 62,998 49,583 60,762 48,654 17,409 9,598
Book value per share(4)(5)........................... $ 5.27 $ 4.32 $ 5.08 $ 4.24 $ 3.05 $ 1.69
SAP AND OTHER DATA(2):
Loss ratio........................................... 60.5% 65.0% 63.9% 61.8% 61.5% 64.8%
Expense ratio........................................ 34.2 30.8 32.8 35.4 36.9 58.8
Dividend ratio....................................... 4.2 4.7 4.2 -- -- --
-------- -------- -------- -------- -------- --------
Combined ratio....................................... 98.9% 100.5% 100.9% 97.2% 98.4% 123.6%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Ratio of net written premiums to statutory
surplus (6)........................................ 1.0x 1.4x 1.2x 0.7x 1.4x 0.0x
Statutory surplus (at end of period)................. $ 76,149 $ 68,716 $ 74,417 $ 65,852 $ 26,150 $ 22,741
Return on equity(7).................................. 15.6% 18.9% 20.8% 24.1%(8) 26.3% (30.4%)
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1993
<S> <C>
INCOME STATEMENT DATA(1):
Revenues:
Gross written premiums............................... $ 844
Net written premiums................................. 564
Net earned premiums.................................. 508
Net investment income................................ 230
Net realized capital gains/(losses).................. --
Other income......................................... 299
--------
Total revenues..................................... 1,037
Losses and expenses:
Loss and loss adjustment expenses.................... 193
Policy acquisition costs amortized................... 169
Other underwriting expenses.......................... 474
Interest expense..................................... 499
Dividends to policyholders........................... --
Other expenses....................................... 1,050
--------
Total losses and expenses.......................... 2,385
--------
Income/(loss) before income taxes...................... (1,348)
Income tax expense/(benefit)...........................
--------
Net income/(loss)...................................... (1,348)
Dividends to preferred shareholders.................... --
--------
Net income/(loss) available to common shareholders..... $ (1,348)
--------
--------
Net operating income/(loss)(2)......................... $ (876)
--------
--------
PER SHARE DATA:
Net income/(loss) per share--basic..................... $ (1.47)
Net income/(loss) per share--diluted................... $ (1.47)
Net operating income per share--diluted(2)............. $ (0.95)
Weighted average common shares outstanding............. 919
Weighted average common and common stock equivalent
shares outstanding................................... 919
BALANCE SHEET DATA (AT END OF PERIOD) (3):
Cash and invested assets............................. $ 4,531
Total assets......................................... 7,654
Senior bank debt..................................... 6,463
Shareholders' equity/(deficit) (4)................... (316)
Book value per share(4)(5)........................... $ (.30)
SAP AND OTHER DATA(2):
Loss ratio........................................... 48.5%
Expense ratio........................................ 84.1
Dividend ratio....................................... --
--------
Combined ratio....................................... 132.6%
--------
--------
Ratio of net written premiums to statutory
surplus (6)........................................ 0.1x
Statutory surplus (at end of period)................. $ 4,233
Return on equity(7).................................. (1,078.4%)
</TABLE>
(Footnotes on next page)
27
<PAGE>
- ------------------
(1) Includes operations of Rockwood from January 1, 1997.
(2) Net operating income is equal to net income/(loss) excluding after-tax
realized gains or losses at a 35.0% marginal tax rate.
(3) Includes assets and liabilities of Rockwood from December 31, 1996.
(4) Assumes the Recapitalization, including the conversion of Series A
Redeemable Convertible Preferred Stock into Common Stock, but excluding the
Reverse Split, has occurred at the end of the period.
(5) Excludes the exercise of all warrants and options then exercisable.
(6) Interim period amounts are presented on an annualized basis.
(7) Calculated based on average of the beginning and ending shareholders' equity
for the period.
(8) Excludes $28.6 million of equity raised on December 31, 1996, in connection
with the acquisition of Rockwood. Absent this adjustment, the average return
on equity for 1996 would have been 13.7%.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus.
GENERAL
Front Royal was organized in September 1990 as a holding company to acquire
and operate property and casualty insurance companies that profitably underwrite
specialty coverages. The results reported below have been affected by a series
of acquisitions. These acquisitions (together with various other capital and
financing transactions made during this period) have significantly affected the
capital structure and results of operations of the Company. Additionally,
because information regarding Rockwood (which was acquired by the Company in
December 1996) and Preferred National (which is anticipated to be acquired by
the Company in July 1998) are not presented for all periods, period-to-period
results may not be comparable. See 'Business--General.'
In December 1994, the Company acquired Colony for a cash purchase price of
$15.8 million. Immediately following its acquisition by Front Royal, Colony had
statutory surplus of $22.7 million. During the first three full years after the
acquisition, Colony's reported net income (SAP) was $3.3 million, $3.5 million
and $3.8 million for 1995, 1996 and 1997, respectively. See Note 5 of the Notes
to the Consolidated Financial Statements.
In December 1996, Front Royal acquired Rockwood for a total consideration
of $60.5 million. Immediately following its acquisition by Front Royal, Rockwood
had statutory surplus of $39.9 million. During its first year after the Rockwood
Acquisition, Rockwood reported net income (SAP) of $6.7 million. See Note 5 of
the Notes to the Consolidated Financial Statements.
On March 6, 1998, the Company executed a definitive agreement to purchase
the stock of Preferred National, substantially all of the assets and business of
UnaMark and certain other assets and liabilities for a total purchase price of
$35.0 million in cash subject to adjustment, 500,000 shares of Class A Common
Stock and the Preferred National Warrants. The Preferred National Acquisition is
subject to regulatory approvals, and the cash portion of the purchase price is
subject to adjustment based on Preferred National's levels of GAAP book value,
SAP surplus, and cash and invested assets as of the month end immediately prior
to the closing.
Simultaneously with the consummation of the Offering, the Company will
complete the Recapitalization, pursuant to which it will effect the Common Stock
Conversion, the Preferred Stock Conversion and the Reverse Split. In connection
with the Recapitalization, the Company will also amend its Articles of
Incorporation. All per share data in this section excludes the effects of the
Recapitalization. See 'The Recapitalization.'
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997.
Gross Written Premiums for the Company decreased $4.4 million (16.1%) from
$27.4 million for the three-month period ended March 31, 1997 to $23.0 million
for the three-month period ended March 31, 1998.
Colony's gross written premiums decreased $1.0 million (7.9%) from $12.6
million for the three-month period ended March 31, 1997 to $11.6 million for the
three-month period ended March 31, 1998, primarily as a result of increased
competition in Colony's contract lines of business (which comprises 65.3% of
Colony's 1998 first quarter gross written premiums). The remaining lines of
business for Colony grew $300,000 (8.1%) from $3.7 million for the three-month
period ended March 31, 1997 to $4.0 million for the three-month period ended
March 31, 1998.
Rockwood's gross written premiums declined $3.4 million (23.0%) from $14.8
million for the three-month period ended March 31, 1997 to $11.4 million for the
three-month period ended March 31, 1998. This decrease was generally a result of
reductions in workers' compensation premium rates promulgated by the
Commonwealth of Pennsylvania (also experienced during fiscal year 1997). The
Company believes that the reductions in workers' compensation premium rates will
be offset by the benefits of workers' compensation reform legislation
29
<PAGE>
in Pennsylvania. These reforms significantly lowered both medical reimbursement
costs and wage indemnity costs to workers' compensation insurers.
The decrease in the Company's net written premiums and net earned premiums
were generally proportional to the decline in gross written premiums.
Net Investment Income for the Company remained stable at $4.3 million for
each of the three-month periods ended March 31, 1997 and 1998. The underlying
cash and invested assets for the Company increased $17.9 million (6.8%) from
$261.6 million at March 31, 1997 to $279.5 million at March 31, 1998. This was
offset by a decrease in yields, reflecting a decrease in the overall interest
rate environment. The gross yield on the Insurance Subsidiaries' portfolio
decreased from 6.6% for the three months ended March 31, 1997 to 6.0% for the
three months ended March 31, 1998.
Loss and Loss Adjustment Expenses for the Company decreased by $3.6 million
(22.8%) from $15.8 million for the three-month period ended March 31, 1997 to
$12.2 million for the three-month period ended March 31, 1998. The SAP loss
ratio for the Insurance Subsidiaries decreased from 65.0% for the three months
ended March 31, 1997 to 60.5% for the three months ended March 31, 1998.
Colony's SAP loss ratio of 61.3% for the three months ended March 31, 1997
approximated the 61.4% ratio for the three months ended March 31, 1998.
Rockwood's SAP loss ratio decreased from 68.2% for the three-month period ended
March 31, 1997 to 59.6% for the three-month period ended March 31, 1998.
Rockwood's results were due to favorable loss reserve development in the first
quarter of 1998 which management believes reflects the effects of reform
legislation relating to workers' compensation claims enacted by the Commonwealth
of Pennsylvania. See 'Business-- Rockwood--Claims.'
Policy Acquisition Costs Amortized for the Company decreased $700,000
(10.8%), from $6.5 million for the three-month period ended March 31, 1997 to
$5.8 million for the three-month period ended March 31, 1998. Policy acquisition
costs, which consist principally of agents' commissions and premium taxes, are
amortized over the period in which the related premiums are earned, generally 12
months.
Policy acquisition costs amortized for Colony were $3.4 million for the
three months ended March 31, 1998 and remained relatively unchanged from that of
the corresponding period in the prior year.
Policy acquisition costs amortized for Rockwood decreased $500,000 (17.2%),
from $2.9 million for the three-month period ended March 31, 1997 to $2.4
million for the three-month period ended March 31, 1998. This decrease is
generally proportional to the decrease in premiums written as noted above.
As a writer of workers' compensation insurance utilizing an independent
retail agency sales force, Rockwood generally pays lower commissions than does
Colony, which uses a wholesale agency sales force. Average commissions paid by
Rockwood on its workers' compensation insurance premiums range between 4.0% and
10.0% of gross written premiums (other lines range from approximately 15.0% to
20.0%). Commissions paid by Colony vary depending upon the type of business and
generally range from 17.5% to 22.5% of gross written premium.
Other Underwriting Expenses for the Company increased by $200,000 (20.0%),
from $1.0 million for the three-month period ended March 31, 1997 to $1.2
million for the three-month period ended March 31, 1998. The addition of
Redwoods accounted for approximately $100,000 of this increase.
The SAP expense ratio for the Insurance Subsidiaries increased from 30.8%
for the three months ended March 31, 1997 to 34.2% for the three months ended
March 31, 1998. Colony's SAP expense ratio increased from 37.5% for the
three-month period ended March 31, 1997 to 40.0% for the three-month period
ended March 31, 1998. This increase is principally attributable to salary costs
for additional experienced underwriting and administrative personnel hired by
Colony and the decrease in premiums noted above. Rockwood's SAP expense ratio
increased from 25.4% for the three-month period ended March 31, 1997 to 28.7%
for the three-month period ended March 31, 1998. This increase is attributable
to the decrease in premiums noted above.
The SAP combined ratio for the Insurance Subsidiaries decreased from 100.5%
for the three months ended March 31, 1997 to 98.9% for the three months ended
March 31, 1998. Colony's SAP combined ratio increased from 98.8% for the
three-month period ended March 31, 1997 to 101.4% for the three-month period
ended March 31, 1998. Despite this increase, Colony's SAP combined ratio is
below the published SAP combined ratio
30
<PAGE>
for the entire property and casualty industry of 101.6%, as reported by A.M.
Best. Rockwood's SAP combined ratio decreased from 102.3% for the three-month
period ended March 31, 1997 to 97.1% for the three-month period ended March 31,
1998 (including a dividend ratio of 8.7% and 7.8%, respectively).
Interest Expense for the Company decreased $300,000 (25.0%), from $1.2
million for the three-month period ended March 31, 1997 to $900,000 for the
three-month period ended March 31, 1998. This is primarily attributable to a
decrease in the weighted average outstanding debt for the Company. Weighted
average outstanding debt decreased by $2.7 million (7.1%) from $38.0 million for
the three-month period ended March 31, 1997 to $35.3 million for the three-month
period ended March 31, 1998. In February 1997, the Company purchased an interest
rate contract for the entire balance of the Term Loan (reduced periodically to
reflect principal payments made) which limits the maximum interest rate payable
on this debt to 8.65% (see Note 9 of the Notes to the Consolidated Financial
Statements).
Dividends to Policyholders are payments made by Rockwood to certain
workers' compensation policyholders with whom the Company has negotiated
profit-sharing arrangements. Such dividends decreased $400,000 (36.4%), from
$1.1 million for the three-month period ended March 31, 1997 to $700,000 for the
three-month period ended March 31, 1998. This decrease is related to the
decrease in earned premiums noted above on the participating policies written by
Rockwood. Colony does not write such participating policies.
Income Tax Expense for the Company increased $300,000 (37.5%) from $800,000
for the three-month period ended March 31, 1997 to $1.1 million for the
three-month period ended March 31, 1998 as a result of higher pre-tax earnings
and a higher tax rate (31.9% versus 25.4%, respectively). The rate for the
quarter ended March 31, 1997 was affected by the recognition of deferred tax
assets through a reduction of the related valuation allowance. Deferred tax
assets, other than the deferred tax asset related to net operating loss
carryforwards, were fully recognized at December 31, 1997.
Net Income for the Company increased $100,000 (0.4%) from $2.3 million for
the three-month period ended March 31, 1997 to $2.4 million for the three-month
period ended March 31, 1998 despite the increase in the tax rate noted above.
Basic and diluted earnings per share remained constant at $0.23 per share and
$0.18, respectively.
YEARS ENDED DECEMBER 31, 1997 AND 1996.
Gross Written Premiums for the Company increased $50.3 million (100.8%),
from $49.9 million for the year ended December 31, 1996, to $100.2 million for
the year ended December 31, 1997. This increase was primarily the result of the
Rockwood Acquisition in December 1996.
Colony's gross written premiums increased $600,000 (1.2%), from $49.9
million for the year ended December 31, 1996, to $50.5 million for the year
ended December 31, 1997. This increase was primarily concentrated in its
contract and specialty underwriting business.
Rockwood's gross written premiums decreased $19.7 million (28.4%) from
$69.4 million for the year ended December 31, 1996 to $49.7 million for the year
ended December 31, 1997. This decrease was primarily due to a reduction in
workers' compensation premium rates promulgated by the Commonwealth of
Pennsylvania during the first quarter of 1997 and to the termination of a
fronting agreement for a discontinued line of business (i.e., private passenger
automobile insurance) in 1996, which accounted for $9.5 million (13.7%) of the
decrease in gross written premiums from the prior year. Rockwood ceded 100.0% of
such private passenger automobile business as of December 31, 1996 and,
accordingly, retained no risk or net earned premium associated with this line.
However, the Company remains contingently liable should the reinsurer be unable
to meet its obligations.
The Company believes the reductions in workers' compensation premium rates
will be offset by the benefits of workers' compensation reform legislation in
Pennsylvania. These reforms significantly lowered both medical reimbursement
costs and wage indemnity costs to workers' compensation insurers.
Net Written Premiums for the Company increased $44.6 million (102.8%) from
$43.4 million for the year ended December 31, 1996 to $88.0 million for the year
ended December 31, 1997. This increase was primarily due to the addition of
Rockwood's premiums to the Company's totals during 1997.
31
<PAGE>
Colony's net written premium decreased $700,000 (1.6%), from $43.4 million
for the year ended December 31, 1996 to $42.7 million for the year ended
December 31, 1997. Colony's net written premium growth lags its growth in gross
written premium because some of the lines of business experiencing the highest
rates of growth are reinsured on a quota-share basis pursuant to which the
Company retains a smaller percentage of the premiums written. After a period of
time, Colony has historically moved seasoned business to an excess of loss
treaty under which more of the premium and related risk are retained.
Rockwood's net written premium decreased $8.9 million (16.4%), from $54.2
million for the year ended December 31, 1996 to $45.3 million for the year ended
December 31, 1997. This reduction was primarily a result of the premium rate
adjustments described above.
Net Earned Premiums for the Company increased $48.4 million (115.0%), from
$42.1 million for the year ended December 31, 1996 to $90.5 million for the year
ended December 31, 1997. This increase was primarily due to the addition of
Rockwood's premiums to the Company's totals during 1997.
Colony's net earned premium increased $1.4 million (3.3%), from $42.1
million for the year ended December 31, 1996 to $43.5 million for the year ended
December 31, 1997.
Rockwood's net earned premium decreased $5.5 million (10.5%), from $52.5
million for the year ended December 31, 1996 to $47.0 million for the year ended
December 31, 1997. Rockwood sustained a smaller percentage drop in earned
premiums than in gross or net written premium primarily because of premiums
earned on policies written in the previous year.
Net Investment Income for the Company increased $12.1 million (205.1%),
from $5.9 million for the year ended December 31, 1996 to $18.0 million for the
year ended December 31, 1997. This increase was primarily the result of the
addition of investment income from Rockwood, which contributed $10.3 million to
investment income during the year ended December 31, 1997. Gross yield on the
Insurance Subsidiaries' portfolio increased from 6.1% for the year ended
December 31, 1996 to 6.3% for the year ended December 31, 1997.
Cash and invested assets for the Company increased $27.0 million (10.6%),
from $253.6 million at December 31, 1996 to $280.6 million at December 31, 1997.
The December 31, 1996, balance of cash and invested assets included an amount
for Rockwood of $158.0 million. Since this balance was included in the Company's
assets only from the date of Rockwood's acquisition (i.e., December 31, 1996),
net investment income for the year ended December 31, 1996, excludes any amounts
attributable to Rockwood's cash and invested assets.
Other Income for the Company decreased $300,000 (50.0%), from $600,000 for
the year ended December 31, 1996 to $300,000 for the year ended December 31,
1997. This decrease primarily reflects a decline in the net amount of the
Company's amortization of negative goodwill. As of December 31, 1996, prior to
the Rockwood acquisition, the Company had $3.6 million of net negative goodwill.
The amount of amortization for the year ended December 31, 1996, relating to
this negative goodwill was $400,000. In 1997, such negative goodwill
amortization is substantially offset by amortization of the costs associated
with the Rockwood acquisition.
Loss and Loss Adjustment Expenses for the Company increased by $30.1
million (115.3%), from $26.1 million for the year ended December 31, 1996, to
$56.2 million for the year ended December 31, 1997. The SAP loss ratio for the
Company increased from 61.8% for the year ended December 31, 1996 to 63.9% for
the year ended December 31, 1997. The SAP loss ratio for the Insurance
Subsidiaries (assuming Rockwood had been purchased by the Company on January 1,
1996) increased from 43.7% for the year ended December 31, 1996 to 63.9% for the
year ended December 31, 1997. Colony's SAP loss ratio increased from 61.8% for
the year ended December 31, 1996 to 62.4% for the year ended December 31, 1997.
Rockwood's SAP loss ratio increased from 29.1% for the year ended December 31,
1996 to 65.3% for the year ended December 31, 1997. The 1996 SAP loss ratio for
Rockwood included the recognition of loss reserve redundancies of $23.8 million
(excluding $3.8 million for the effect of discounting) prior to its acquisition
by the Company. Excluding these loss reserve redundancies, Rockwood's SAP loss
ratio would have been 67.3% for the year ended December 31, 1996. Management
believes that the decrease in the SAP loss ratio from 67.3% for 1996 to 65.3%
for 1997 reflects the effects of reform legislation relating to workers'
compensation claims enacted by the Commonwealth of Pennsylvania. See
'Business--Rockwood--Claims.'
32
<PAGE>
Policy Acquisition Costs Amortized for the Company increased $13.1 million
(103.1%), from $12.7 million for the year ended December 31, 1996 to $25.8
million for the year ended December 31, 1997, as a result of the Rockwood
Acquisition. Policy acquisition costs, which consist principally of agents'
commissions and premium taxes, are amortized over the period in which the
related premiums are earned, generally 12 months.
Colony's policy acquisition costs amortized increased $1.1 million (8.7%),
from $12.7 million for the year ended December 31, 1996 to $13.8 million for the
year ended December 31, 1997. This increase is related to the increase in net
earned premiums noted above.
Rockwood's policy acquisition costs amortized decreased $100,000 (0.8%),
from $12.1 million for the year ended December 31, 1996, to $12.0 million for
the year ended December 31, 1997. This slight decrease, in spite of a 10.5%
decrease in net earned premiums, is attributable to the fact that the decrease
in net earned premiums is due primarily to a rate decrease without a
corresponding decrease in policy acquisition costs other than commissions.
Other Underwriting Expenses for the Company increased $1.4 million (66.7%),
from $2.1 million for the year ended December 31, 1996, to $3.5 million for the
year ended December 31, 1997. This increase was again primarily attributable to
the Rockwood Acquisition.
Colony's other underwriting expenses increased $100,000 (4.8%), from $2.1
million for the year ended December 31, 1996, to $2.2 million for the year ended
December 31, 1997. This increase is consistent with Colony's increase in net
earned premiums.
Rockwood's other underwriting expenses decreased $300,000 (18.8%), from
$1.6 million for the year ended December 31, 1996, to $1.3 million for the year
ended December 31, 1997. This decrease is consistent with Rockwood's decrease in
net earned premiums.
The SAP expense ratio for the Company decreased from 35.4% for the year
ended December 31, 1996 to 32.8% for the year ended December 31, 1997. The SAP
expense ratio for the Insurance Subsidiaries (assuming Rockwood had been
purchased by the Company on January 1, 1996) increased from 29.8% for the year
ended December 31, 1996 to 32.8% for the year ended December 31, 1997. Colony's
SAP expense ratio, including commissions, increased from 35.4% for the year
ended December 31, 1996, to 37.2% for the year ended December 31, 1997. This
increase is principally attributable to salary costs for additional experienced
underwriting and administrative personnel hired by Colony. Rockwood's SAP
expense ratio, including commissions, increased from 25.4% for the year ended
December 31, 1996, to 28.6% for the year ended December 31, 1997. This increase
is attributable to an increase in allocated corporate overhead and the decrease
in premiums noted above.
The SAP combined ratio for the Company increased from 97.2% for the year
ended December 31, 1996 to 100.9% for the year ended December 31, 1997. The SAP
combined ratio for the Insurance Subsidiaries (assuming Rockwood had been
purchased by the Company on January 1, 1996) increased from 78.8% for the year
ended December 31, 1996 to 100.9% for the year ended December 31, 1997.
Excluding the adjustment to Rockwood's loss reserves noted above, the SAP
combined ratio for the Insurance Subsidiaries (assuming Rockwood had been
purchased by the Company on January 1, 1996) increased from 100.0% for the year
ended December 31, 1996 to 100.9% for the year ended December 31, 1997. Colony's
SAP combined ratio increased from 97.2% for the year ended December 31, 1996, to
99.6% for the year ended December 31, 1997. Despite the increase, Colony's SAP
combined ratio is below the last published combined ratio for the entire
property and casualty industry for 1996 of 105.8%, as reported by A.M. Best.
Rockwood's SAP combined ratio for the year ended December 31, 1997 (including a
dividend ratio of 8.1%) was 102.0%.
Interest Expense for the Company increased $1.9 million (95.0%), from $2.0
million for the year ended December 31, 1996, to $3.9 million for the year ended
December 31, 1997. The 1996 interest expense included a $500,000 charge relating
to unamortized discount on subordinated debt which was repaid in December 1996.
Of the total for the year ended December 31, 1997, $3.4 million is attributable
to interest on the Term Loan. The weighted average outstanding debt for the
Company for the year ended December 31, 1996, increased by $24.0 million
(180.5%) from $13.3 million for the year ended December 31, 1996, to $37.3
million for the year ended December 31, 1997.
33
<PAGE>
Dividends to Policyholders are payments made by Rockwood to certain
workers' compensation policyholders with whom the Company has negotiated profit
sharing arrangements. Such dividends decreased $2.7 million (42.9%) from $6.3
million for the year ended December 31, 1996, to $3.6 million for the year ended
December 31, 1997. This decrease is attributable to the allocable amount of
profit sharing in Rockwood's $23.8 million reduction in management's estimate of
the amount of ultimate claims expense for certain policy years recorded in 1996.
Colony does not write participating policies.
Other Expenses for the Company increased $1.3 million (260.0%), from
$500,000 for the year ended December 31, 1996, to $1.8 million for the year
ended December 31, 1997. This increase is primarily attributable to $800,000 of
consulting services (principally legal and accounting) incurred relating to
preparation of an offering document in 1997.
Income Tax Expense for the Company increased $1.6 million (266.7%) from
$600,000 for the year ended December 31, 1996 to $2.2 million for the year ended
December 31, 1997 primarily as a result of the increase in income before federal
income taxes. The 1997 effective tax rate of 16.3% was lower than prevailing
federal rates primarily due to the recognition of deferred tax assets through a
reduction in the related valuation allowance. The valuation allowance was
reduced in recognition of the Company's taxable earnings in 1997.
Net Income for the Company increased $6.9 million (153.3%), from $4.5
million for the year ended December 31, 1996, to $11.4 million for the year
ended December 31, 1997. Basic earnings per share increased $0.34 (43.0%), from
$0.79 for the year ended December 31, 1996 to $1.13 for the year ended December
31, 1997. Diluted earnings per share increased $0.18 (25.7%), from $0.70 for the
year ended December 31, 1996 to $0.88 for the year ended December 31, 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1995.
General. Front Royal acquired Rockwood on December 31, 1996, in a
transaction accounted for as a purchase. Accordingly, no Rockwood income or
expense is included in the Company's consolidated financial statements for 1996.
Gross Written Premiums for the Company increased $6.3 million (14.4%), from
$43.6 million for the year ended December 31, 1995 to $49.9 million for the year
ended December 31, 1996. This increase was primarily due to growth in Colony's
contract business for which gross written premiums increased $5.4 million
(17.8%), from $30.4 million for the year ended December 31, 1995 to $35.8
million for the year ended December 31, 1996. Colony's gross written premiums
from its specialty-line business, which was effectively started at the beginning
of 1996, grew during this period to $1.0 million.
The increase in the Company's net written premiums and net earned premiums
were generally proportional to the increase in gross written premiums.
Net Investment Income for the Company increased $500,000 (9.3%), from $5.4
million for the year ended December 31, 1995 to $5.9 million for the year ended
December 31, 1996. The gross yield on the Subsidiaries portfolio was 6.1% for
the year ended December 31, 1996 as compared to 6.2% for the year ended December
31, 1995. The decline in yield was primarily the result of a generally lower
interest rate environment. Cash and invested assets for the Company of $253.6
million at December 31, 1996, included $158.0 million for Rockwood. The
remaining $95.6 million of cash and invested assets represented a $6.4 million
(7.2%) increase over the December 31, 1995 balance of $89.2 million.
Loss and Loss Adjustment Expenses for the Company increased $3.5 million
(15.5%), from $22.6 million for the year ended December 31, 1995 to $26.1
million for the year ended December 31, 1996. Colony's SAP loss ratio increased
from 61.6% for the year ended December 31, 1995 to 61.8% for the year ended
December 31, 1996.
Policy Acquisition Costs Amortized for the Company increased $1.6 million
(14.4%), from $11.1 million for the year ended December 31, 1995 to $12.7
million for the year ended December 31, 1996. Such increase was consistent with
the increase in premiums reported above.
34
<PAGE>
Colony's SAP expense ratio decreased from 36.9% for the year ended December
31, 1995 to 35.4% for the year ended December 31, 1996. Colony's SAP combined
ratio also decreased from 98.4% for the year ended December 31, 1995 to 97.2%
for the year ended December 31, 1996.
Interest Expense for the Company increased $400,000 (25.0%), from $1.6
million for the year ended December 31, 1995 to $2.0 million for the year ended
December 31, 1996. The 1996 interest amount included a $500,000 charge relating
to unamortized discount on $2.5 million of subordinated debt which was paid in
December 1996. The remaining $1.5 million in interest expense for the year ended
December 31, 1996 represented a decrease of 6.0% from 1995.
The Company's average outstanding debt for the year ended December 31, 1995
was $14.1 million. The Company's average outstanding debt for the year ended
December 31, 1996 (excluding the Term Loan) was $12.8 million representing a
9.2% decrease over the prior year.
Other Expenses for the Company decreased $800,000 (61.5%), from $1.3
million for the year ended December 31, 1995 to $500,000 for the year ended
December 31, 1996. This decrease is primarily attributable to expenses related
to redundant costs of FRIC's offices and personnel which were consolidated into
Colony for the year ended December 31, 1996 and expense accruals for such
consolidation taken for the year ended December 31, 1995.
Income Tax Expense for the Company decreased $700,000 (53.8%), from $1.3
million for the year ended December 31, 1995 to $600,000 for the year ended
December 31, 1996. The decrease was due primarily to the recognition of a
greater amount of deferred tax assets through a reduction in the related
valuation allowance based on an increased taxable income for the year ended
December 31, 1997. The effective tax rate for the year ended December 31, 1996
of 12.1% is lower than the prevailing federal rate as a result of the
recognition of those deferred tax benefits.
Net Income for the Company increased $900,000 (25.0%), from $3.6 million
for the year ended December 31, 1995 to $4.5 million for the year ended December
31, 1996. Basic earnings per share increased $0.17 (27.4%), from $0.62 for the
year ended December 31, 1995 to $0.79 for the year ended December 31, 1996.
Diluted earnings per share increased $0.14 (25.0%), from $0.56 for the year
ended December 31, 1995 to $0.70 for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Front Royal is a holding company, the principal assets of which are the
common stock of the Subsidiaries. Front Royal's cash flows depend primarily on
dividends and other payments from the Subsidiaries. The Subsidiaries' sources of
funds consist primarily of premiums, investment income and proceeds from sales
and maturities of investments. Funds are used by the Subsidiaries principally to
pay claims and operating expenses and to purchase investments. In addition, the
Subsidiaries pay dividends and other distributions to Front Royal. Front Royal
uses these funds to pay operating expenses, debt service on the Term Loan, taxes
and other payments. See 'Risk Factors--Holding Company Structure; Dividend
Restrictions.'
Cash provided by operating activities was $9.3 million and ($200,000) for
the three months ended March 31, 1997 and March 31, 1998, respectively. At March
31, 1998, the Company held cash of $1.6 million and investments of $277.9
million. Additionally, the Company had long-term debt of $38.0 million and $35.3
million as of March 31, 1997 and 1998, respectively.
Cash provided by operating activities was $7.0 million, $7.4 million and
$25.1 million for the fiscal years ended December 31, 1995, 1996 and 1997,
respectively. The significant increase in cash provided by operating activities
for the year ended December 31, 1997 was primarily attributable to the Rockwood
Acquisition. In addition to $2.9 million of cash and $277.7 million of
investments at December 31, 1997, the Company had long-term debt of $38.0 and
$36.5 as of December 31, 1997.
The Company believes that it has sufficient liquidity to meet its
anticipated insurance obligations, as well as its operating and capital
expenditure needs. The Company's investment strategy emphasizes quality,
liquidity, and diversification. With respect to liquidity, the Company considers
liability durations, specifically for its loss reserves, when determining
investment maturities. In addition, the Company staggers maturities to produce a
35
<PAGE>
pattern of cash flows for the purpose of anticipating its liability schedules,
loss payments, and reinvestment opportunities. Of the Company's investments in
fixed maturity securities at March 31, 1998, 98.6% are in securities rated by
the National Association of Insurance Commissioners (the 'NAIC') as Class I. As
of March 31, 1998, Front Royal had $93.2 million (33.3%) of its total cash and
invested assets and 42.1% of its bond portfolio designated as held-to-maturity.
The held-to-maturity portfolio is carried in the Company's financial statements
at amortized cost. See 'Business--Investments.'
To date, the Company has funded acquisitions and other major capital
transactions through debt financing and the private placement of equity
securities. On December 31, 1996, in connection with the Rockwood Acquisition,
the Company entered into the Term Loan. The proceeds of the Term Loan were used
to refinance a then-existing $8.5 million term loan with First Union, to finance
a portion of the Rockwood Acquisition and to repay or prepay various other
indebtedness incurred in connection with previous acquisitions. The Term Loan
will be repaid, in part, from the proceeds of Offering. The Company anticipates
that simultaneously with the closing of the Offering, it will enter into a
credit facility which will allow for aggregate borrowings of up to $70.0
million. See 'Use of Proceeds.'
IMPACT OF INFLATION
Inflation can have a significant impact on property and casualty insurers
because premium rates are established before the amount of loss and loss
adjustment expenses are known. The Company attempts to anticipate increases from
inflation in establishing rates, subject to limitations imposed for competitive
pricing. The Company does not believe inflation has had a material impact on the
Company's business, results of operations or financial condition to date.
The Company also considers inflation when estimating liabilities for loss
and loss adjustment expenses, particularly for claims having a long period
between occurrence and settlement. The liabilities for loss and loss adjustment
expenses are management's estimates of the ultimate net cost of underlying
claims and expenses and, for the workers' compensation portion of the business
only, are discounted for the time value of money. In times of high inflation,
the normally higher yields on investments may partially offset higher claims and
expenses. See 'Risk Factors--Adequacy of Loss Reserves.'
DEFERRED INCOME TAXES
The Company has income tax net operating loss ('NOL') carryforwards of
approximately $3.8 million at December 31, 1997. The utilization of these NOLs
is limited to $434,000 per year under Section 382 of the Internal Revenue Code.
In addition, Front Royal's tax returns have not been examined by the Internal
Revenue Service ('IRS') and the availability of the NOLs could be challenged by
the IRS upon review of the Company's returns through 1997. Because of the
limitations on the use of these NOLs and evaluation of related risk factors, the
Company has limited recognition of the benefits to amounts actually used or
scheduled to be used in the Company's income tax returns. Accordingly, the tax
benefit related to those NOLs of $1.3 million has been fully reserved by the
Company. The Company has determined that no valuation allowance is required for
the other components of its deferred tax asset because realization of such
amounts is evidenced as more likely than not based on taxable earnings in the
carryback period and the Company's trend of taxable earnings.
OTHER
In 1997, the Financial Accounting Standards Board ('FASB') issued Statement
No. 130, Reporting Comprehensive Income ('Statement 130'), effective for years
beginning after December 15, 1997. The new rules require companies to display
items of other comprehensive income either below the total for net income on the
income statement, on the statement of changes in shareholders' equity or in a
new, separate statement of comprehensive income. The Company would then disclose
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet.
The adoption of Statement 130 did not affect results of operations or
financial position of the Company. Currently, the Company has no other
comprehensive income, as defined, other than unrealized gains or losses on
available-for-sale securities which have been disclosed separately in the equity
section of the balance sheet.
36
<PAGE>
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information ('Statement 131'), effective for years
beginning after December 15, 1997. Statement 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by
senior management in deciding how to allocate resources and in assessing
performance. The adoption of Statement 131 will not affect results of operations
or financial position of the Company.
The codification of SAP has been officially approved by the NAIC. It is
uncertain at this time whether or how states will adopt the new accounting
guidance. The Company has not yet quantified the impact such changes would have
on the statutory capital and surplus or results of operations of the
Subsidiaries. The impact of adopting this new comprehensive statutory basis of
accounting may, however, materially impact statutory capital and surplus.
YEAR 2000 COMPLIANCE
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has purchased, where necessary, year 2000 compliant
software and begun converting critical data processing systems. The Company
currently expects the project to be substantially complete by early 1999 and to
cost approximately $1.5 million, of which approximately $800,000 has been
incurred as of December 31, 1997. This estimate excludes the costs to upgrade
and replace systems in the normal course of business. The Company does not
expect this project to have a significant effect on its operations.
37
<PAGE>
BUSINESS
GENERAL
Front Royal is an insurance holding company which acquires and operates
property and casualty insurance companies that underwrite specialty coverages.
The Company's strategy is to acquire companies with particular marketing,
underwriting and claims expertise in their markets, which enables them to
achieve superior underwriting results. Since commencing operations in 1992, the
Company has acquired Front Royal Insurance Company in May 1992, Colony in
December 1994, Rockwood in December 1996 and Redwoods in January 1998. In March
1998, the Company announced the Preferred National Acquisition, which it expects
to complete in July 1998.
The Subsidiaries provide commercial liability, professional liability and
other insurance to targeted types of businesses, primarily on an E&S basis, and
workers' compensation insurance for non-union coal mines and other specialized
risk classes. The Company's primary operating objective is to achieve consistent
profits from its core business of underwriting insurance, as evidenced by an
average SAP combined ratio from 1995 through 1997 of 98.8%. The Company pursues
this goal by focusing on niche markets in which it has particular expertise,
adhering to disciplined underwriting and claims practices and utilizing various
distribution channels, including wholesale agents, retail agents and direct
marketing, depending on which channel most effectively reaches the Company's
targeted customers in each market. The Company manages the Subsidiaries on a
decentralized basis to enable them to respond effectively to changing conditions
in the markets in which they operate, while consolidating investment, financial,
actuarial and other support functions to achieve operating efficiencies. The
Company believes that generally there are fewer companies competing in the
specialty markets it pursues than in the standard lines markets because the
specialty markets are relatively small and require specialized underwriting and
targeted distribution.
The Company's acquisition strategy has resulted in significant growth, and
its operating strategy, which emphasizes disciplined underwriting over premium
growth, has produced consistent underwriting profitability. The Company's gross
written premiums have increased from $500,000 in 1992 to $43.6 million in 1995
and $100.2 million in 1997. The Company's net operating income/(loss) (excluding
after-tax realized gains) has grown from $(800,000) in 1992 to $3.0 million in
1995 and $11.7 million in 1997. Pro forma 1997 gross written premiums and net
operating income, assuming the Preferred National Acquisition had been completed
on January 1, 1997, were $146.4 million and $12.8 million, respectively. In
1995, 1996 and 1997, the Company achieved an average return on equity of 26.3%,
24.1% and 20.8%, respectively. From 1995 through 1997, the Company's average SAP
combined ratio was 98.8%.
DESCRIPTION OF THE SUBSIDIARIES AND PREFERRED NATIONAL
Colony. Colony provides commercial liability, commercial property,
products liability and environmental liability coverages to commercial
enterprises, including restaurants, artisan contractors, day-care centers and
manufacturers, and professional liability coverages for health care providers
(other than physicians) and other professionals. Colony operates primarily on an
E&S basis and focuses on insureds who generally cannot purchase insurance from
standard lines insurers due to the perceived risks related to their businesses.
Colony offers its coverages through 133 wholesale agent offices (representing 69
agencies) located throughout the U.S. These agents, in turn, solicit and receive
premiums from over 30,000 retail agents. Colony is an admitted insurer in nine
states and is approved as a non-admitted insurer in 44 states. Colony has an
'A-' rating from A.M. Best. See '--Colony.'
Preferred National. The Company announced the Preferred National
Acquisition in March 1998 and expects that it will be completed in July.
Preferred National focuses on many of the same coverages and risk classes as
does Colony. In addition, Preferred National offers surety, property and inland
marine coverages not offered by Colony. Approximately 60% of Preferred
National's business is written on an admitted basis in Florida. The Company
believes that Preferred National, which will be managed by Colony's management
team, will enhance Colony's business by increasing the scale of Colony's
operations and by broadening the scope of the Company's product offerings.
Preferred National offers coverage through 154 wholesale agent offices, 40 of
which also have an appointment with Colony. Preferred National's largest
wholesale agent is UnaMark, a captive agency the business of which will be
acquired in the Preferred National Acquisition and thereafter operate as a
38
<PAGE>
division of Redwoods. Through UnaMark and its other wholesale agents, the
Company believes that Preferred National has access to over 20,000 retail
agents. Preferred National's surety business is produced directly through retail
agents. A substantial portion of the professional liability business written by
Preferred National is produced through four risk-purchasing groups that have
direct communications with accountants, lawyers, title agents and dentists.
Preferred National is an admitted insurer in Florida and Illinois and is
approved as a non-admitted insurer in 36 states. Preferred National is rated
'B++' by A.M. Best. See '--Preferred National.'
Rockwood. Rockwood primarily writes specialty workers' compensation
insurance for non-union coal mines, other mining businesses and small premium or
specialty commercial accounts. Rockwood operates principally in Pennsylvania,
Maryland and, to a lesser extent, in four other states. Rockwood also offers
commercial coverages, generally for insureds covered by Rockwoods workers'
compensation policies, including general liability, property, automobile and
surety. Rockwood offers its coverages through 659 independent agents and
brokers. Rockwood is an admitted insurer in six states and has a 'B++' rating
from A.M. Best. See '--Rockwood.'
The following table shows the gross written premiums of the Insurance
Subsidiaries and Preferred National in 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------
GROSS WRITTEN PERCENT
PREMIUMS OF TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Colony................................................................ $ 50,562 34.5%
Preferred National.................................................... 46,133 31.6
Rockwood.............................................................. 49,684 33.9
------------- --------
Total.......................................................... $ 146,379 100.0%
------------- --------
------------- --------
</TABLE>
The following table compares the SAP combined ratios of Colony and
Preferred National to the property and casualty insurance industry as a whole
and the SAP combined ratios of Rockwood to the workers' compensation industry as
a whole for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SAP COMBINED RATIOS:
Colony................................................... 99.6% 97.2% 98.4% 117.8% 109.3%
Preferred National....................................... 98.7% 81.7% 105.5% 103.1% 76.2%
Property and Casualty Insurance Industry (1)............. 101.6% 105.8% 106.5% 108.4% 106.9%
Rockwood................................................. 102.0% 102.0%(2) 100.6% 105.5% 111.8%
Workers' Compensation Insurance Industry (1)............. N/A 99.7% 97.0% 101.4% 108.8%
</TABLE>
- ------------------
(1) Source: A.M. Best.
(2) Excludes loss reserve redundancies of $23.8 million recognized prior to its
acquisition by the Company. The actual combined ratio, including these
redundancies, was 64.0%.
Redwoods. The Company acquired Redwoods in January 1998. Redwoods, which
was a start-up business when acquired by the Company, is a managing general
underwriter which provides brokerage, underwriting and claims management
services to insurance companies. Redwoods produces business for the Insurance
Subsidiaries and for third party insurers not affiliated with the Company. The
Company acquired Redwoods in anticipation of acquiring substantially all of the
assets and liabilities of UnaMark, which in 1997 produced approximately 36.0% of
Preferred National's gross written premiums. Following the anticipated
completion of the Preferred National Acquisition, UnaMark will operate as a
division of Redwoods. See '--Redwoods.'
BUSINESS STRATEGY
Focus on Specialty Insurance Markets. The Company believes that it can
continue to operate profitably and earn attractive returns on its capital by
focusing on specialty insurance markets in which it has particular marketing,
underwriting and claims expertise and in which generally there are fewer
competitors than in standard lines markets. The Company manages the Subsidiaries
on a decentralized basis to enable them to respond
39
<PAGE>
effectively to changing conditions in the markets in which they operate, while
consolidating investment, financial, actuarial and other support functions to
achieve operating efficiencies. The Subsidiaries utilize various distribution
channels, including wholesale agents, retail agents and direct marketing,
depending on which channel most effectively reaches their targeted customers in
each market.
Acquire Additional Specialty Insurance Businesses. The Company has
achieved significant growth and profitability by pursuing its acquisition
strategy. The Company intends to pursue additional acquisitions of specialty
insurance businesses which have particular expertise in profitable markets. The
Company seeks acquisitions which are accretive to its earnings per share and
book value per share, as have been all of the insurance company acquisitions the
Company has completed to date.
Achieve Superior Underwriting Results. The Company seeks to achieve
consistent underwriting profitability through disciplined underwriting, pricing
and claims management. The Company pays incentive compensation to the senior
management of each Insurance Subsidiary primarily based on underwriting
profitability. In addition to standard commissions, the Company provides
incentives to its agents to produce profitable business through a contingent
commission structure which is substantially tied to underwriting profitability.
Expand Existing Insurance Operations. The Company intends to grow the
businesses of its Subsidiaries through enhanced product offerings, additional
coverages, geographic expansion and increased penetration in its existing
markets. The Company believes that agents and other customers generally find it
most efficient to transact business with a limited number of insurers who
provide most or all of the products they require. The Company, therefore,
focuses on continually enhancing the quality and broadening the scope of its
products in order to better serve the needs of agents and customers.
Manage Capital Actively. The Company actively manages its capital
structure in order to maximize returns to its stockholders. The Company expects
to finance its future acquisitions with a combination of debt and equity and
does not seek to raise or retain more capital than it believes can properly be
deployed. In 1997, the Company operated at a ratio of net written premiums to
surplus of 1.2:1. On a pro forma basis for the three months ended March 31,
1998, the Company operated at a ratio of net written premiums (on an annualized
basis) to surplus of 1.4:1. As of March 31, 1998, the Company had a ratio of
total debt to total capitalization of 35.9%. The Company plans to use a portion
of the net proceeds from the Offering to repay a substantial portion of its
existing indebtedness. Concurrent with the Offering, the Company intends to
obtain a $70.0 million bank credit facility to support future acquisitions. See
'Use of Proceeds' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources.'
COLONY
General. Colony provides commercial liability, commercial property,
products liability and environmental liability coverages to commercial
enterprises, including restaurants, artisan contractors, day-care centers and
manufacturers, and professional liability coverages for health care providers
(other than physicians) and other professionals. Colony operates primarily on an
E&S basis and focuses on insureds who generally cannot purchase insurance from
standard lines insurers due to the perceived risks related to their businesses.
Colony is an admitted insurer in nine states and is approved as a non-admitted
insurer in 44 states.
Lines of Business. Colony believes that in order to be a preferred carrier
for its agents, it must be able to efficiently and routinely handle a wide
variety of risks. These include risk classes as diverse as small contractors,
restaurants and taverns, a variety of manufacturers, pest-control operators, and
other service businesses.
In addition to these core products, Colony offers its agents a variety of
specialty products. These products, which are tailored to respond to specific
market niches, help to distinguish Colony from other E&S markets which do not
offer similar lines or whose policies are not as customized as Colony's to the
specific needs of the insureds. Examples of some of these products include
environmental liability insurance, specific professional liability coverage for
health care providers other than physicians, specialty mono-line property
coverage, and coverage for oil and gas lease operators. Of Colony's 56 total
products at March 31, 1998, 25 were new products (or significant refinements)
developed within the previous 18 months.
Colony currently divides its business into four broad categories: contract
business, brokerage business, environmental business and specialty business.
40
<PAGE>
The following table sets forth gross written premium for Colony by line of
business for the periods set forth below (all amounts presented below are on a
SAP basis; the differences between GAAP and SAP amounts are not material):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------------------------------- ----------------------------------------------------
1998 1997 1997 1996
------------------ ------------------ ------------------ ------------------
GROSS PERCENT GROSS PERCENT GROSS PERCENT GROSS PERCENT
WRITTEN OF WRITTEN OF WRITTEN OF WRITTEN OF
PREMIUMS TOTAL PREMIUMS TOTAL PREMIUMS TOTAL PREMIUMS TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract business.......... $ 7,580 65.3% $ 8,878 70.7% $36,130 71.5% $35,826 71.7%
Brokerage business......... 2,712 23.4 2,760 22.0 10,242 20.3 11,200 22.4
Environmental business..... 598 5.2 473 3.8 1,974 3.9 1,918 3.9
Specialty business......... 717 6.1 444 3.5 2,163 4.2 988 2.0
Other(1)................... -- -- 2 -- 53 0.1 16 --
-------- ------- -------- ------- -------- ------- -------- -------
Total...................... $11,607 100.0% $12,557 100.0% $50,562 100.0% $49,948 100.0%
-------- ------- -------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- ------- -------- -------
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995
-------------------------
GROSS PERCENT
WRITTEN OF
PREMIUMS TOTAL
<S> <C> <C>
Contract business.......... $30,423 69.8%
Brokerage business......... 11,048 25.4
Environmental business..... 2,087 4.8
Specialty business......... 28 --
Other(1)................... (15) --
-------- -------
Total...................... $43,571 100.0%
-------- -------
-------- -------
</TABLE>
- ------------------
(1) For the three months ended March 31, 1998, the amounts presented exclude
$657,000 of workers' compensation premiums written by Colony and reinsured
100.0% by Rockwood.
Contract Business. Contract business principally consists of general
liability policies written for commercial enterprises which are produced,
underwritten, priced and bound by one of Colony's wholesale agents in
accordance with specific guidelines developed by Colony's underwriting
staff and set forth in Colony's underwriting manual. After this business is
written by agents, the contracts are sent to Colony's offices where they
are re-underwritten by Colony's underwriting staff. All claims handling
authority with respect to this business remains with Colony and no
reinsurance is placed by agents. The enterprises insured through Colony's
contract business tend to be smaller, independently owned businesses, where
the business owner is often a key employee of the insured business.
Contract business policies are commonly written for restaurants, artisan
contractors, day-care centers, garages and convenience stores. The low
average premium (less than $2,000), combined with the perceived risks
related to these businesses, has traditionally caused standard insurance
companies to avoid writing these types of risks. Colony believes that,
properly screened and priced, these accounts can be profitable.
Brokerage Business. Brokerage business principally consists of
general liability and products liability coverage, where the product will
be used in an industrial setting. Brokerage business is submitted to Colony
by the same wholesale agents who produce contract business, and by some
wholesale agents appointed only for this category of business. Brokerage
business is distinguished from contract business by the fact that the
underwriting authority on these policies remains solely with Colony and not
with the agents. Brokerage business may fall into the same risk classes as
contract business, but because of the more complex nature or larger size of
the account it may be treated as brokerage business rather than contract
business. A substantial portion of Colony's brokerage business is written
for industrial contractors, fabricators and manufacturers. While many of
the risks underwritten as brokerage business might be deemed hazardous by
standard carriers, the Company believes that its specialized underwriting
knowledge and discipline enables it to distinguish among such risks and
earn an underwriting profit insuring such risks. Typical premiums for
Colony's brokerage business are between $7,500 and $12,500, which fall
beneath the minimum premium requirements of many larger competitors.
Environmental Business. Environmental business consists of insurance
policies covering environmental risks. Environmental business is produced
and underwritten in the same fashion as brokerage business; however,
environmental business may occasionally be produced by retail agents in
addition to wholesale agents. Colony currently writes several products in
this class, including contractors' pollution liability, errors and omission
insurance for small environmental consultants; pollution legal liability
insurance for property owners and lenders, underground and above-ground
petroleum storage tank insurance, first and third-party pollution cleanup
coverage, environmental liability insurance for dry cleaners and
environmental cleanup coverage for agri-chemical dealers. Over time, Colony
has developed an expertise underwriting these types of risks. The manager
of this business has a Masters Degree in Environmental Science and
extensive experience with another specialist in the environmental insurance
field. Coverages are written on a claims-made basis, generally with policy
limits applying to both defense and cleanup costs. The average premium for
this type of business is approximately $2,300. Since l996, Colony has
expanded its offerings in this area, and environmental business is
currently one
41
<PAGE>
of the Company's targeted growth areas. Between the first quarter of 1997
and the first quarter of 1998, Colony's environmental business gross
written premiums grew by 26.4%.
Specialty Business. Specialty business consists of professional
liability coverages written for classes which Colony has identified as
underserved by traditional underwriters of professional liability
coverages. Specialty business is produced and underwritten in the same
fashion as brokerage business. A major emphasis for Colony in this category
has been health care providers other than physicians. Colony offers
coverage to small convalescent homes, artificial limb fitters, dental labs,
alcohol detoxification facilities and other health care providers working
away from a physician's office or clinic. Specialty business also includes
coverages written for computer consultants, insurance agents and exercise
facilities. Colony believes that, properly screened and priced, these
accounts can be profitable. The average premiums in this class is
approximately $3,500. Specialty business is currently one of the Company's
targeted growth areas. Between the first quarter of 1997 and the first
quarter of 1998, Colony's specialty business gross written premiums grew by
61.5%.
Marketing and Distribution. Colony markets its products through a select
group of wholesale agents who have demonstrated that they can consistently
produce quality business for the Company. These agents, in turn, generally
obtain premium from independent, or 'retail,' agents who do not have direct
access to insurance carriers willing to write specialty insurance. When retail
agents encounter a specialty risk, they generally approach a wholesale agent who
has access to companies willing to accept these risks. Colony utilizes this
distribution system because it believes wholesale agents represent the most
effective method of collecting risks from retail agents. The 133 wholesale agent
offices with which Colony maintains relationships service over 30,000 retail
agents. Instead of having infrequent contacts with each of these retail agents,
Colony maintains close relationships with a much more limited number of
wholesale agents.
Colony's wholesale agents cover the cost of marketing to the retail agents
in their area, and handle agent inquiries about coverage, pricing and
administrative matters. In addition, for Colony's contract business, wholesale
agents review applications, price business (based on schedules from Colony),
bind the coverage and issue Colony's policies.
The Company selects its wholesale agents based upon management's review of
the experience and performance record of the agents in charge of each office.
While many of Colony's agents have more than one office around the country,
Colony evaluates each office as if it were a separate agency. Often, Colony
appoints some but not all offices owned by an agency for specialized lines of
business. Colony may designate only a specific employee of the agent as having
underwriting authority under the agreement. The Company seeks agents with
written business plans that are consistent with the Company's own strategy and
underwriting objectives. Agents must be able to demonstrate an ability to
competently underwrite both the quality and quantity of business sought by
Colony. Colony requires its agents to maintain in-force errors and omissions
insurance coverage with limits of not less than $500,000. Not all agents
appointed by Colony are granted authority to produce contract, brokerage,
environmental and specialty business. The Company evaluates the ability of an
agent to produce these lines on an individual basis. Agents who are unable to
produce consistently profitable business, or who produce unacceptably low
volumes of business, are terminated. Colony's underwriters regularly visit with
agents in their offices in order to review policies produced by that agency,
discuss products offered by the Company, and market to these agents.
Colony's largest single agent has 31 offices nationwide, but Colony has
approved and contracted with only 26 of those offices. This agent produced 23.5%
and 25.4% of Colony's business in 1996 and 1997, respectively. No more than 5.1%
of Colony's business comes from any one single office of this agent. Three of
Colony's top five producers are independently owned agencies and, other than
Colony's top producer, no other agency produced more than 6.0% of Colony's
business in 1996 or 1997. Colony is seeking selectively to add agents in order
to expand its presence in existing territories and to take advantage of
particular knowledge developed by certain agents.
The Company believes that the economics of the wholesale distribution
system are such that wholesale agents are reducing the number of companies with
which they do business in order to make their operations more cost efficient.
The Company believes that it has a reputation for excellent service to agents,
and that this reputation will allow Colony to expand its share of its agents'
business as agents reduce the total number of carriers with which they do
business.
Underwriting. Colony's underwriting staff consists of 17 underwriters who
have an average of over 12 years of underwriting experience. Colony believes
that it has assembled an underwriting staff that is highly skilled in
42
<PAGE>
underwriting the types of coverage provided by Colony. This staff develops all
of Colony's underwriting policies and manuals and meets regularly with members
of Colony's marketing and claims departments.
Colony's contract business is underwritten by Colony's wholesale agents and
is re-underwritten by Colony's underwriting staff after policies are received by
Colony. Colony's brokerage, environmental and specialty business is underwritten
exclusively by Colony's underwriting staff.
The authority granted to Colony's wholesale agents is limited. Colony has
developed detailed underwriting manuals which are provided to its agents. The
agents that write contract business receive applications on behalf of Colony,
price business (based on schedules from Colony), bind the coverages, and issue
Colony policies. Colony has carefully constructed its manual in such a way as to
cause its agents to contact the Company before issuing all but the most routine
policies. In this way, the Company's underwriting staff is able to guide agents
in advance of issuing a policy and mistakes are reduced. The applications
received by the agent and the policies and endorsements issued by them are
reviewed in each case by a Colony underwriter. If necessary, Colony has the
option to cancel or modify coverage at any time, typically within 45 to 75 days
of the original issuance of the policy. The Company also annually conducts a
series of two and three-day training seminars for its agents. The Company
believes these seminars contribute to its agents having an understanding of
Colony's underwriting criteria.
The following table sets forth the recent accident year experience for
Colony as compared to industry results.
COMPARISON OF COLONY AND INDUSTRY RATIOS(1)
<TABLE>
<CAPTION>
ACCIDENT COLONY TOTAL INDUSTRY TOTAL VARIANCE TO INDUSTRY
YEAR ALL LINES(2) ALL LINES(3) FAVORABLE/(UNFAVORABLE)
<S> <C> <C> <C>
1990 76.5% 82.3% 5.8%
1991 64.1 81.1 17.0
1992 72.4 88.1 15.7
1993 69.5 79.5 10.0
1994 61.4 81.1 19.7
1995 58.6 78.9 20.3
1996 62.8 78.3 15.5
1997 67.4 72.8 5.4
</TABLE>
- ------------------
(1) Accident year loss ratios include allocated and unallocated loss adjustment
expenses.
(2) Results are from Colony's 1997 Annual Statement, Schedule P--Analysis of
Losses and Loss Expenses.
(3) Source: A.M. Best.
Claims. Colony's claims department consists of 13 claims professionals who
have an average of 12 years of claims experience in the property and casualty
industry. The Vice President of claims is an attorney with 33 years of claims
experience in large commercial and medium-sized specialty insurance companies
and has been employed by Colony for the past six years.
Colony's business generally results in three types of claims: bodily injury
liability, property damage liability and first party property losses. The claims
staff is organized so as to bring specialized knowledge and skills in each of
the three types of claims.
Colony believes that the key to effective claims management is timely and
thorough claims investigation (which Colony believes results in accurate
reserves), improved defenses and proper settlements. Colony seeks to complete
all investigations and adjust reserves appropriately within 30 days of receipt
of a claim. Within 60 days of receiving a claim, senior management reviews each
case to ensure that the front-line adjuster has recognized and is addressing the
key issues in the case and has adjusted the reserve to the appropriate amount.
Colony keeps the settlement authority of its front-line adjusters low to ensure
the practice of having two or more members of the department participate in the
decision whether to settle or defend. In addition, cases with unusual damage,
liability or policy interpretation issues are subjected to peer review on a
weekly basis, and members of the underwriting staff participate in this process.
Prior to any scheduled mediation or trial of a claim, claims personnel conduct
further peer review to make sure all issues and exposures have been fully
analyzed.
43
<PAGE>
Litigation expense is Colony's second largest component of overall claims
costs. The Company believes that effective management of litigation avoids
delays and associated additional costs. Early mediation is utilized to narrow
the issues and streamline the problem solving process.
The claims department also contributes to Colony's operations through its
interaction with the underwriting staff. Information on changes in the business
and legal environment that pose either a risk or opportunity for a new or
refined insurance product is also sent to the underwriters. The claims staff
participates on a regular basis in the drafting of policy forms to help ensure
that the language clearly describes the underwriter's intent.
Reserves. The Company's policy is to have reserves set by the management
of each of its subsidiaries. Colony sets case reserves for each reported claim
as promptly as possible after receiving notice of the claim and developing
sufficient information to form a judgement about the probable ultimate loss and
loss adjustment expense associated with that claim.
In addition, Colony establishes reserves on an aggregate basis to provide
for IBNR claims. The Company's independent actuarial consultant annually reviews
the provision for such IBNR reserves and for reserves taken as a whole. Colony
does not discount its loss reserves.
The estimates of reserves are subject to change based on the effect of
trends in the severity and frequency of losses and are continually reviewed. As
part of this process, the Company reviews historical data and considers various
factors, including known and anticipated legal developments, changes in social
attitudes, inflation and economic conditions. As experience develops and other
data becomes available, these estimates are revised, as required, resulting in
increases or decreases to existing reserves. Adjustments are reflected in
results of operations in the period in which they are made and may deviate
substantially from prior estimates. The establishment of reserves is an
inherently subjective process and, therefore, the historical gross or net
redundancies or deficiencies are not indicative of the likelihood or amount of
future redundancies or deficiencies. The Company's reserve estimates change as
more information becomes available about the frequency or severity of claims.
The following tables show the development and payment of loss and loss
adjustment expenses for Colony over the 10-year period ended December 31, 1997.
The table includes Colony only, as Rockwood is presented separately under
'--Rockwood--Reserves.' The total reserves on the Company's balance sheet at
December 31, 1997 include both those of Colony and Rockwood.
Except for the last 16 lines, the table on the following page presents the
development of the reserve for unpaid losses and LAE, net of reinsurance, for
1987 through 1997. The last 16 lines present that type of development on a
'gross-of-reinsurance' basis for the periods following adoption of FASB
Statement 113 as of January 1, 1993. The top line of the table shows the
estimated reserve for unpaid losses and LAE reported at the December 31 balance
sheet date, net of reinsurance recoverables on unpaid claims. That net reserve
represents the estimated amount of losses and LAE for claims occurring in all
prior years that are unpaid as of that balance sheet date, including losses that
had been incurred but not yet reported to Colony. The upper portion of the table
shows the re-estimated amounts of the previously reported reserve based on
experience as of the end of each succeeding year. The estimate is increased or
decreased as claims are settled and as more information becomes known about the
frequency or severity of the claims incurred.
The amounts on the 'Net cumulative (deficiency)/redundancy' line represent
the aggregate change in the estimates over all prior years. For example, the
1987 reserve has developed an approximate $500,000 redundancy over 10 years.
That amount has been included in operations over the 10 years. The effects on
income caused by changes in estimates of the reserve for losses and LAE for the
past three years are shown in a subsequent three-year loss development table.
44
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve for
unpaid losses
and loss
adjustment
expenses, net
of reinsur-
ance recover-
ables(1)..... $27,683 $20,412 $19,126 $20,821 $26,795 $30,969 $ 32,478 $ 38,872 $ 42,635 $ 47,365 $51,783
Net reserve
re-estimated
as of(2):
One year
later.... $29,936 $14,740 $18,005 $21,379 $25,439 $32,867 $ 36,303 $ 38,486 $ 41,602 $ 45,198 --
Two years
later.... 25,256 14,225 18,267 21,008 25,631 35,680 36,423 38,021 40,049
Three years
later.... 24,915 14,937 17,563 20,108 27,800 35,184 36,638 37,358
Four years
later.... 26,623 14,369 17,057 27,730 28,204 35,565 36,560
Five years
later.... 25,765 13,841 19,875 22,820 28,259 34,971
Six years
later.... 25,320 16,375 19,849 22,502 27,745
Seven years
later.... 27,961 16,363 19,576 22,266
Eight years
later.... 27,892 15,678 19,416
Nine years
later.... 27,227 15,669
Ten years
later.... 27,230
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Net cumulative
(deficiency)/
redundancy... $ 453 $ 4,743 $ (290) $(1,445) $ (950) $(4,002) $ (4,082) $ 1,514 $ 2,586 $ 2,167
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Cumulative
amount of
reserve paid,
net of
reserve
recoveries(3)
through:
One year
later.... $13,524 $ 3,079 $ 5,471 $ 6,479 $ 8,474 $15,077 $ 14,789 $ 13,081 $ 14,499 $ 14,668 --
Two years
later.... 15,725 6,385 8,796 10,821 15,884 23,477 22,676 23,511 24,171
Three years
later.... 18,892 8,524 11,280 14,790 21,411 27,115 28,798 29,073
Four years
later.... 21,246 10,081 13,334 18,147 23,293 30,254 31,900
Five years
later.... 22,426 11,247 16,098 19,070 25,057 31,870
Six years
later.... 23,292 13,551 16,456 19,688 25,620
Seven years
later.... 25,456 13,899 16,927 20,276
Eight years
later.... 25,479 14,090 17,496
Nine years
later.... 25,654 14,619
Ten years
later.... 26,180
Net reserve
December 31.............................................................. $ 32,478 $ 38,872 $ 42,635 $ 47,365 $51,783
Reinsurance
recoverable.............................................................. 6,533 12,803 12,073 11,381 10,516
-------- -------- -------- -------- -------
Gross reserve
December 31.............................................................. $ 39,011 $ 51,675 $ 54,708 $ 58,746 $62,299
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Net reserve
re-estimated
1 year later............................................................. $ 36,303 $ 38,486 $ 41,602 $ 45,198
Reinsurance
recoverable
re-estimated............................................................. 11,803 27,355 12,464 11,450
-------- -------- -------- --------
Gross reserve
re-estimated
1 year later............................................................. $ 48,106 $ 65,841 $ 54,066 $ 56,648
-------- -------- -------- --------
-------- -------- -------- --------
Net reserve
re-estimated
2 years later............................................................ $ 36,423 $ 38,021 $ 40,049
Reinsurance
recoverable,
re-estimated............................................................. 22,321 28,495 12,445
-------- -------- --------
Gross reserve
re-estimated
2 years later............................................................ $ 58,744 $ 66,516 $ 52,494
-------- -------- --------
-------- -------- --------
Net reserve
re-estimated
3 years later............................................................ $ 36,638 $ 37,358
Reinsurance
recoverable,
re-estimated............................................................. 24,032 28,295
-------- --------
Gross reserve
re-estimated
3 years later............................................................ $ 60,670 $ 65,653
-------- --------
-------- --------
Net reserve
re-estimated
4 years later............................................................ $ 36,560
Reinsurance
recoverable,
re-estimated............................................................. 24,015
--------
Gross reserve
re-estimated............................................................. $ 60,575
--------
--------
Gross cumula-
tive (defi-
ciency)/re-
dundancy................................................................. $(21,564) $(13,978) $ 2,214 $ 2,098
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
(1) This represents unpaid losses and LAE for claims arising in the current year
and all prior years that were unpaid as of the date indicated, including
IBNR reserves.
(2) Reflects the amounts of unpaid losses and loss adjustment expenses which the
Company would have originally established based on experience as of the end
of each succeeding year. These amounts were
(Footnotes continued on next page)
45
<PAGE>
(Footnotes continued from previous page)
calculated as the sum of the cumulative paid amounts described in (3) below,
plus the amounts of unpaid losses and LAE as determined at the end of each
succeeding year-end.
(3) Reflects the amounts of paid losses and LAE subsequent to the year in which
the original reserves were established.
There was adverse development on an assumed Financial Guaranty (Investor
Bond) program (which has been discontinued) in 1987 and 1988, with some
offsetting salvage recoveries recorded in 1989. Adverse development also
resulted from recording additional reserves on asbestos and other claims in
1994, related to polices which were in force in 1986 and prior. With respect to
the gross reserve development, prior to 1995 (and the acquisition of Colony by
Front Royal) Colony focused on recording adequate net IBNR reserves, but
generally underestimated the ceded portion of IBNR reserves (as well as
applicable reinsurance recoverables). As a result of the foregoing, the gross
reserve development shows a consistent deficiency development prior to 1995.
The lower section of the table on the preceding page shows the cumulative
amounts paid with respect to the previously reported reserve as of the end of
each succeeding year. For example, through December 31, 1997 Colony had paid a
net $26.2 million of the currently estimated $27.2 million of losses and LAE
that were unpaid as of December 31, 1987; thus, an estimated $1.0 million of
losses incurred through 1987 remain unpaid as of December 31, 1997.
In evaluating the information in the foregoing table, it should be noted
that each amount includes the effects of all changes in amounts for prior
periods. For example, the amount of the deficiency related to losses settled in
1990 but incurred in 1987 will be included in the cumulative deficiency amount
for years 1987 through 1989. The table does not present accident or policy year
development data, which readers may be more accustomed to analyzing. Conditions
and trends that have affected the development of the liability in the past may
not necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
The following table summarizes the differences between the reserve for
unpaid losses and LAE reported in Colony's consolidated financial statements
prepared in accordance with GAAP and those reported in the annual statement
filed with state insurance departments in accordance with SAP:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reserve for unpaid losses and LAE on a SAP basis (i.e., net of
reinsurance recoverables on unpaid losses)........................... $51,783 $47,365 $42,635
Reinsurance recoverables on unpaid losses and LAE...................... 10,516 11,381 12,073
Additional reserve for other historical exposures for GAAP reporting
purposes............................................................. -- 1,525 1,525
------- ------- -------
Reserve for unpaid losses and LAE, as reported in the Companys
GAAP-basis financial statements(1)................................... $62,299 $60,271 $56,233
------- ------- -------
------- ------- -------
</TABLE>
- ------------------
(1) For the December 31, 1996 and 1997 financial statements, the Colony reserves
presented here should be combined with those of Rockwood presented
separately under '--Rockwood--Reserves.'
46
<PAGE>
The following table provides a reconciliation of the beginning and ending
reserve balances for losses and LAE, net of reinsurance, for 1997, 1996 and 1995
to the gross amounts reported on the balance sheet for Colony:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reserves for losses and LAE, net of related reinsurance recoverables, at
beginning of year.............................................................. $47,365 $42,635 $38,872
Add:
Provision for losses and LAE for claims occurring in the current year, net of
reinsurance................................................................. 29,283 27,058 22,870
Decrease in incurred losses and LAE for claims occurring in prior years, net of
reinsurance................................................................. (2,167) (948) (304)
------- ------- -------
Incurred losses and LAE during the current year, net of reinsurance............ 27,116 26,110 22,566
------- ------- -------
Deduct:
Losses and LAE payments for claims, net of reinsurance, occurring during:
Current year................................................................... (8,030) (6,325) (5,642)
Prior years.................................................................... (14,668) (15,055) (13,161)
------- ------- -------
Total loss and LAE payments, net of reinsurance................................ (22,698) (21,380) (18,803)
------- ------- -------
Reserve for losses and LAE, net of reinsurance recoverables, at end of year...... 51,783 47,365 42,635
Reinsurance recoverables on unpaid losses and LAE at end of year................. 10,516 11,381 12,073
------- ------- -------
Reserve for losses and LAE, gross of reinsurance recoverables on unpaid losses
and LAE, at end of year........................................................ $62,299 $58,746 $54,708
------- ------- -------
------- ------- -------
</TABLE>
PREFERRED NATIONAL
General. On March 6, 1998, the Company executed a definitive agreement to
purchase the stock of Preferred National, substantially all of the assets and
business of UnaMark and certain other assets and liabilities for a total
purchase price of $35.0 million in cash, subject to adjustment, 500,000 shares
of Class A Common Stock and the Preferred National Warrants. The Preferred
National Acquisition is subject to regulatory approvals, and the cash portion of
the purchase price is subject to adjustment based on Preferred National's levels
of GAAP book value, SAP surplus, and cash and invested assets as of the month
end immediately prior to closing.
The Company expects that the Preferred National Acquisition will be
completed in July 1998. The Company believes that Preferred National will
enhance Colony by adding to the scale of Colony's operations and by broadening
the scope of the Company's offerings. Preferred National focuses on many of the
same coverages and risk classes as does Colony. In addition, Preferred National
offers surety, property and inland marine coverages not offered by Colony.
Approximately 60% of Preferred National's business is written on an admitted
basis in Florida. Preferred National is rated 'B++' by A.M. Best.
Following the Preferred National Acquisition, Preferred National will be
managed by Colony Management, which will be responsible for all underwriting and
claims management activities. The Company anticipates that the same policies and
operating philosophy currently applied to Colony will be applied to Preferred
National. See '--Colony--Underwriting' and '--Colony--Claims.' Preferred
National currently operates from offices located in Coral Springs, Florida and
Hightstown, New Jersey, and Front Royal intends to maintain these facilities.
Formed in 1989, Preferred National commenced material operations in 1996.
Preferred National is a wholly-owned subsidiary of Preferred National Financial
Corporation, which also owns Britamco Underwriters, Inc., a former syndicate on
the Illinois Insurance Exchange ('Britamco'). Britamco is now in runoff, having
ceased writing insurance in 1997. Many of the policies written by Britamco were
renewed on expiration by Preferred
47
<PAGE>
National. Front Royal will not acquire Britamco or assume any liabilities
associated with business written by Britamco as part of the Preferred National
Acquisition.
Lines of Business. Approximately 60% of Preferred National's business
originates in Florida and is written on an admitted basis. In 1997, Preferred
National wrote $46.1 million in gross written premium. Preferred National
divides its business into four major segments: commercial multi-peril; other
general liability; professional liability coverages; and surety. In 1998,
Preferred National hired an experienced inland marine insurance underwriter and
began to offer inland marine insurance, which it had not previously
underwritten.
The following table sets forth gross written premiums for Preferred
National by line of business for the periods set forth below (all amounts
presented below are on a SAP basis; the differences between GAAP and SAP amounts
are not material):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------------------------------------- ---------------------------
1998 1997 1997
--------------------------- --------------------------- ---------------------------
GROSS WRITTEN PERCENT OF GROSS WRITTEN PERCENT OF GROSS WRITTEN PERCENT OF
PREMIUMS TOTAL PREMIUMS TOTAL PREMIUMS TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial multi-peril.......... $ 5,528 55.8% $ 6,944 55.0% $25,824 56.0%
Other general liability......... 2,130 21.5 3,378 26.8 11,087 24.0
Professional liability.......... 1,306 13.2 1,275 10.0 5,362 11.6
Surety.......................... 766 7.7 848 6.7 3,282 7.1
Other........................... 182 1.8 179 1.5 578 1.3
------------- ---------- ------------- ---------- ------------- ----------
Total...................... $ 9,912 100.0% $12,624 100.0% $46,133 100.0%
------------- ---------- ------------- ---------- ------------- ----------
------------- ---------- ------------- ---------- ------------- ----------
</TABLE>
Commercial Multi-Peril Policies. These policies cover both property
and liability risks for small businesses. Classes sought out by Preferred
National include restaurants and taverns, strip shopping centers, apartment
buildings, condominiums, and small office facilities. In 1997, $25.8
million (56.0%) of Preferred National's gross written premiums was from
commercial multi-peril insurance. In recent years, Preferred National has
successfully underwritten property risks in Florida, where the Company
believes there are greater opportunities to profitably underwrite property
coverages than exist in other areas of the country which are less subject
to hurricane activities.
Other General Liability. Preferred National writes liability
insurance for artisan contractors, liquor liability coverages for bars,
liability coverage for beauty salons and fitness clubs, insurance for
contractors working at marinas and employment practices liability coverage.
Other general liability coverages accounted for $11.1 million (24.0%) of
gross written premiums in 1997.
Professional Liability Coverages. Preferred National sells
professional liability insurance to lawyers, accountants, dentists and
title agents. In 1997, this line accounted for $5.4 million (11.6%) of
gross written premiums for Preferred National. A substantial portion of the
professional liability insurance written by Preferred National is
distributed through risk purchasing groups which communicate directly to
their members. Preferred National's policies are endorsed by the American
Society of Accountants, Inc., the National Society of Dental Practitioners,
Inc., the North American Title Organization, Inc. and the National Lawyers
Risk Management Association, Inc. An affiliate of Preferred National serves
as program administrator for these associations. The Company believes that
there is an opportunity to expand the amount of professional liability
business distributed directly through these risk purchasing groups.
Surety. Preferred National writes surety policies for small and
mid-sized contractors, primarily in Florida. In 1997, surety underwriting
generated $3.3 million (7.1%) in gross written premiums for Preferred
National.
Marketing and Distribution. Preferred National offers its products through
wholesale agents. Of the 154 agent offices representing Preferred National, 40
also have an appointment with Colony. Preferred National's largest wholesale
agent is UnaMark, a captive agency the business of which will be acquired by the
Company in the Preferred National Acquisition. Through UnaMark and its other
agents, the Company believes that Preferred National has access to over 20,000
retail agents. Preferred National also distributes insurance through retail
agents who produce its surety business and through four risk-purchasing groups
which have direct
48
<PAGE>
communications with insureds who purchase Preferred National's professional
liability coverages. Preferred National is admitted in Florida and Illinois and
is approved as a non-admitted insurer in 36 states.
Direct marketing through the four risk purchasing groups referenced above
generated $4.9 million of gross written premiums in 1997, or 10.7% of the total.
Retail agents, appointed for the purpose of producing surety business, produced
$3.3 million of gross written premiums, or 7.2% of gross written premiums for
1997. The balance of Preferred National's premiums were produced by independent
wholesale agents.
Of the ten largest wholesale agents (excluding UnaMark), no agent accounted
for more than 3.0% of total premiums collected.
ROCKWOOD
General. Rockwood, which concentrates on writing specialty workers'
compensation insurance, is licensed to write insurance in Pennsylvania,
Maryland, Delaware, West Virginia, Virginia and Indiana. Most of Rockwood's
business is concentrated in Pennsylvania, where Rockwood is domiciled.
Rockwood and its predecessor companies have been writing specialty workers'
compensation insurance for coal mining operations in Pennsylvania for over 40
years. Front Royal acquired Rockwood in December 1996 for $60.5 million, in part
because of the depth of Rockwood's knowledge of this market niche.
Lines of Business. Rockwood separates its business into three broad
workers' compensation categories: workers' compensation for coal mines; workers'
compensation for small premium or specialty commercial accounts; and workers'
compensation for other mining business. In addition, Rockwood writes lesser
amounts of general liability, commercial automobile, commercial multi-peril,
property and surety business, primarily for the same accounts for which it
writes workers' compensation insurance.
The following table sets forth gross written premiums for Rockwood by line
of business for the periods set forth below (all amounts presented below are on
a SAP basis; the differences between GAAP and SAP amounts are not material):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1998 1997
--------------------- ---------------------
GROSS PERCENT GROSS PERCENT
WRITTEN OF WRITTEN OF
PREMIUMS TOTAL PREMIUMS TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Workers' compensation
Coal mining................. $4,217 37.1% $6,517 43.9%
Commercial.................. 4,124 36.3 5,396 36.3
Other mining................ 442 3.9 447 3.0
Other lines................... 2,579 22.7 2,490 16.8
--------- ---------- --------- ----------
Total continuing business..... 11,362 100.0 14,850 100.0
Discontinued business(1)...... -- -- -- --
--------- ---------- --------- ----------
Total....................... $11,362 100.0% $14,850 100.0%
--------- ---------- --------- ----------
--------- ---------- --------- ----------
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- ---------------------
GROSS PERCENT GROSS PERCENT GROSS PERCENT
WRITTEN OF WRITTEN OF WRITTEN OF
PREMIUMS TOTAL PREMIUMS TOTAL PREMIUMS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Workers' compensation
Coal mining................. $19,871 40.0% $22,957 33.1% $23,007 35.5%
Commercial.................. 17,715 35.6 22,567 32.5 25,654 39.6
Other mining................ 2,584 5.2 3,140 4.5 3,638 5.6
Other lines................... 9,563 19.2 11,191 16.1 12,051 18.7
-------- ---------- --------- ---------- --------- ----------
Total continuing business..... 49,733 100.0 59,855 86.2 64,350 99.4
Discontinued business(1)...... -- -- 9,543 13.8 382 0.6
-------- ---------- --------- ---------- --------- ----------
Total....................... $49,733 100.0% $69,398 100.0% $64,732 100.0%
-------- ---------- --------- ---------- --------- ----------
-------- ---------- --------- ---------- --------- ----------
</TABLE>
- ------------------
(1) Consists of private passenger auto insurance premiums which are 100.0%
reinsured.
Workers' Compensation--Coal Mining. Workers' compensation
(principally for non-union coal mining operations) is the most distinctive
aspect of Rockwood's business. In 1996, the Pennsylvania Coal Mine
Compensation Rating Bureau reported that Rockwood wrote 44.2% of the total
workers' compensation written premiums for coal mining operations in
Pennsylvania (self-insured companies are not included in this measure). The
second largest writer in this category wrote 25.7% of the total written
premiums. The Company believes that Rockwood's history of evaluating the
quality of mines in this region and its expertise in writing this type of
business, together with its central location in the coal mining region in
western Pennsylvania, gives it a competitive advantage for writing workers'
compensation for coal mining operations. The Company further believes that
Rockwood's expertise in this type of business, including its rigorous
inspection and underwriting process, makes this type of business an
attractive niche for the Company. Rockwood has developed underwriting
techniques which it believes protect the Company
49
<PAGE>
against occupational disease and safety exposures which cause most insurers
to avoid these risks. Over time, as Rockwood continues to grow both its
commercial business and other mining business, the Company expects that the
coal mining related portion of Rockwood's business will represent a smaller
percentage of the total premium written by Rockwood.
Workers' Compensation--Commercial. Rockwood has developed substantial
expertise in writing workers' compensation insurance for small commercial
accounts with an average premium of approximately $2,500. These accounts
are often small businesses which typically fall below the minimum premium
requirements of larger workers' compensation insurance carriers and are
difficult for agents to place. Moreover, agents have relatively little
incentive to shop aggressively to place these accounts because the average
commission paid is very low. Rockwood provides a ready market for this
business if the account meets Rockwood's underwriting standards. Because
there is less competition for accounts of this size, Rockwood believes that
it is able to charge an adequate price for these risks. Rockwood's policy
is to inspect virtually all of these risks during the initial policy term,
which allows Rockwood to confirm the information provided at the time of
underwriting and to adjust premiums, cancel coverage, or not renew the
policy if the information provided was incorrect.
Workers' Compensation--Other Mining Business. Rockwood has also
applied its detailed knowledge of the issues involved in writing workers'
compensation insurance for coal mining operations to evaluate and write
insurance for mining operations other than coal mines. These include
aggregate mines, limestone quarries, sand and gravel operations and
mining-related transportation operations. Like coal mines, these types of
operations are considered hazardous by most writers of workers'
compensation. Rockwood has found that the same rigorous underwriting
process applied to its coal mining operations can be utilized to make the
underwriting of other mining operations attractive to the Company. The
Company believes that the fact that these operations are hazardous is
balanced by the ability of Rockwood to charge premiums developed for the
entire hazardous class while insuring operations the Company believes are
safer than average. The Company believes that Rockwood's expertise in this
area will allow Rockwood to implement its long-term plan of expanding this
business prudently into other states and reducing its reliance on the
coal-mining industry for its profits.
Other Lines. Rockwood's other lines consist primarily of commercial
automobile insurance written for mining operations, general liability
insurance written for insureds where Rockwood also typically writes the
workers compensation insurance and surety business written for mining
operations. Rockwood also writes multi-peril, inland marine and umbrella
liability policies. In most cases, where Rockwood writes a coverage other
than workers' compensation, it also writes workers' compensation for that
enterprise.
Marketing and Distribution. Rockwood produces its business through 659
independent agents and brokers, 15 of whom are responsible for the majority of
Rockwood's workers' compensation insurance for coal mining operations. These
producers generally are selected on the basis of their ability to access
profitable workers' compensation business that is often overlooked by larger
competitors. Rockwood pays commissions which are competitive with other
insurance carriers offering similar products and also believes that it delivers
prompt, efficient and professional support services. Personal contact with its
agency force is maintained by four field representatives through regular visits
to each producer's office. Approximately $14.9 million (21.5%) and $13.0 million
(26.2%) of Rockwood's gross written premiums were derived from two agents for
the years ended December 31, 1996 and 1997, respectively.
Underwriting. Rockwood's underwriting staff, which is comprised of 12
individuals who have an average of 19 years of underwriting experience at
Rockwood, makes all underwriting decisions. Rockwood also has its own
experienced engineering department which makes extensive evaluations of mining
operations before they are underwritten by Rockwood. Rockwood's strict
underwriting guidelines require that each mining operation insured by Rockwood
is inspected annually, and many are reviewed more frequently. Rockwood's
management believes that its detailed knowledge of mining operations, bolstered
by these inspections, plays an important role
50
<PAGE>
in their ability to make informed underwriting decisions. Further, Rockwood
physically inspects substantially all non-mining business for which it writes
workers' compensation prior to the first renewal of the account.
The following table sets forth the recent accident year experience for
Rockwood as compared to the workers' compensation industry:
COMPARISON OF ROCKWOOD AND INDUSTRY LOSS RATIOS(1)
<TABLE>
<CAPTION>
WORKERS' COMPENSATION(2) ALL LINES
----------------------------------------------- -----------------------------------------------
VARIANCE VARIANCE
TO INDUSTRY TO INDUSTRY
ACCIDENT FAVORABLE/ FAVORABLE/
YEAR ROCKWOOD(3) INDUSTRY(4) (UNFAVORABLE) ROCKWOOD(3) INDUSTRY(4) (UNFAVORABLE)
<S> <C> <C> <C> <C> <C> <C>
1990 81.1% 94.6% 13.5% 69.6% 82.3% 12.7%
1991 63.0 99.3 36.3 60.6 81.1 20.5
1992 63.1 97.1 34.0 58.3 88.1 29.8
1993 52.8 84.0 31.2 60.3 79.5 19.2
1994 53.3 73.4 20.1 75.3 81.1 5.8
1995 71.4 67.7 (3.7) 76.2 78.9 2.7
1996 70.2 69.5 (0.7) 74.2 78.3 4.1
1997 71.4 N/A N/A 72.3 72.8 0.5
</TABLE>
- ------------------
(1) Accident year loss ratios include allocated and unallocated loss adjustment
expenses.
(2) Represents approximately 80.8% of Rockwood's gross written premium on its
continuing business for 1997.
(3) Results are from Rockwood's 1997 Schedule P--Analysis of Losses and Loss
Expenses.
(4) Source: A.M. Best.
Claims. Rockwood's claims staff, consisting of 19 individuals who have an
average of 16 years claims management experience at Rockwood, retains complete
authority for handling claims arising from policies issued by Rockwood. The
staff is supervised by an attorney who has 22 years of claims experience in the
insurance industry, including 20 years at Rockwood.
Workers' compensation insurance provides compensation to workers who are
injured or become ill as a result of their employment. These policies provide
for payment of the cost of medical bills associated with covered injuries or
illnesses. In addition, if a claimant suffers lost wages as a result of a
covered work-related injury or illness, the workers' compensation carrier makes
indemnity payments to such worker. Death benefits may also be paid to an injured
worker's family.
Rockwood believes that proper handling of workers' compensation claims
includes at least three steps: (i) determination of a claimant's eligibility for
medical benefits and wage indemnity payments; (ii) ascertaining the appropriate
medical treatment for an injured or ill claimant, and providing appropriate,
cost-effective treatment of covered medical expenses; and (iii) returning the
claimant to work as soon as the claimant is medically capable of resuming work.
Rockwood has organized its claims handling process to effectively and
efficiently address each of these tasks.
Rockwood's policy is to initiate a review of each claim within 24 hours of
receiving notice thereof. This review is conducted by a member of the claims
staff, who develops basic information to determine whether the claim is covered
under the policy terms. In the case of a workers' compensation claim, a typical
investigation will include direct contact with the claimant, the claimant's
employer, and the medical service provider. If the adjuster develops information
which suggests the claim may not be covered, additional investigation is
commenced. This process may include ordering additional medical exams,
surveillance, interviewing witnesses and reviewing police reports. Rockwood's
policy is to promptly pay all sums due under its policies, and to vigorously
contest claims it judges to be unwarranted or not covered by its policies.
Medical cost containment is a key to Rockwood's success as a workers'
compensation carrier. Rockwood has authority under Pennsylvania law (where the
majority of its workers' compensation business is written) to require claimants
to utilize employer-approved physicians during the first 90 days of a claim.
Rockwood has contracted with a variety of preferred provider organizations to
get access to highly qualified physicians at
51
<PAGE>
favorable costs to Rockwood. As a matter of Pennsylvania law, workers'
compensation companies are not required to pay more than a specified percent
above the cost schedules approved by Medicare for medical treatments. Rockwood
reviews the treatment its claimants receive to assure they are being
appropriately treated, consistent with the approach most likely to permit a
rapid recovery and return to work. Rockwood's medical reviews are supervised by
a registered nurse. Complex cases or cases involving traumatic injuries are
referred immediately to a surgeon who serves on a consulting basis as Rockwood's
medical director. All medical bills are reviewed to assure that Rockwood has
received the appropriate discounts.
Rockwood's claims staff has, as one of its primary goals, the rapid return
to work of each claimant. At the outset of each claim which involves both
medical and indemnity payments, Rockwood develops a strategy designed to chart a
course to 'close the claim file.' To help implement these strategies Rockwood
remains in contact with injured or ill claimants and their medical providers
during the entire period of their recovery and works with employers to modify
the workers' duties during a period of convalescence.
In the event that a worker suffers a total disability, Rockwood's policy is
to attempt to reach a total settlement of indemnity and medical claims
associated with the claim. Final settlements permit Rockwood to eliminate the
uncertainty associated with setting appropriate reserves for long-term medical
care and indemnity payments. The authority to make final settlements on total
disability claims was granted in 1996 to Pennsylvania Workers' Compensation
insurers as part of a broad reform of workers' compensation insurance laws in
Pennsylvania.
Rockwood conducts a complete file review on each claim every six months.
This review process is designed to encourage progress on claims resolution, and
to assure that reserves set on each open claim are appropriate and adequate. In
addition to the six-month review, open claim files are audited annually by
Rockwood's claims audit unit.
Rockwood's financial statements show favorable reserve development in 1997
and 1996 of $4.3 million and $23.8 million, respectively. The table referred to
below provides details of reserves held at the end of each of the past 10 years
and subsequent development of those reserves. The Company attributes the
favorable development in recent years largely to the effect of Pennsylvania Act
44, enacted in September 1993 ('Act 44'), which significantly changed workers'
compensation insurance in Pennsylvania. These changes included introduction of
managed care and a system of medical reimbursement based upon the Medicare
system. The changes had the effect of lowering medical costs to workers'
compensation carriers. Rockwood began to see the favorable effects of Act 44 on
medical costs in 1994 and 1995 and began to cautiously adjust its reserve
estimates to give effect to the lower costs. Rockwood's SAP loss ratio declined
from 86.1% in 1993 to 81.9% in 1994 and 68.4% in 1995. By mid-1996, with ten
quarters of post Act 44 loss experience available, Rockwood revised its
estimates of the ultimate net cost of all reported and unreported losses
incurred through December 31, 1996, and adjusted the estimates downward by
approximately $23.8 million. Rockwood also reduced its provision for losses and
loss adjustment expenses occurring in the current year from 87.3% of earned
premiums in 1994 and 84.3% of earned premiums in 1995 to 71.5% of earned
premiums in 1996 and 72.3% of earned premiums in 1997.
Reserves. The Company's policy is to have reserves set by the management
of each of its subsidiaries. Management of Rockwood sets case reserves for each
reported claim as promptly as possible after receiving notice of the claim and
developing sufficient information to form a judgement about the probable
ultimate cost.
In addition, management of Rockwood establishes reserves on an aggregate
basis to provide for IBNR claims. The Company's independent actuarial consultant
annually reviews the provision for IBNR and the reserves taken as a whole.
Because of the long periods over which claims may be paid on workers'
compensation business, Rockwood has historically discounted its reserves related
to its workers' compensation business for both GAAP and SAP financial reporting
purposes. The discount rate at December 31, 1997, 1996 and 1995 of 4.0% has been
determined in accordance with the regulations of the Pennsylvania Insurance
Department, which allows a discount of up to 6.0%. The amount of the discount
for Rockwood's reserves at December 31, 1997 was $15.1 million.
The estimates of reserves are subject to change based on the effect of
trends in the severity and frequency of losses and are continually reviewed. As
part of this process, the Company reviews historical data and considers various
factors, including known and anticipated legal developments, changes in social
attitudes, inflation and
52
<PAGE>
economic conditions. As experience develops and other data becomes available,
these estimates are revised, as required, resulting in increases or decreases to
existing reserves. Adjustments are reflected in results of operations in the
period in which they are made and may deviate substantially from prior
estimates. The establishment of reserves is an inherently subjective process
and, therefore, the historical gross or net redundancies or deficiencies are not
indicative of the likelihood or amount of future redundancies or deficiencies.
The Company's reserve estimates change as more information becomes available
about the frequency or severity of claims.
The following tables show the development and payment of loss and loss
adjustment expenses for Rockwood over the 10-year period ended December 31,
1997. The table includes Rockwood only and includes data prior to the
acquisition of Rockwood by the Company on December 31, 1996. The total reserves
on the Company's balance sheet at December 31, 1997 include both those of Colony
and Rockwood.
Except for the last 18 lines, the table on the following page presents the
development of the reserve for unpaid losses and LAE, net of reinsurance, for
1987 through 1997 (the last 18 lines present that type of development on a
'gross-of-reinsurance' basis for the periods following adoption of FASB
Statement 113 as of January 1, 1993). The top line of the table shows the
estimated reserve for unpaid losses and LAE reported at the December 31 balance
sheet date, net of reinsurance recoverables on unpaid claims, at each of the
dates indicated. That net reserve represents the estimated amount of losses and
LAE for claims occurring in all prior years that are unpaid as of that balance
sheet date, including losses that had been incurred but not yet reported to
Rockwood. The upper portion of the table shows the re-estimated amounts of the
previously reported reserve based on experience as of the end of each succeeding
year. The estimate is increased or decreased as claims are settled and as more
information becomes known about the frequency or severity of the claims
incurred.
The amounts on the 'Net cumulative (deficiency)/redundancy' line represent
the aggregate change in the estimates over all prior years. For example, the
1987 reserve has developed an approximate $5.5 million deficiency over ten
years. That amount has been included in operations over the ten years. The
effects on income caused by changes in estimates of the reserve for losses and
LAE for the past three years are shown in a subsequent three-year loss
development table.
53
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve for
unpaid losses
and loss
adjustment
expenses, net
of
reinsurance
recoverables,
net of
discount(1).. $ 19,476 $ 25,007 $ 31,920 $ 35,156 $51,979 $66,138 $ 86,290 $106,392 $120,934 $113,448 $121,004
Discount on
net
reserves... 424 813 2,728 6,348 9,964 12,883 11,701 14,794 17,139 15,509 15,061
-------- -------- -------- -------- ------- ------- -------- -------- -------- -------- --------
Net reserve,
gross of
discount... $ 19,900 $ 25,820 $ 34,648 $ 41,504 $61,943 $79,021 $ 97,991 $121,186 $138,073 $128,957 $136,065
Net reserve
re-estimated
as of(2):
One year
later.... $ 21,765 $ 28,760 $ 35,994 $ 45,647 $63,256 $79,208 $ 97,646 $114,585 $114,317 $124,673 --
Two years
later.... 22,735 28,682 38,760 47,123 64,605 80,000 93,262 95,994 107,897
Three years
later.... 21,789 30,258 38,857 46,751 65,818 77,471 77,406 88,589
Four years
later.... 23,054 29,992 38,665 49,035 64,692 68,500 70,344
Five years
later.... 23,092 29,939 40,319 48,708 59,284 62,311
Six years
later.... 23,216 31,488 40,458 45,261 54,914
Seven years
later.... 24,737 31,987 38,648 43,044
Eight years
later.... 25,351 31,099 38,541
Nine years
later.... 25,000 31,311
Ten years
later.... 25,368
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
Net cumulative
(deficiency)/
redundancy... $ (5,468) $ (5,491) $ (3,893) $ (1,540) $ 7,029 $16,710 $ 27,646 $ 32,597 $ 30,176 $ 4,284
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
-------- -------- -------- -------- ------- ------- -------- -------- -------- --------
Cumulative
amount of
reserve paid,
net of
reserve
recoveries(3)
through:
One year
later.... $ 5,603 $ 6,616 $ 14,251 $ 10,399 $14,107 $17,460 $ 16,084 $ 17,162 $ 16,850 $ 17,091 --
Two years
later.... 8,722 19,862 17,996 18,564 25,070 27,987 27,579 28,906 28,320
Three years
later.... 17,495 21,681 21,849 24,798 31,491 35,195 35,158 37,004
Four years
later.... 18,244 23,534 24,107 28,456 36,392 40,116 40,908
Five years
later.... 19,025 24,740 25,680 31,139 39,607 43,797
Six years
later.... 19,623 25,663 26,965 33,462 41,879
Seven years
later.... 19,997 26,540 28,361 35,043
Eight years
later.... 20,735 27,286 28,999
Nine years
later.... 21,298 27,775
Ten years
Later.... 21,508
Net reserve,
gross of
discount--
December 31............................................................ $ 97,991 $121,186 $138,073 $128,957 $136,065
Discount on net
reserve--
December 31............................................................ (11,701) (14,794) (17,139) (15,509) (15,061)
-------- -------- -------- -------- --------
Net reserve,
net of
discount--
December 31............................................................ 86,290 106,392 120,934 113,448 121,004
Reinsurance
recoverable,
net of
discount................................................................ 8,192 8,988 11,320 14,356 12,028
-------- -------- -------- -------- --------
Gross reserve,
net of
discount--
December 31............................................................ $ 94,482 $115,380 $132,254 $127,804 $133,032
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net reserve
re-estimated,
net of
discount--
1 year later........................................................... $ 85,945 $ 99,791 $ 97,178 $109,164
Reinsurance
recoverable,
net of
discount,
re-estimated........................................................... 7,288 9,445 9,065 13,326
-------- -------- -------- --------
Gross reserve
re-estimated,
net of
discount--
1 year later........................................................... $ 93,233 $109,236 $106,243 $122,490
-------- -------- -------- --------
-------- -------- -------- --------
Net reserve
re-estimated,
net of
discount--
2 years later.......................................................... $ 81,561 $ 81,200 $ 90,758
Reinsurance
recoverable,
net of
discount,
re-estimated............................................................ 7,512 7,883 7,888
-------- -------- --------
Gross reserve
re-estimated,
net of
discount--
2 years later.......................................................... $ 89,073 $ 89,083 $ 98,646
-------- -------- --------
-------- -------- --------
Net reserve
re-estimated,
net of
discount--
3 years later.......................................................... $ 65,705 $ 73,795
Reinsurance
recoverable,
net of
discount,
re-estimated........................................................... 5,921 7,184
-------- --------
Gross reserve
re-estimated,
net of
discount--
3 years later.......................................................... $ 71,626 $ 80,979
-------- --------
-------- --------
Net reserve
re-estimated,
net of
discount--
4 years later.......................................................... $ 58,643
Reinsurance
recoverable,
net of
discount,
re-estimated........................................................... 5,256
--------
Gross reserve
re-estimated,
net of
discount--
4 years later.......................................................... $ 63,899
--------
--------
Gross cumula-
tive (defi-
ciency)/re-
dundancy............................................................... $ 30,583 $ 34,401 $ 33,608 $ 5,314
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
(1) This represents unpaid losses and LAE for claims arising in the current year
and all prior years that were unpaid as of the date indicated, including
IBNR reserves.
(2) Reflects the amounts of unpaid losses and loss adjustment expenses which the
Company would have originally established based on experience as of the end
of each succeeding year. These amounts were
(Footnotes continued on next page)
54
<PAGE>
(Footnotes continued from previous page)
calculated as the sum of the cumulative paid amounts described in (3) below,
plus the amounts of unpaid losses and LAE reevaluated at the end of each
succeeding year-end.
(3) Reflects the amounts of paid losses and LAE subsequent to the year in which
the original reserves were established.
The lower section of the table on the preceding page shows the cumulative
amounts paid with respect to the previously reported reserve as of the end of
each succeeding year. For example, through December 31, 1997 Rockwood had paid a
net $21.5 million of the currently estimated $25.4 million of losses and LAE
that had been incurred, but not paid, as of December 31, 1987; thus, an
estimated $3.9 million of losses incurred through 1987 remain unpaid as of the
current financial statement date, December 31, 1997.
In evaluating the information in the foregoing table, it should be noted
that each amount includes the effects of all changes in amounts for prior
periods. For example, the amount of the deficiency related to losses settled in
1990 but incurred in 1987 will be included in the cumulative deficiency amount
for years 1991 through 1997. The table does not present accident or policy year
development data, which readers may be more accustomed to analyzing. Conditions
and trends that have affected the development of the liability in the past may
not necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
The following table summarizes the differences between the reserve for
unpaid losses and LAE reported in Rockwood's consolidated financial statements
prepared in accordance with GAAP and those reported in the annual statement
filed with state insurance departments in accordance with SAP:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reserve for unpaid losses and LAE on a SAP basis (i.e., net of
reinsurance recoverables on unpaid losses)....................... $121,004 $113,448 $120,934
Reinsurance recoverables on unpaid losses and LAE.................. 12,028 14,356 11,320
-------- -------- --------
Reserve for unpaid losses and LAE, as reported in the Company's
GAAP-basis financial statements(1)............................... $133,032 $127,804 $132,254
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------------
(1) For the December 31, 1996 and 1997 financial statements, Rockwood reserves
presented here should be combined with those of Colony presented in
'--Colony--Reserves.'
The following table provides a reconciliation of the beginning and ending
reserve balances for loss and LAE, net-of-reinsurance, to the gross amounts
reported in the balance sheet by Rockwood for 1995 on a stand-alone basis and
for 1996 and 1997 included in the consolidated financial statements of the
Company:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reserve for losses and LAE, net of related reinsurance recoverables, at
beginning of year.......................................................... $113,448 $120,934 $106,392
Add:
Provision for losses and LAE for claims occurring in the current year, net
of reinsurance.......................................................... 34,442 37,279 46,653
Decrease in incurred losses and LAE for claims occurring in prior years,
net of reinsurance...................................................... (4,285) (23,755) (6,600)
-------- -------- --------
Incurred losses and LAE during the current year, net of reinsurance and
gross of discount....................................................... 30,157 13,524 40,053
Provision for discount on claims occurring in the current year............. (3,014) (3,169) (4,165)
Amortization of discount on claims occurring in the prior years............ 3,463 4,798 1,820
-------- -------- --------
Incurred losses and LAE during the current year, net of reinsurance and net
of discount............................................................. 30,606 15,153 37,708
-------- -------- --------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deduct:
Losses and LAE payments for claims, net of reinsurance, occurring during:
Current year............................................................... (5,621) (5,789) (6,003)
Prior years................................................................ (17,429) (16,850) (17,163)
-------- -------- --------
Total loss and LAE payments, net of reinsurance............................ (23,050) (22,639) (23,166)
Reserve for losses and LAE, net of related reinsurance recoverables, at end
of year.................................................................... 121,004 113,448 120,934
Reinsurance recoverables on unpaid losses and LAE at end of year............. 12,028 14,356 11,320
-------- -------- --------
Reserve for losses and LAE, gross of related reinsurance recoverables on
unpaid losses and LAE at end of year....................................... $133,032 $127,804 $132,254
-------- -------- --------
-------- -------- --------
</TABLE>
REDWOODS
Redwoods is a managing general underwriter of specialty commercial
insurance products. Redwoods, which does not bear risk itself, has the capacity
to provide brokerage, underwriting and claims management services to insurance
carriers, including the Insurance Subsidiaries and third-party carriers. In
general, Redwoods' business can be divided into two categories--the premium
produced for Preferred National, and the premium produced for the Insurance
Subsidiaries and for third-party carriers.
Redwoods, a start-up company, was purchased by Front Royal on January 1,
1998 for $50,000. Front Royal made the acquisition in anticipation of acquiring
substantially all of the assets and business of UnaMark, a general agent
affiliated with Preferred National. UnaMark has active relationships with
approximately 600 independent agents who have access to Preferred National
through UnaMark. Approximately 36.0% of all Preferred National's premiums in
1997 were produced by UnaMark. Following the Preferred National Acquisition, the
UnaMark business will be conducted through a separate division of Redwoods to be
named Redwoods Underwriters. Preferred National will compensate Redwoods
Underwriters as a general agent on terms no less favorable than could be
obtained from independent third parties.
Front Royal intends for Redwoods to produce business for carriers unrelated
to Front Royal as well as for the Insurance Subsidiaries and Preferred National.
In this way, Redwoods can generate fee income for Front Royal while serving to
provide the Company with more information regarding insurance distribution
channels.
During 1998, and prior to the Preferred National Acquisition, Redwoods has
initiated two programs in which it produces and underwrites insurance for
third-party carriers unrelated to Front Royal. Redwoods is compensated on a
fee-for-service and/or commission basis for producing this business. In one of
these two programs, one of the Insurance Subsidiaries will also reinsure a
portion of the premium written by Redwoods for the third-party carrier. Redwoods
plans to create additional relationships with third-party carriers interested in
serving as issuing carriers for Redwoods' programs. The Insurance Subsidiaries
may bear a portion of the risk on certain of these programs.
In those instances where an Insurance Subsidiary bears risk, the Company
could earn both fee income and risk bearing income from Redwoods' programs. In
addition, by creating opportunities for Front Royal to participate in taking a
limited amount of risk on new programs, Redwoods can serve as a vehicle for the
Company's insurance product development.
Redwoods began to earn income and fees in the second quarter of 1998.
56
<PAGE>
REINSURANCE
General. The Company's policy is for management of each Insurance
Subsidiary to purchase reinsurance for that subsidiary, subject to review by
Front Royal.
The Company purchases reinsurance through contracts called 'treaties' to
reduce its exposure to liability on individual risks, and to protect against
catastrophic losses. Reinsurance involves an insurance company transferring or
'ceding' a portion of its exposure on a risk to another insurer (the
'reinsurer'). The reinsurer assumes this exposure in return for a portion of the
premium. The ceding of liability to a reinsurer does not legally discharge the
primary insurer from its liability for the full amount of the policies on which
it obtains reinsurance. The primary insurer will be required to pay the entire
loss if the reinsurer fails to meet its obligations under the reinsurance
agreement.
In formulating its reinsurance programs, the Company is selective in its
choice of reinsurers and considers numerous factors, the most important of which
are the financial stability of the reinsurer, its history of responding to
claims and its overall reputation. In an effort to minimize its exposure to the
insolvency of its reinsurers, the Company evaluates the acceptability and
reviews the financial condition of each reinsurer annually.
The Company's seven largest recoverables from its reinsurers at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
A.M. BEST
AMOUNT RATING
(IN THOUSANDS)
<S> <C> <C>
General Reinsurance Corporation........................................ $7,339 A++
Reliance Insurance Company............................................. 2,857 A-
North Star Reinsurance Corporation..................................... 1,625 NR-3(1)
Chartwell Reinsurance Co............................................... 1,442 A
Kemper Reinsurance Company............................................. 1,361 A
American Reinsurance Co................................................ 1,173 A
Federal Insurance Company.............................................. 1,166 A++
</TABLE>
- ------------------
(1) Denotes a reinsurer that is part of the A++ rated General Reinsurance group.
Colony. Colony maintains the following excess of loss reinsurance
contracts:
Casualty and Property:
Excess of loss casualty and property. This treaty provides Colony
with $750,000 in coverage for each occurrence above Colony's retention
of $250,000 per occurrence. This coverage is purchased primarily to
reinsure Colony's contract and brokerage business.
Property catastrophe reinsurance. This treaty provides Colony with
95.0% of $3.5 million in coverage resulting from any one catastrophe
above an attachment level of the greater of $600,000 or 15.0% of the
subject earned premium.
Clash Protection:
Clash coverage for casualty business. This treaty provides Colony
with $2.0 million in excess of a $1.0 million attachment point. Clash
protection coverage is generally purchased to provide coverage for
multiple claims arising from a single occurrence.
Colony also maintains the following quota-share reinsurance
treaties, to reinsure its specialty, environmental and umbrella
liability books:
Specialty and environmental business. This treaty provides 80.0%
quota-share reinsurance for the first $1.0 million in such coverage
written by Colony.
Umbrella and excess general liability. This treaty provides
quota-share reinsurance for 95.0% of the first $1.0 million and 100.0%
of any excess limits of between $1.0 million and $5.0 million written by
Colony.
Colony also purchases individual risk facultative reinsurance from time
to time.
57
<PAGE>
Rockwood. Rockwood maintains the following excess of loss reinsurance
contracts:
Workers' Compensation Related Reinsurance Contracts:
Workers' compensation for underground mining operations. This
treaty provides Rockwood with $24.6 million per occurrence in coverage
above Rockwood's $400,000 retention level subject to a maximum recovery
of $1.0 million per person.
Workers' compensation excluding underground mining
operations. This treaty provides Rockwood with $29.6 million in
coverage above the Company's $400,000 retention level subject to a
maximum recovery of $1.0 million per person. All workers' compensation
for mining risks other than underground mines are covered under this
arrangement.
Workers' compensation per person coverage. This treaty provides
Rockwood with per person coverage of $5.0 million for workers'
compensation claims in excess of a $1.0 million attachment level.
Rockwood purchases this layer of reinsurance principally to protect the
Company in the event that a covered workers' compensation claim for any
individual exceeds $1.0 million.
Other Casualty Coverage:
Automobile liability and general liability and first party auto
medical. This treaty provides Rockwood with $600,000 in coverage per
occurrence above a $400,000 retention level maintained by the Company.
Rockwood purchases this coverage principally to provide protection
against first party medical claims and third party liability claims on
or in its commercial automobile book. This treaty also applies to
Rockwood's general liability writings.
Clash protection for automobile and general liability workers'
compensation, employers' liability, and Pennsylvania first party
benefits. This treaty provides Rockwood with $3.0 million in coverage
above a $1.0 million attachment point.
Property Coverage:
Fire and inland marine. This treaty provides Rockwood with
$900,000 in coverage per risk in excess of a $100,000 retention level.
Rockwood writes some property coverages as part of 'package policies'
and also covers equipment used in some of the mining operations insured
by Rockwood.
Fire and inland marine and physical damage excluding collision per
event catastrophe coverage. This treaty provides Rockwood with $4.5
million in excess of a $500,000 attachment point per catastrophe. This
treaty provides an additional layer of protection for Rockwood's
property and inland marine business.
Automobile physical damage. This treaty provides Rockwood with
$950,000 in coverage above Rockwood's $50,000 retention level. Rockwood
purchases this coverage to protect against physical damage claims on its
commercial automobile business.
Rockwood also maintains quota share treaties to reinsure its
umbrella liability insurance business and its surety business.
Umbrella Liability:
When Rockwood writes the underlying coverage, this treaty provides
90.0% reinsurance for the first $1.0 million in umbrella liability
underwritten by Rockwood and 100.0% reinsurance for amounts between $1.0
million and $5.0 million. If Rockwood has not written the underlying
coverage, Rockwood retains 20.0% of the first $1.0 million in coverage.
Surety:
Rockwood maintains a 50.0% quota-share treaty for its surety
business.
Preferred National.
Surety Bond Quota Share Reinsurance:
In May 1994, Preferred National entered into a surety bond quota
share reinsurance agreement with Winterthur Reinsurance Corporation of
America under which Preferred National retains all bonds
58
<PAGE>
less than $100,000. For bonds $100,000 or greater but not more than $3.0
million, Preferred National retains the pro rata share as defined below
and cedes the remainder to the reinsurer as follows:
<TABLE>
<CAPTION>
COMPANY REINSURER'S
BOND AMOUNT RETENTION PARTICIPATION
<S> <C> <C>
$ 0 -- $ 99,999.................................... 100.0% 0.0%
$ 100,000 -- $ 199,999.................................... 90.0% 10.0%
$ 200,000 -- $ 299,999.................................... 75.0% 25.0%
$ 300,000 -- $ 399,999.................................... 65.0% 35.0%
$ 400,000 -- $ 499,999.................................... 55.0% 45.0%
$ 500,000 -- $1,000,000................................... 40.0% 60.0%
$1,000,001 -- $1,500,000................................... 35.0% 65.0%
$1,500,001 -- $3,000,000................................... 30.0% 70.0%
</TABLE>
Preferred National receives a ceding commission with a contingent
commission representing a portion of the net profit, if any, generated
on this business.
Commercial Liability Excess of Loss:
Preferred National entered into a commercial liability excess of
loss reinsurance agreement effective January 1, 1996 with General
Reinsurance Corporation. This treaty covers commercial multi-peril,
medical malpractice, and other liability business written by Preferred
National. The policy provides for two levels of coverage as follows:
Limit of $250,000 per occurrence in excess of $250,000 per occurrence
(First Excess); and limit of $500,000 per occurrence in excess of
$500,000 per occurrence (Second Excess). Preferred National receives a
contingent commission on the first excess layer.
Property Per Risk Excess of Loss:
Effective May 1, 1996, Preferred National entered into a property
per risk excess of loss agreement with General Reinsurance Corporation
which provides for two layers of coverage. The first layer has limits of
$500,000 per risk in excess of $500,000 per risk subject to an
occurrence limitation of $1,500,000. The second layer has limits of
$1,000,000 per risk in excess of $1,000,000 per risk subject to an
occurrence limitation of $2,000,000.
Property Catastrophe Excess of Loss:
Effective May 1, 1996, Preferred National entered into two property
catastrophe excess of loss agreements with third-party reinsurers. The
first agreement has limits of 95.0% of $5,000,000 ultimate net loss,
each loss event in excess of $5,000,000. The second agreement has limits
of 95.0% of $10,000,000 ultimate net loss, each loss event in excess of
$10,000,000.
Effective May 1, 1997, Preferred National entered into a third
property catastrophe excess of loss agreement. This agreement has limits
of 95.0% of $10,000,000 ultimate net loss, each loss event in excess of
$20,000,000.
Facultative Reinsurance:
Preferred National cedes property and liability business to various
reinsurers on a facultative basis.
INVESTMENTS
Investment income is the primary source of earnings for the Company. The
Company collects premiums and holds a portion of these funds in reserves until
claims are paid. While the Company holds the reserves, it invests these funds.
In the years that the Company makes an underwriting profit, it is able to retain
all investment income. Underwriting losses require the Company to dedicate a
portion of its investment income to cover insurance claims and expenses
associated with writing insurance.
59
<PAGE>
The Company's investments are restricted as a matter of regulatory law. The
Company's policy is to invest primarily in high quality debt instruments.
Investment policy is set by the Investment Committee of the Board of Directors.
The Company employs independent professional managers to invest in accordance
with the policies established by the Board of Directors.
Investment income, net of expenses, for 1996 and 1997 totaled $5.9 million
and $18.0 million, respectively. The totals for 1996 do not include any
investment income from Rockwood, which was acquired by Front Royal on December
31, 1996. Investment income for the three-month period ended March 31, 1998, was
$4.3 million. As of March 31, 1998, the Company held cash and investments of
$279.5 million. See Note 2 of Notes to the Consolidated Financial Statements
included elsewhere in this Prospectus for a detail of those investments by type
and expected maturity.
The following table sets forth the classifications of the Company's
investments at March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------
FAIR CARRYING PERCENT OF
VALUE VALUE CARRYING VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government
agencies.......................................................... $ 54,538 $ 54,538 19.5%
Mortgage-backed securities.......................................... 44,130 44,130 15.8
Corporate securities................................................ 27,459 27,459 9.8
Other securities.................................................... 2,037 2,037 0.7
-------- -------- -------
Total available-for-sale............................................ 128,164 128,164 45.8
-------- -------- -------
Held-to-maturity:
Mortgage-backed securities.......................................... 41,044 40,714 14.6
State and municipal securities...................................... 26,166 25,126 9.0
U.S. Treasury securities and obligations of U.S. government
agencies.......................................................... 11,911 11,745 4.2
Corporate securities................................................ 15,892 15,568 5.6
-------- -------- -------
Total held-to-maturity............................................ 95,013 93,153 33.4
-------- -------- -------
Total fixed securities............................................ 223,177 221,317 79.2
-------- -------- -------
Equity investments:
Closed-end bond funds............................................... 12,413 12,413 4.4
Common stocks....................................................... 5,616 5,616 2.0
Preferred stocks.................................................... 746 746 0.3
-------- -------- -------
Total equity investments............................................ 18,775 18,775 6.7
-------- -------- -------
Short-term investments................................................... 37,853 37,853 13.5
-------- -------- -------
Total investments................................................... 279,805 277,945 99.4
Cash..................................................................... 1,568 1,568 0.6
-------- -------- -------
Total cash and investments.......................................... $281,373 $279,513 100.0%
-------- -------- -------
-------- -------- -------
</TABLE>
As of March 31, 1998, the Company's investment portfolio of $277.9 million
contained $84.8 million (30.5%) of mortgage-backed securities. All of these
securities are rated Class I by the NAIC and are primarily issued by government
and government-related agencies, are publicly traded and have market values
obtained from an external pricing service. Changes in estimated cash flows due
to changes in prepayment assumptions from the original purchase assumptions are
revised based on current interest rates and the economic environment.
Mortgage-backed securities ('MBSs'), including collateralized mortgage
obligations, are subject to prepayment risks that vary with, among other things,
interest rates. During periods of declining interest rates, MBSs generally
prepay faster as the underlying mortgages are prepaid and refinanced by the
borrowers in order to take advantage of the lower rates. As a result, during
periods of falling interest rates, proceeds from such
60
<PAGE>
prepayments generally must be reinvested at lower prevailing yields. In
addition, MBSs that have an amortized cost that is greater than par (i.e.,
purchased at a premium) may incur a reduction in yield or a loss as a result of
such prepayments. Conversely, during periods of rising interest rates, the rate
of prepayments generally slows. MBSs that have an amortized value that is less
than par (i.e., purchased at a discount) may incur a decrease in yield as a
result of a slower rate of prepayments. In order to mitigate these risks in
part, approximately 48.2% of the MBSs held by the Company at March 31, 1998 were
either a category of MBSs known as planned amortization class bonds or agency
pass-through certificates with 15-year or shorter final maturities, the average
life of which is less sensitive to fluctuations in interest rates. The remainder
of the MBSs held by the Company are primarily agency pass-through certificates
with 30-year final maturities.
At March 31, 1998 and December 31, 1997, the Company's fixed maturity
securities portfolio was composed approximately 98.6% and approximately 98.7%,
respectively, of bonds which were rated NAIC Class I. The Company, through its
subsidiaries, owned one bond rated less than NAIC Class II at such dates.
The following table sets forth the composition of the Company's portfolio
of fixed maturity securities by rating as of March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
CARRYING PERCENTAGE
VALUE OF TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Ratings:
NAIC-SVO Class I (1)................................................ $218,256 98.6%
NAIC-SVO Class II (2)............................................... 2,564 1.2
NAIC-SVO Class III or lower......................................... 497 0.2
-------- ----------
Total............................................................ $221,317 100.0%
-------- ----------
-------- ----------
</TABLE>
- ------------------
(1) Equates to Standard & Poor's rating of AAA, AA or A.
(2) Equates to Standard & Poor's rating of BBB.
The following table sets forth the classifications of Preferred National's
investment portfolio as of March 31, 1998:
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------
PERCENT OF
FAIR CARRYING TOTAL CARRYING
VALUE VALUE VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Available-for-sale:
U.S. Treasury securities and obligations of U.S. government agencies... $20,398 $ 20,398 31.9%
Mortgage-backed securities............................................. 11,284 11,284 17.6
Corporate securities................................................... 26,197 26,197 40.9
------- -------- ------
Total fixed securities................................................. 57,879 57,879 90.4
------- -------- ------
Short-term investments...................................................... 3,215 3,215 5.0
------- -------- ------
Total investments...................................................... 61,094 61,094 95.4
Cash........................................................................ 2,919 2,919 4.6
------- -------- ------
Total cash and investments............................................. $64,013 $ 64,013 100.0%
------- -------- ------
------- -------- ------
</TABLE>
As of March 31, 1998, Preferred National's investment portfolio of $61.1
million contained $11.3 million (18.5%) of mortgage-backed securities. All of
these securities are rated Class I by the NAIC and are primarily issued by
government and government-related agencies, are publicly traded and have market
values obtained from an external pricing service.
61
<PAGE>
COMPETITION
The Company competes in the property and casualty insurance business with
numerous domestic and international insurers. Many of the Company's existing or
potential competitors are larger, have considerably greater financial and other
resources, have more licenses, have more experience in the insurance industry
and offer a broader line of insurance products than the Company. The Company may
compete with new entrants in the future. Competition is based on many factors,
including the perceived market strength of the insurer, pricing and other terms
and conditions, services provided, the speed of claims payment, the reputation
and experience of the insurer and ratings assigned by independent rating
organizations. Although the Company's business strategy is to achieve an
underwriting profit by identifying niche markets and specialty coverages which
it believes have limited competition, it nevertheless encounters competition
from carriers engaged in insuring risks in broader lines of business which
encompass the Company's niche and specialty markets. Competition is expected to
increase as the Company expands its operations. Larger carriers may have lower
expense ratios allowing them to price their products more competitively than the
Company. Ultimately, this competition could affect the Company's ability to
attract business at rates likely to generate underwriting profits, which could
have a material adverse effect on the Company.
Colony writes virtually all of its business as an approved non-admitted
carrier, and has nine admitted licenses. Preferred National also writes a
material portion of its business in states other than Florida and Illinois, as
an approved non-admitted carrier. Increasingly, there is regulatory and market
pressure to write business that has historically been written on a non-admitted
basis on an admitted basis. The principal difference between writing on an
admitted basis and a non-admitted basis is that as a non-admitted carrier, a
company is subject to less regulation regarding the wording of its insurance
policies and the prices it charges for insurance. When writing on a non-admitted
basis, Colony and Preferred National are generally exempt from assessments made
to support the guaranty funds maintained by certain state regulatory
authorities. These assessments can be substantial. Over time, the Company
expects that more of its traditional business will be written on an admitted
basis, and the Company has a strategy to increase the number of states in which
it is admitted. However, if the market moves more rapidly than anticipated
toward admitted carriers to the detriment of approved non-admitted carriers,
Colony's and Preferred National's business may be adversely affected.
The competitive environment for Colony and Preferred National has also been
affected as many reinsurers have elected to bypass primary companies such as
Colony and Preferred National and make arrangements to work directly with
wholesale agents. As a result, Colony and Preferred National sometimes compete
with reinsurers and reinsurance intermediaries for business from wholesale
agents. Management regards this trend as a competitive threat to carriers such
as Colony and Preferred National. The Company responds in part by structuring
incentive compensation arrangements with its agents. However, if this trend
continues it could have a material adverse effect on the Company.
Rockwood, which writes on an admitted basis, also has very few admitted
licenses and often competes with carriers that are part of groups which own
several admitted carriers that have broad licensure. This allows those
competitors more rate flexibility than Rockwood currently enjoys because these
competitors can have various members of their group file different rates for
workers compensation insurance and then channel business to the member of its
group which has the appropriate rate filed for the business being underwritten.
In many cases, Rockwood has only one rate filed and is unable to react as
flexibly as its competitors. This can cause Rockwood to lose desirable business
to competitors. In addition, Rockwood's rating from A.M. Best is lower than the
A.M. Best rating of many of its competitors.
RATINGS
A.M. Best has assigned an 'A-' (Excellent) rating to Colony and a 'B++'
(Very Good) rating to each of Rockwood and Preferred National. A.M. Best's
ratings are based upon an evaluation of a company's: (i) financial strength
(leverage/capitalization, capital structure/holding company, quality and
appropriateness of reinsurance program, adequacy of loss/policy reserves,
quality and diversification of assets, and liquidity); (ii) operating
performance (profitability, revenue composition, and management experience and
objectives); and (iii) market profile (market risk, competitive market position,
spread of risk, and event risk). An 'A-' rating is assigned to companies which
have on balance, in A.M. Best's opinion, excellent financial strength, operating
performance
62
<PAGE>
and market profile when compared to the standards established by A.M. Best, and
have a strong ability to meet their ongoing obligations to policyholders. A
'B++' rating is assigned to companies which have on balance, in A.M. Best's
opinion, very good financial strength, operating performance and market profile
when compared to the standards established by A.M. Best, and have a good ability
to meet their ongoing obligations to policyholders. 'A-' and 'B++' are A.M.
Best's fourth and fifth highest rating classifications, respectively, out of 15
ratings.
REGULATION
General. As a general rule, an insurance company must be licensed to
transact insurance business in each jurisdiction in which it operates, and
almost all significant operations of a licensed insurer are subject to
regulatory scrutiny. Licensed insurance companies are generally known as
'admitted' insurers. Most states provide a limited exemption from licensing for
insurers issuing insurance coverages that generally are not available from
admitted insurers. These coverages are referred to as 'excess and surplus lines'
insurance and these insurers are generally known as excess and surplus lines or
'non-admitted' insurers.
The Company is subject to regulation under the insurance statutes and
regulations, including insurance holding company statutes, of the various states
in which it does business. These statutes are generally designed to protect the
interests of insurance policyholders, as opposed to the interests of
shareholders, and they relate to most aspects of an insurance company's
business, and include such matters as the standards of solvency which must be
met and maintained; underwriting standards; the licensing of insurers and their
agents; the nature and limitations of investments; deposits of securities for
the benefit of policyholders; approval of policy forms and premium rates (with
respect to admitted lines); periodic examination of the affairs of insurance
companies; annual and other reports required to be filed on the financial
condition of insurers or for other purposes; establishment and maintenance of
reserves for unearned premiums and losses; transactions with affiliates;
dividends; changes in control; and requirements regarding numerous other
matters. All insurance companies must file annual statements with certain state
regulatory agencies and are subject to regular and special financial
examinations by those agencies. The last regulatory financial examination of:
(i) Rockwood was completed by the Pennsylvania Insurance Department in 1996,
covering the two-year period ended December 31, 1994; (ii) Colony Insurance was
completed by the Virginia Bureau of Insurance in 1996, covering the three-year
period ended December 31, 1994; and (iii) FRIC was completed by the Ohio
Department of Insurance in 1996, covering the three-year period ended December
31, 1994. No material deficiencies were noted in any of these financial
examinations. Insurance regulatory authorities have broad administrative powers
to regulate trade practices and in that connection to restrict or rescind
licenses to transact business and to levy fines and monetary penalties against
insurers and insurance agents found to be in violation of applicable laws and
regulations.
The Insurance Subsidiaries are licensed as admitted insurers in a total of
10 states and the District of Columbia and as approved non-admitted insurers in
43 states and two jurisdictions. Preferred National is licensed as an admitted
insurer in two states and an approved non-admitted broker in 36 states. All
insurance is written through licensed agents and brokers. In states in which the
Company operates on a non-admitted basis, general agents and their retail
insurance brokers generally are required to certify that a certain number of
licensed admitted insurers had been offered and declined to write a particular
risk prior to placing that risk with the Company.
Insurance Holding Company Laws. Pennsylvania, Ohio, Virginia and Florida
have laws governing insurers and insurance holding companies. The statutes
generally require insurers and insurance holding companies to register and file
reports concerning their capital structure, ownership, financial condition and
general business operations. Under the statutes, a person must generally obtain
approval to acquire, directly or indirectly, 10.0% (5.0% in Florida) or more of
the outstanding voting securities of an insurance holding company such as Front
Royal. The insurance department's determination of whether to approve any such
acquisition is based on a variety of factors, including an evaluation of the
acquirer's financial condition, the competence of its management and whether
competition would be reduced. All transactions within a holding company's group
affecting an insurer must be fair and reasonable, and the insurer's
policyholders' surplus following any such transaction must be both reasonable in
relation to its outstanding liabilities and adequate for its needs. Notice to
applicable regulators is required prior to the consummation of certain
transactions affecting Subsidiaries of the
63
<PAGE>
holding company group. See 'Risk Factors--Anti-Takeover Considerations,
Including Possibility of Future Issuance of Preferred Stock.'
Dividend Restrictions. As an insurance holding company, Front Royal
depends primarily on dividends and other permitted payments from its
subsidiaries to provide cash for the payment of operating expenses, debt service
on the Term Loan, taxes and other payments. The payment of dividends to Front
Royal by its subsidiaries is subject to state regulations, primarily the
insurance laws of Pennsylvania, Ohio, Virginia and Florida. Generally these laws
provide that, unless prior approval is obtained, shareholder dividends of a
property and casualty insurance company in any consecutive 12 month period shall
not exceed the greater of (the lesser of in Virginia) 100.0% of its statutory
net income (excluding net realized capital gains in Virginia) of the prior year
or 10.0% of its statutory policyholders' surplus as of the preceding December
31. The maximum annual dividends payable by the Insurance Subsidiaries without
prior approval in 1998 is approximately $9.8 million. Colony paid no dividends
and Rockwood paid approximately $4.9 million of dividends to Front Royal in
1997. Insurance regulators have broad powers to prevent reduction of statutory
surplus to inadequate levels, and there is no assurance that dividends of the
maximum amounts calculated under any applicable formula would be permitted.
Insurance Guaranty Funds. To ensure the protection of the insurance
consumer, as well as the general public, states have created insurance guaranty
funds (also known as security funds). These funds exist to pay claims of
insolvent insurance companies and are maintained by assessments levied against
admitted insurance companies operating in a particular state in proportion to
business written in the state.
The primary guaranty fund affecting Rockwood is the Pennsylvania Workers'
Compensation Security Fund which represented 59.2% of Rockwood's 1997 guaranty
fund charges incurred. By statute, the maximum annual assessment that can be
levied by this fund is 1.0% of each company's direct workers' compensation
business. Colony, as an E&S carrier, is excluded from guaranty fund assessments.
As a writer of admitted coverages, Preferred National is subject to
assessments from the Guaranty Fund in Florida, the amounts of which can be
substantial. An approved non-admitted carrier in New Jersey, Preferred National
is subject to assessments from a similar fund in New Jersey.
ADDITIONAL LEGISLATION OR REGULATIONS
General. New regulations and legislation are proposed from time to time to
limit damage awards, to bring the industry under regulation by the federal
government, to control premiums, policy terminations and other policy terms and
to impose new taxes and assessments. Difficulties with insurance availability
and affordability have increased legislative activity at both the federal and
state levels. Some state legislatures and regulatory agencies have enacted
measures, particularly in personal lines, to limit mid-term cancellations by
insurers and require advance notice of renewal intentions.
In addition to state-imposed insurance laws and regulations, the
Subsidiaries are subject to the general SAP and reporting formats established by
the NAIC. The NAIC also promulgates model insurance laws and regulations
relating to the financial and operational regulation of insurance companies.
These model laws and regulations generally are not directly applicable to an
insurance company unless and until they are adopted by applicable state
legislatures or departments of insurance. However, the NAIC model laws and
regulations have become increasingly important in recent years, due primarily to
the NAIC's state regulatory accreditation program. Under this program, states
which have adopted certain required model laws and regulations and meet various
staffing and other requirements are 'accredited' by the NAIC. There is a certain
degree of pressure on individual states to become accredited by the NAIC.
Because the adoption of certain model laws and regulations is a prerequisite to
accreditation, the NAIC's initiatives have taken on a greater level of practical
importance in recent years.
All states have adopted the NAIC's financial reporting form, which is
typically referred to as the NAIC 'annual statement', and most states generally
defer to the NAIC with respect to SAP. In this regard, the NAIC has a
substantial degree of practical influence and is able to accomplish certain
quasi-legislative initiatives through amendments to the NAIC annual statement
and applicable accounting practices and procedures. For instance, in recent
years, the NAIC has required all insurance companies to have an annual statutory
financial
64
<PAGE>
audit and an annual actuarial certification as to loss and LAE reserves by
including such requirements within the annual statement instructions.
Risk-Based Capital Requirements. The NAIC has promulgated risk-based
capital ('RBC') requirements for property/casualty insurance companies to
evaluate the adequacy of statutory capital and surplus in relation to investment
and insurance risks, such as asset quality, asset and liability duration
matching, loss reserve adequacy and other business factors. The RBC information
is used by state insurance regulators as an early warning tool to identify, for
the purpose of initiating regulatory action, insurance companies that
potentially are inadequately capitalized. In addition, the formula defines new
minimum capital standards that will supplement the current system of fixed
minimum capital and surplus requirements on a state-by-state basis. Regulatory
compliance is determined by a ratio (the 'Ratio') of the enterprise's regulatory
total adjusted capital, as defined by the NAIC, to its authorized control level
RBC, as defined by the NAIC. Generally, a Ratio in excess of 200.0% of
authorized control level RBC (the 'company action level') requires no corrective
actions by insurance companies or regulators. As of December 31, 1997, the Ratio
for each of the Subsidiaries was significantly in excess of this company action
level.
Recent Pennsylvania Regulation. In 1993, Pennsylvania enacted Act 44 which
significantly changed many aspects of the Pennsylvania Workers' Compensation
Act. The most significant effect of Act 44 was that it introduced a system of
medical reimbursement based on the Medicare system. Under Act 44, payments for
medical services are generally to be made at no more than 113.0% of the
applicable Medicare reimbursement rate (subject to annual cost-of-living
adjustments) and prescription drugs at no more than 110.0% of the average
wholesale price of the product. Additionally, among other things, Act 44 adopted
a 'loss cost' approach for rate making, whereby rates for worker's compensation
insurance in Pennsylvania are set by the Pennsylvania Compensation Rating Bureau
based on the experience of insurance companies generally. Companies apply these
rates modified by their own cost factors, judgment and the three-year loss
experience of their accounts to develop the premium charged.
In June 1996, Pennsylvania enacted Act 57 which further reformed the
Pennsylvania workers' compensation system. This act, among other things: (i)
allows insurance companies to offset benefits payable to insureds by social
security, severance pay and employer-funded retirement programs; (ii) revised
calculation of the average weekly wage to an average based on the highest three
of the last four quarters; (iii) implemented a new medical impairment rating
system based on American Medical Association Guidelines; and (iv) clarified job
availability requirements.
EMPLOYEES
As of June 15, 1998, the Company had approximately 190 employees, four of
whom are employed by Front Royal, 80 of whom are employed by Colony, 105 of whom
are employed by Rockwood and one of whom is employed by Redwoods. The Chairman
of the Board of Directors of the Company and certain directors devote a portion
of their time to the management of Front Royal, without additional compensation,
except that two directors have entered into consulting agreements with the
Company pursuant to which they receive $40,000 and $24,000, respectively, per
year for their management advice. See 'Management--Compensation Agreements.' The
Company is not a party to any collective bargaining agreements and believes that
its employee relations are good.
FACILITIES
The Company's executive offices are located in approximately 3,000 square
feet of office space in Morrisville, North Carolina, which the Company subleases
(along with certain administrative services) for approximately $9,000 per month.
Such sublease permits the Company to terminate the lease upon 90-day written
notice.
The Company's insurance operations are located in Richmond, Virginia and
Rockwood, Pennsylvania. Colony operates out of the Richmond office which
occupies approximately 29,000 square feet of which approximately 5,000 square
feet is subleased to an unrelated third party. The lease for this space expires
in 2001 and is renewable for a period of up to eight years with rental rates
contingent upon those of the original lease term. The net annual rent under this
lease is approximately $313,000.
65
<PAGE>
The Rockwood office contains approximately 35,000 square feet. The Company
has the option to purchase the property (which includes this 35,000-square-foot
facility) at any time during its 15-year lease agreement that expires in
December 2011, for a scheduled price which equals all of the remaining fixed
payments discounted at 8.5%, including a required payment of $2.5 million at the
end of the lease term. If the Company fails to exercise such option, the lessor
may require the Company to purchase the property for $2.5 million at the
conclusion of the lease. For a description of the lease terms and certain other
agreements with an affiliate of the landlord, see 'Certain Transactions.'
The Company believes that its facilities are adequate for its current
needs.
LEGAL PROCEEDINGS
The Company is subject to routine legal proceedings in the normal course of
operating its insurance business. The Company is not involved in any legal
proceedings which reasonably could be expected to have a material adverse effect
on the Company's business, results of operations or financial condition.
66
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth certain information about the current
directors and executive officers of the Company. All directors of the Company
serve one-year terms. Unless otherwise set forth below, all positions are with
Front Royal.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard W. Wright............................... 64 Chairman of the Board
J. Adam Abram................................... 42 President, Chief Executive Officer and Director
Gregg T. Davis.................................. 40 Chief Financial Officer and Chief Operating
Officer
John K. Latham.................................. 51 President and Chief Executive Officer, Colony
Insurance and Colony Management Services
John P. Yediny.................................. 49 President and Chief Executive Officer, Rockwood
Kevin A. Trapani................................ 42 President and Chief Executive Officer, Redwoods
Philip S. Kift.................................. 49 Vice President Claims and General Counsel,
Rockwood
Dale H. Pilkington.............................. 42 Senior Vice President, Underwriting, Colony
Insurance and Front Royal Insurance Company
and Colony Management Services
Edward J. Desch................................. 57 Vice President and Chief Financial Officer,
Colony Insurance and Colony Management
Services
Matthew Bronfman................................ 38 Director
Alan N. Colner.................................. 43 Director
Joel L. Fleishman............................... 64 Director
Robert V. Hatcher, Jr........................... 68 Director
Charles M. Lederman............................. 42 Director
Ira M. Lubert................................... 48 Director
Wilson Wilde.................................... 70 Director
Lewis P. Wilkinson.............................. 49 Director
James L. Zech................................... 40 Director
</TABLE>
Richard W. Wright has served as Chairman of the Board of the Company since
its inception. From 1993 to 1996, Mr. Wright served as a consultant for
Jefferson Pilot Corp. on strategic planning and operational matters related to
acquisitions. From 1993 to 1995, Mr. Wright served as special consultant to the
Insurance Commissioner of Kentucky regarding the Kentucky Central Life Insurance
Company. From 1986 to July 1991, Mr. Wright served as Chief Executive Officer of
People's Security Life Insurance Company. Mr. Wright founded the Wright Group, a
consulting firm in 1986 and has served as its President since inception.
J. Adam Abram, one of the founders of Front Royal, has served as its
President, Chief Executive Officer and a director since its inception. From 1990
to April 1997, Mr. Abram served as Chairman of Front Royal Environmental
Services, Inc., a former Front Royal subsidiary, and its predecessor company.
Mr. Abram has been Chairman of the Boards of Directors of Colony, FRIC,
Rockwood, Redwoods and Colony Management since their respective acquisitions.
67
<PAGE>
Gregg T. Davis has served as Chief Operating Officer and Chief Financial
Officer of Front Royal since 1994. From 1988 to 1994, Mr. Davis was Vice
President-Finance, Treasurer and Chief Financial Officer of Hunter Environmental
Services, Inc. Mr. Davis is a certified public accountant who previously spent
six years at Ernst & Young LLP. He has been a member of the Boards of Directors
of Colony, FRIC, Rockwood, Redwoods and Colony Management since their
acquisition.
John K. Latham has served as the President and Chief Executive Officer of
Colony Insurance and Colony Management (formerly the Waite Hill Insurance Group)
since 1991. Mr. Latham has served as a director of Rockwood since the Rockwood
Acquisition. He has also served as a member of the Board of Directors of the
National Association of Professional Surplus Line Offices, LTD. ('NAPSLO') for
four years and is presently Treasurer of this association of surplus lines,
agents and companies. From 1989 to 1991, Mr. Latham served as Executive Vice
President and Chief Operating Officer of Markel Services, Inc., a wholesale
brokerage operation owned by Markel Corporation. Mr. Latham also served as a
Vice President of General Reinsurance Corporation for 14 years.
John P. Yediny has served as President and Chief Executive Officer of
Rockwood since December 1996, has served as a director of Colony Insurance since
1996, and has served as a director of FRIC since 1996. Mr. Yediny previously
served as Senior Executive Vice President and Chief Operating Officer of
Rockwood from June 1994 to December 1996 and as President and Chief Operating
Officer of Rockwood and its predecessor companies from 1984 to 1994 and has been
in charge of all underwriting functions from 1988 to the present. Mr. Yediny has
worked at Rockwood, or its predecessors, since 1970.
Kevin A. Trapani has served as President and Chief Executive Officer of
Redwoods, which he founded in May 1997. He has also served as a director of
Redwoods, Colony Insurance, FRIC and Rockwood since January 1998. From 1996 to
1997, Mr. Trapani served as President of the Guilford Specialty Group, Inc. and
Executive Vice President of the Burlington Insurance Group, Inc. From 1993 to
1996, he served as Senior Vice President and Chief Underwriting Officer of the
Coregis Insurance Group. Mr. Trapani served as Vice President of the Commercial
Division of Great American Insurance Company from 1987 to 1993. From 1985 to
1987, Mr. Trapani served as Director of Sales & Marketing of Medigroup, Inc.
Philip S. Kift, Esq. has served as Vice President--Claims and General
Counsel of Rockwood since September 1990 and as its Assistant Secretary since
January 1997. Mr. Kift has worked at Rockwood, and its predecessors, since June
1978.
Dale H. Pilkington has served as Senior Vice President of Underwriting of
Colony Insurance, FRIC and Colony Management Services since 1995. From June 1985
to March 1993, Mr. Pilkington was a partner in Pilkington Brothers Insurance
Services, a specialty retail insurance operation in the state of Florida. He was
previously a specialty and excess underwriter with Crump Companies and with
General Reinsurance Corporation.
Edward J. Desch has served as the Vice President and Chief Financial
Officer of Colony Insurance, FRIC and Colony Management, since December 1994 and
has served as Vice President of Front Royal Environmental Insurance Management,
Inc. since December 1996. From May 1992 to December 1994, he served as Vice
President and Controller of the Waite Hill Insurance Group, which included
Colony, Hamilton and Cardinal Insurance Companies. He previously served as a
public accountant and Executive Vice President and General Manager of Virginia
Farm Bureau Insurance Companies.
Matthew Bronfman has served as a director of Front Royal since June 1994.
Mr. Bronfman founded Perfumes Isabell, Inc. in 1996 and has served as its Chief
Executive Officer since its inception. From 1981 to 1983, Mr. Bronfman served as
an analyst at Goldman Sachs & Co. and from 1985 to 1987 served as a development
executive at Cadillac-Fairview Corp. Ltd. From 1991 to 1994, Mr. Bronfman served
as Chairman and Chief Executive Officer of Sterling Cellular Company. From 1987
through 1993, Mr. Bronfman directed an investment group which acquired five
companies and developed extensive real estate holdings.
Alan N. Colner has served as a director of Front Royal since December 1996.
Since August 1996, he has served as Managing Director, Private Equity
Investments at Moore Capital Management, Inc. ('Moore'). Before joining Moore,
he was a Managing Director of Corporate Advisors, L.P. and general partner of
Corporate Partners, a private equity fund affiliated with Lazard Freres & Co.,
LLC. Mr. Colner was a director of LaSalle Re
68
<PAGE>
Limited from October 1993 to May 1996. Before joining Corporate Partners in
1988, he was an investment banker at Shearson Lehman Brothers and Lehman
Brothers Kuhn Loeb.
Joel L. Fleishman has served as a director of Front Royal since July 1996.
Since 1993 Mr. Fleishman has served as President of Atlantic Philanthropic
Services Company. He was the founding Director of the Terry Sanford Institute
for Public Policy at Duke University in 1971. Mr. Fleishman has been a tenured
professor at Duke University Law School since 1975.
Robert V. Hatcher, Jr. has served as a director of Front Royal since 1992.
Mr. Hatcher has also served on the Board of Directors of Media General, Inc.
since 1991 and has served on the Board of Directors of EXEL Limited and
Pro-Active Therapy, Inc. since June 1993. Since 1968, Mr. Hatcher worked at
Johnson & Higgins of Virginia, Inc., and he served as its Chairman of the Board
and Chief Executive Officer from 1982 to 1992.
Charles M. Lederman has served as a director of Front Royal since December
1996. Mr. Lederman has served as President and Chief Executive Officer of Fort
Washington Holdings, Inc. since December 1996; President and Chief Executive
Officer of Premier Auto Insurance Company since December 1996; President and
Chief Executive Officer of PIC Insurance Group, Inc. ('PIC') since June 1996
until January1, 1998; and has owned Insurance Financial Services, Inc., an
insurance management and actuarial consulting firm, since July 1984. From July
1994 to December 1996, he served as President and Chief Executive Officer of
Rockwood and from August 1992 to June 1996, he served as Secretary and Chief
Financial Officer of PIC.
Ira M. Lubert has served as a director of Front Royal since 1993. Mr.
Lubert has served as Managing Director of TL Ventures since 1990 and as Managing
Director of Radnor Venture Partners since 1988. He has served as a director of
The Score Board since 1996, RMS Technologies since 1995 and Alphatronix, Inc.
since 1988.
Wilson Wilde has served as a director of Front Royal since 1995 and
currently is Chairman Emeritus of The Hartford Steam Boiler Inspection and
Insurance Company ('HSB'). From May 1994 to April 21, 1998, Mr. Wilde served as
Chairman of the Executive Committee of HSB. From September 1993 to May 1994, he
served as Chairman and Chief Executive Officer of HSB and from 1971 to September
1993, he served as President and Chief Executive Officer of HSB. From 1972 to
October 1995, he served as a director of Shawmut National Corporation (now Fleet
Financial Group, Inc.) and, prior to such time, from 1984 to February 1997 as a
director of Phoenix Home Life Mutual Company and from July 1986 to the present
as a director of PXRE Corporation. From April 1997 to the present, he has served
as a member of the Phoenix Home Life Directors' Advisory Counsel.
Lewis P. Wilkinson has served as a director of Front Royal since 1992. Mr.
Wilkinson also founded and served as President of Strategic Venture Services,
Inc., a venture capital advisory firm, since 1993. From 1987 to 1995, Mr.
Wilkinson served as a director of HazWaste Industries, Inc., a provider of
environmental engineering, remediation and laboratory services. From 1987 to
1993, Mr. Wilkinson served as a general partner in Atlantic Venture Management
Co., L. P., an affiliate of Wheat First Securities.
James L. Zech has served as a director of Front Royal since December 1996.
Mr. Zech founded High Ridge Capital, LLC, in August 1995 and has served as its
President since that time. From July 1992 to August 1995, he served as a
Managing Director in the Corporate Finance Division of S. G. Warburg & Co., Inc.
Mr. Zech was a member of the insurance group of DLJ from 1988 to 1992.
BOARD COMMITTEES
The standing committees of the Board of Directors are the Acquisition
Committee, the Audit Committee, the Investment Committee and the Compensation
Committee.
The Acquisition Committee is responsible for reviewing all potential
acquisition targets and the related strategic issues. It is comprised of Messrs.
Abram, Lederman, Lubert, Wright and Zech.
The Audit Committee is responsible for appointing the external auditors,
reviewing the results of audits, planning for such audits and reviewing internal
reports and internal controls. The members of this committee are Messrs. Wright,
Colner, Fleishman and Wilkinson.
69
<PAGE>
The Investment Committee is responsible for investment policy and selection
of outside investment managers. The members of this committee are Messrs.
Wright, Abram, Bronfman and Colner.
The Compensation Committee is responsible for overall compensation of the
Company's employees, particularly for its officers, and for administration of
the Company's Stock Option Plans (as hereinafter defined). This committee is
comprised of Messrs. Wright, Hatcher, Lubert, Wilde and Zech.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the aggregate
compensation earned by the Company's Chief Executive Officer and the Company's
six most highly compensated executive officers other than the Chief Executive
Officer (including the President of Colony Insurance and the President of
Rockwood) (collectively, the 'Named Executive Officers') during the fiscal year
ended December 31, 1997:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES ALL OTHER
------------------------------ UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) OPTIONS/SARS ($)(3)
<S> <C> <C> <C> <C> <C>
J. Adam Abram
President and Chief Executive Officer, Front
Royal............................................... 1997 $ 275,000 $ 209,239 84,500 $4,750
Gregg T. Davis
Chief Financial Officer, Front Royal................ 1997 $ 168,000 $ 127,826 25,000 $4,750
John K. Latham
President, Colony................................... 1997 $ 208,000 $ 80,000 40,000 $4,750
John Yediny
President, Rockwood................................. 1997 $ 161,888 $ 77,457 40,000 --
Philip S. Kift
Vice President, Claims, Rockwood.................... 1997 $ 96,708 $ 27,166 12,500 --
Dale H. Pilkington
Senior Vice President, Underwriting, Colony......... 1997 $ 101,667 $ 20,000 14,000 $3,000
Edward J. Desch
Vice President, Chief Financial Officer, Colony..... 1997 $ 106,250 $ 24,000(4) 12,500 $3,757
</TABLE>
- ------------------
(1) Excludes certain perquisites and other amounts which for any Named Executive
Officer did not exceed the lesser of either $50,000 or 10.0% of the total
amount of salary and annual bonus reported for such Named Executive Officer.
(2) Bonuses were earned in 1997, but paid in 1998.
(3) Represents the Company's matching 401(k) contributions.
(4) Of such amount, $3,000 represents one time bonus earned and awarded in 1997.
70
<PAGE>
Option/SAR Grants in Last Fiscal Year. The following table sets forth
certain information with respect to stock option grants to the Named Executive
Officers during the year ended December 31, 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1)(2) VALUE
----------------------------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(3)
OPTION IN FISCAL PRICE PER --------------------
NAME GRANTED YEAR SHARE ($/SH) EXPIRATION DATE 5.0% 10.0%
<S> <C> <C> <C> <C> <C> <C>
J. Adam Abram..................... 84,500 16.7% $ 5.00 12/31/07 $265,708 $673,356
Gregg T. Davis.................... 25,000 4.9% $ 5.00 12/31/07 $ 78,612 $199,218
John K. Latham.................... 40,000 7.9% $ 5.00 12/31/07 $125,779 $318,748
John Yediny....................... 40,000 7.9% $ 5.00 12/31/07 $125,779 $318,748
Philip S. Kift.................... 12,500 2.5% $ 5.00 12/31/07 $ 39,306 $ 99,609
Dale H. Pilkington................ 14,000 2.8% $ 5.00 12/31/07 $ 44,023 $111,562
Edward J. Desch................... 12,500 2.5% $ 5.00 12/31/07 $ 39,306 $ 99,609
</TABLE>
- ------------------
(1) All options were granted with an exercise price equal to or above the fair
market value of the Common Stock at the date of grant as determined by the
Company's Board of Directors.
(2) All options granted in 1997 vest and become exercisable in equal annual
installments on each December 31 of the years 1998, 1999, 2000 and 2001.
(3) In accordance with the rules of the Commission, the amounts shown on this
table reflect hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5.0% and 10.0%, compounded annually
from the date the respective options were granted to their expiration date.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise. Actual
gains, if any, on stock option exercises will depend on the future
performance of the Common Stock and the date on which the options are
exercised.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values. The following table sets forth certain information with respect to the
value of unexercised options held by the Named Executive Officers at December
31, 1997. None of the Named Executive Officers exercised any options during the
year ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1997 AT DECEMBER 31, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
J. Adam Abram.............................................. 105,000 84,500 $ 407,500 $ 84,500
Gregg T. Davis............................................. 38,750 36,250 $ 130,000 $ 47,500
John K. Latham............................................. 10,000 70,000 $ 20,000 $ 100,000
John Yediny................................................ -- 40,000 -- $ 40,000
Philip S. Kift............................................. -- 12,500 -- $ 12,500
Dale H. Pilkington......................................... 2,500 21,500 $ 5,000 $ 29,000
Edward J. Desch............................................ 2,500 20,000 $ 5,000 $ 27,500
</TABLE>
- ------------------
(1) Based upon a fair market value of the Common Stock so determined by the
Company's management on December 31, 1997.
COMPENSATION AGREEMENTS
Front Royal has entered into an Employment Agreement dated December 31,
1997 (the 'Abram Agreement'), with J. Adam Abram, pursuant to which Mr. Abram
serves as President and Chief Executive Officer of Front Royal. The term of the
Abram Agreement commenced on December 31, 1997 and is for a period of three
years from such date, subject to automatic annual renewal unless earlier
terminated by either party. The
71
<PAGE>
Abram Agreement provides for an annual base salary of $275,000, which base
salary may be increased at the discretion of the Company's Board of Directors,
and provides that Mr. Abram may also receive cash bonuses and other compensation
at the discretion of the Board of Directors.
Front Royal has entered into an Employment Agreement dated December 31,
1997 (the 'Davis Agreement'), with Gregg T. Davis, pursuant to which Mr. Davis
serves as Chief Financial Officer and Chief Operating Officer of Front Royal.
The term of the Davis Agreement commenced on December 31, 1997 and is for a
period of three years from such date, subject to automatic annual renewal unless
earlier terminated by either party. The Davis Agreement provides for an annual
base salary of $176,000, which base salary may be increased at the discretion of
the Company's Board of Directors, and provides that Mr. Davis may also receive
cash bonuses and other compensation at the discretion of the Board of Directors.
Colony Management has entered into an Employment Agreement dated December
31, 1997 (the 'Latham Agreement'), with John K. Latham, pursuant to which Mr.
Latham serves as President of Colony Management. The term of the Latham
Agreement commenced on December 31, 1997 and is for a period of three years from
such date, subject to automatic annual renewal unless earlier terminated by
either party. The Latham Agreement provides for an annual base salary of
$208,000, which base salary may be increased at the discretion of the Company's
Board of Directors, and provides that Mr. Latham may also receive cash bonuses
and other compensation at the discretion of the Board of Directors.
Rockwood has entered into an Employment Agreement dated December 31, 1996
(the 'Yediny Agreement'), with John P. Yediny, pursuant to which Mr. Yediny
serves as President and Chief Executive Officer of Rockwood. The term of the
Yediny Agreement commenced on December 31, 1996 and is for a period of three
years from such date, subject to automatic annual renewal unless earlier
terminated by either party. The Yediny Agreement initially provided for an
annual base salary of $150,000, which amount is currently $195,000. Such base
salary may be increased at the discretion of the Company's Board of Directors,
and provides that Mr. Yediny may also receive cash bonuses and other
compensation at the discretion of the Board of Directors.
Redwoods has entered into an Employment Agreement dated December 31, 1997
(the 'Trapani Agreement'), with Kevin A. Trapani, pursuant to which Mr. Trapani
serves as President of Redwoods. The term of the Trapani Agreement commenced
January 5, 1998 and is for a period of one year from such date, subject to
automatic renewal unless earlier terminated by either party. The Trapani
Agreement provides for an annual base salary of $200,000, which base salary may
be increased at the discretion of the Company's Board of Directors, and provides
that Mr. Trapani may also receive cash bonuses and other compensation at the
discretion of the Board of Directors.
The Abram Agreement, the Davis Agreement, the Latham Agreement, the Yediny
Agreement and the Trapani Agreement are collectively referred to herein as the
'Employment Agreements'. The Employment Agreements allow for termination of the
respective employee at any time with or without cause. Under the Employment
Agreements, if the respective employee is unable to perform his duties on
account of illness or other incapacity and such Employment Agreement is
terminated, or if such employee is terminated without cause then, except for Mr.
Yediny, such employee, or his legal representative, shall receive from the
employer an amount equal to 18 months, which amount may be extended up to an
additional 18 months (if the employee complies with certain non-compete
provisions) of additional base salary from the date of such termination, and
shall continue to receive employee and fringe benefits throughout the 12 months
following such date. In such circumstance Mr. Yediny receives 24 months of
additional base salary and fringe benefits following termination. Pursuant to
the Employment Agreements, if the respective employee dies, is terminated with
cause, other than because the employee or the employer has not met certain
specified performance targets, or voluntarily terminates the Employment
Agreement, the employer shall have no further obligation to such employee. The
Employment Agreements also provide for medical insurance and other fringe
benefits generally available to other senior executive officers of each
respective employer and contain confidentiality and current and post-termination
non-competition provisions.
The Company has also entered into consulting agreements with each of
Richard W. Wright, the Company's Chairman of the Board, and Lewis P. Wilkinson,
a director of the Company. The consulting agreement with Mr. Wright requires Mr.
Wright to provide his services to the Company for 40 hours each month for an
annual fee of $40,000. The consulting agreement with Mr. Wilkinson requires Mr.
Wilkinson to provide his services to
72
<PAGE>
the Company for one day per week for a monthly fee of $2,000. Such agreements
can be terminated on 90 days written notice by either party.
STOCK OPTION PLANS
In May 1992, the Board of Directors adopted, and the shareholders approved,
the 1992 Stock Option Plan (the '1992 Plan'). The 1992 Plan allows for the grant
of incentive stock options ('ISOs') (within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the 'Code')) and non-qualified stock
options ('NQSOs') to executive officers or key employees of, or consultants to,
the Company or any 'subsidiary' or 'parent' corporation as defined in the Code.
The purpose of the 1992 Plan was to assist the Company in recruiting and
retaining key employees and consultants. The total number of shares of Common
Stock with respect to which options will be granted under the 1992 Plan is
250,000, subject to certain adjustments. Pursuant to the 1992 Plan, ISOs may not
be exercisable for terms in excess of 10 years from the date of grant; however,
NQSOs are not subject to such restriction. In addition, no options or SARs may
be granted under the 1992 Plan after May 2002. The exercise price of ISOs
granted under the 1992 Plan may not be less than the fair market value per share
on the date of grant, as determined by the Compensation Committee of the Board
of Directors; provided, however, that if an optionee owns more than 10.0% of the
Common Stock at the time the individual is granted an ISO, the option price per
share cannot be less than 110.0% of the fair market value per share and the term
of the option cannot exceed five years. All options available for grant under
the 1992 Plan have been granted.
In November 1996, the Board of Directors adopted, and in December 1996 the
shareholders approved, the 1996 Incentive Plan (the '1996 Plan' and together
with the 1992 Plan, the 'Stock Option Plans'). The 1996 Plan allows for the
grant of ISOs, NQSOs, SARs (which must be associated with specific ISOs or NSQOs
and must be granted at the same time as such option), reload options (which may
only be awarded concurrently with an ISO or NSQO), share purchase awards and
restricted share awards (collectively 1996 Plan Awards) to directors and
employees of, and consultants and advisors to, the Company. The purpose of the
1996 Plan is to attract, retain and motivate exemplary key employees,
consultants and directors. As initially adjusted the total number of shares of
Common Stock with respect to which 1996 Plan Awards may be granted under the
1996 Plan is 500,000, subject to certain adjustments. Pursuant to the 1996 Plan,
1996 Plan Awards may not be exercisable for terms in excess of 10 years from the
date of grant. In addition, no 1996 Plan Awards may be granted under the 1996
Plan after November 7, 2006. The exercise price of ISOs and reload options
granted under the 1996 Plan may not be less than the fair market value per share
on the date of grant, as determined by the Compensation Committee; provided,
however, that if an optionee owns more than 10.0% of the Common Stock at the
time the individual is granted any option, the option price per share cannot be
less than 110.0% of the fair market value per share and the term of the option
cannot exceed five years.
The shares of Common Stock subject to and available under the 1992 Plan and
the 1996 Plan may consist, in whole or in part, of authorized but unissued
Common Stock or treasury stock not reserved for any other purpose. Any shares of
Common Stock subject to an option that terminates, expires or lapses for any
reason, and any shares purchased pursuant to an option and subsequently
repurchased by the Company pursuant to the terms of the option, shall again be
available for grant under such plans. Each of the 1992 Plan and the 1996 Plan is
administered by the Compensation Committee of the Board of Directors which is
composed solely of two or more 'Non-Employee Directors' within the meaning of
paragraph (b)(3) of Rule 16b-3 promulgated under the Exchange Act, which
determines, in its discretion, among other things, the recipients of grants, the
type of option or award granted, and the number of shares of Common Stock to be
subject to such options or awards. Pursuant to the Stock Option Plans, any
shares of Common Stock subject to an option that terminates, expires or lapses
for any reason, and any shares purchased pursuant to an option and subsequently
repurchased by the Company pursuant to the terms of the option, shall again be
available for grant under such plans.
As of June 12, 1998, the Company had granted options under the 1992 Plan
exercisable into 250,000 shares of Common Stock to three individuals. The
exercise prices of such options range from $2.00 to $5.00 per share and such
options are exercisable through 2007 and expire at various times from 2002 to
2007. As of June 12, 1998, the Company had granted options under the 1996 Plan
exercisable into 500,000 shares of Common Stock to 47 individuals. The exercise
prices of 1996 Plan Awards range from $4.00 to $5.00 per share and such options
are exercisable through 2007 and expire at various times from 2003 to 2007.
73
<PAGE>
On , 1998, the Board of Directors adopted an amendment to the
1996 Plan to increase the shares of Common Stock with respect to which 1996 Plan
Awards may be granted from 500,000 to . Such amendment will take effect
upon approval by the shareholders.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company or associated
with the Company receive $1,000 for each Board of Directors meeting attended. In
addition all directors are reimbursed for certain expenses in connection with
attendance at Board of Directors and committee meetings. Other than with respect
to reimbursement of expenses, directors who are employees or officers of the
Company or who are associated with the Company do not receive additional
compensation for service as a director.
Directors also receive non-qualified options pursuant to the Stock Option
Plans. See '--Stock Option Plans.'
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Front Royal's Amended and Restated Articles of Incorporation, as in effect
upon the consummation of the Offering, will eliminate, to the fullest extent
permitted by the Business Corporation Act, the personal liability of each
director to the Company or its shareholders for monetary damages for breach of
duty as a director. These provisions in the Amended and Restated Articles of
Incorporation will not change a director's duty of care, but will eliminate the
individual's monetary liability for certain violations of that duty, including
violations based on grossly negligent business decisions that may include
decisions relating to attempts to change control of the Company. The provision
will not affect the availability of equitable remedies for a breach of the duty
of care, such as an action to enjoin or rescind a transaction involving a breach
of fiduciary duty; in certain circumstances, however, equitable remedies may not
be available as a practical matter. Under the Business Corporation Act, the
limitation of liability provision is ineffective against liabilities for: (i)
acts or omissions that the director knew or believed at the time of the breach
to be clearly in conflict with the best interests of the Company; (ii) unlawful
distributions described in Business Corporation Act Section 55-8-33; (iii) any
transaction from which the director derived an improper personal benefit; or
(iv) acts or omissions occurring prior to the date the provision became
effective. The provision also in no way affects a director's liability under the
federal securities laws.
Also, to the fullest extent permitted by the Business Corporation Act, the
Company's Bylaws provide, in addition to the indemnification of directors and
officers otherwise provided by the Business Corporation Act, for indemnification
of the Company's current or former directors, officers, and employees against
any and all liability and litigation expense, including reasonable attorneys'
fees, arising out of their status or activities as directors, officers and
employees, except for liability or litigation expense incurred on account of
activities that were at the time known or believed by such director, officer or
employee to be clearly in conflict with the best interests of the Company.
The Company maintains director and officer liability insurance with respect
to liabilities arising out of certain matters, including matters arising under
the Securities Act.
At present, there is no pending litigation or proceeding involving any
director or officer, employee or agent of the company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
74
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock of: (i) each of the Company's directors; (ii) the
Named Executive Officers; (iii) the Company's executive officers and directors
as a group; and (iv) all persons known by the Company to be the beneficial owner
of more than 5.0% of the outstanding Common Stock of the Company immediately
prior to the Offering, giving pro forma effect to the Recapitalization, and
immediately after the Offering, giving pro forma effect to the Recapitalization
and the sale of Common Stock offered hereby. See 'Management.'
The table also sets forth the number of shares of Common Stock being
offered by the Selling Stockholders and the number and percentage of outstanding
shares to be owned by each person and group after adjustment for completion of
the Offering. The Selling Shareholders' shares of Common Stock are being offered
and sold pursuant to this Prospectus by the Selling Shareholders. The Company
has agreed to register the public offering of such shares of Common Stock under
the Securities Act and to pay all expenses in connection therewith, and such
shares of Common Stock have been included in the Registration Statement of which
this Prospectus forms a part. See 'Underwriting.' Except as set forth below,
none of the Selling Shareholders nor their affiliates has ever held any position
or office with the Company and, except as noted below, none of the Selling
Shareholders or their affiliates has had any other material relationship with
the Company. The Company will not receive any of the proceeds from the sale of
their shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
BENEFICIAL NATURE OF
OWNERSHIP SHARES OF BENEFICIAL OWNERSHIP
PRIOR TO COMMON STOCK AFTER THE
THE OFFERING(1)(2) OFFERED OFFERING(1)(2)(3)
-------------------- ------------- ---------------------
SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C> <C>
J. Adam Abram (4) .................................. 700,677 7.0%
Front Royal, Inc.
2200 Gateway Boulevard, Suite 205
Morrisville, NC 27560
Gregg T. Davis (5) ................................. 59,591 *
Front Royal, Inc.
2200 Gateway Boulevard, Suite 205
Morrisville, NC 27560
John K. Latham (6) ................................. 38,620 *
Colony Management Services, Inc.
9201 Forest Hill Avenue, Suite 200
Richmond, VA 23235
Philip S. Kift (7) ................................. 1,800 *
Rockwood Casualty Insurance Company
654 Main Street
Rockwood, PA 15557
Dale H. Pilkington (8) ............................. 3,949 *
Colony Management Services, Inc.
9201 Forest Hill Avenue, Suite 200
Richmond, VA 23235
Edward J. Desch (9) ................................ 2,500 *
Colony Management Services, Inc.
9201 Forest Hill Avenue, Suite 200
Richmond, VA 23235
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
BENEFICIAL NATURE OF
OWNERSHIP SHARES OF BENEFICIAL OWNERSHIP
PRIOR TO COMMON STOCK AFTER THE
THE OFFERING(1)(2) OFFERED OFFERING(1)(2)(3)
-------------------- ------------- ---------------------
SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C> <C>
John P. Yediny (10) ................................ 15,000 *
Rockwood Casualty Insurance Company
654 Main Street
Rockwood, PA 15557
Richard W. Wright (11) ............................. 100,992 1.0%
The Wright Group
1500 Forest Avenue, Suite 114
Richmond, VA 23229
Matthew Bronfman (12) .............................. 693,475 7.0%
Perfumes Isabell, Inc.
30 West 26th Street, 2nd Floor
New York, NY 10010
Robert V. Hatcher, Jr. (13) ........................ 22,764 *
8401 Patterson Avenue, Suite 106
Richmond, VA 23229
Ira M. Lubert (14) ................................. -- *
IL Management, Inc.
101 West Main Street
Moorestown, NJ 08057
Lewis P. Wilkinson (15) ............................ 59,831 *
Lewis P. Wilkinson IRA
509 St. Christopher Road
Richmond, VA 23226
Wilson Wilde (16) .................................. 29,209 *
The Hartford Steam Boiler Insurance
& Inspection Company
One State Street
Hartford, CT 06102-3001
Joel L. Fleishman (17) ............................. 6,250 *
Duke University
Box 90522
Durham, NC 27708-0522
Charles M. Lederman (18) ........................... 2,783,333 22.0%
FWH, Inc.
502 West Office Center Drive
Fort Washington, PA 19034
Alan N. Colner (19) ................................ -- *
Moore Capital Management, Inc.
1251 Avenue of the Americas, 53rd Floor
New York, NY 10020
James L. Zech (20) ................................. 1,272,500 12.9%
High Ridge Capital LLC
4 Stamford Plaza
Stamford, CT 06912
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
BENEFICIAL NATURE OF
OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO AFTER THE
THE OFFERING(1)(2) SHARES OF OFFERING(1)(2)(3)
-------------------- COMMON STOCK ---------------------
SHARES PERCENT OFFERED SHARES PERCENT
------------
<S> <C> <C> <C> <C> <C>
Atlantic Venture Partners .......................... 805,487 8.2%
380 Knollwood Street, Suite 410
Winston-Salem, NC 27103
Technology Leaders, L.P. (21) ...................... 1,480,814 14.9%
IL Management, Inc.
101 West Main Street
Moorestown, NJ 08057
FWH, Inc. .......................................... 2,250,000 18.1%
502 West Office Center Drive
Fort Washington, PA 19034
High Ridge Capital, Inc ............................ 1,272,500 12.9%
4 Stamford Plaza, 15th Floor
108 Elm Street
Stamford, CT 06912-0043
Moore Global Investments, Ltd./Remington Investment
Strategies, L.P (22) ............................. 1,237,500 12.5%
1251 Avenue of the Americas, 53rd Floor
New York, NY 10020
Stephen Weicholz (2)(23) ........................... 1,550,000 14.2%
2100 University Drive, Suite 900
Coral Springs, FL 33071
[Additional Selling Shareholders - to be provided]
All directors and executive officers ............... 5,790,491 45.1%
as a group (4) through (20) and (24)
</TABLE>
- ------------------
* Less than 1.0%
(1) All shares are beneficially owned and sole voting and investment power is
held by the persons named, except as otherwise noted. See 'Description of
Capital Stock.'
(2) Percentage ownership amounts reflect the pro forma issuance of 500,000
shares of Common Stock and options to purchase 1,050,000 shares of Common
Stock pursuant to the Preferred National Acquisition. See
'Business--Preferred National.'
(3) In each case reflects the sale of Common Stock included in the Offering.
See 'Principal and Selling Shareholders.'
(4) Includes 117,875 shares of Common Stock issuable upon exercise of warrants
and options granted by Front Royal to Mr. Abram, 84,543 shares of Common
Stock owned by Rosalind Abram, the wife of Mr. Abram, 130,016 shares of
Common Stock owned by MBA Ventures, a partnership in which Mr. Abram is the
only general partner, and 138,973 shares of Common Stock owned by Jane M.
Abram Family Limited Partnership of which Mr. Abram is managing general
partner, as to all of which Mr. Abram is the beneficial owner. Excludes
95,000 shares of Common Stock issuable upon exercise of options granted by
Front Royal to Mr. Abram which are not exercisable within 60 days from the
date of this Prospectus and 2,953 shares of Common Stock issuable upon
exercise of warrants which are not exercisable until June 1, 2001.
(Footnotes continued on next page)
77
<PAGE>
(Footnotes continued from previous page)
(5) Includes 38,750 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Davis. Excludes 36,250 shares of Common Stock
issuable upon exercise of options granted by Front Royal to Mr. Davis which
are not exercisable within 60 days from the date of this Prospectus and
1,082 shares of Common Stock issuable upon exercise of warrants which are
not exercisable until June 1, 2001.
(6) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Latham. Excludes 70,000 shares of Common
Stock issuable upon exercise of options granted by Front Royal to Mr.
Latham which are not exercisable within 60 days from the date of this
Prospectus and 984 shares of Common Stock issuable upon exercise of
warrants which are not exercisable until June 1, 2001.
(7) Excludes 12,500 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Kift which are not exercisable within 60 days
from the date of this Prospectus and 142 shares of Common Stock issuable
upon exercise of warrants which are not exercisable until June 1, 2001.
(8) Includes 2,500 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Pilkington. Excludes 21,500 shares of Common
Stock issuable upon exercise of options granted by Front Royal to Mr.
Pilkington which are not exercisable within 60 days from the date of this
Prospectus and 40 shares of Common Stock issuable upon exercise of warrants
which are not exercisable until June 1, 2001.
(9) Includes 2,500 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Desch. Excludes 20,000 shares of Common Stock
issuable upon exercise of options granted by Front Royal to Mr. Desch which
are not exercisable within 60 days after the date of this Prospectus.
(10) Excludes 2,750 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Shari Yediny, the wife of Mr. Yediny (who is also
an employee of the Company), which are not exercisable within 60 days from
the date of the Prospectus, 40,000 shares of Common Stock issuable upon
exercise of options granted by Front Royal to Mr. Yediny which are not
exercisable within 60 days from the date of this Prospectus and 1,181
shares of Common Stock issuable upon exercise of warrants which are not
exercisable until June 1, 2001.
(11) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Wright, 7,000 shares of Common Stock held in
trust by Mr. Wright as trustee for his grandchildren and 5,959 shares of
Common Stock held by Jean Wright, the wife of Mr.Wright, as to all of which
Mr. Wright claims beneficial ownership. Excludes 20,000 shares of Common
Stock issuable upon exercise of options granted by Front Royal to Mr.
Wright which are not exercisable within 60 days of the date of this
Prospectus.
(12) Includes 15,000 shares of Common Stock owned by Mr. Bronfman's children,
and 533,016 shares of Common Stock owned by the Matthew Bronfman Pour-Off
Trust, as to all of which Mr. Bronfman claims beneficial ownership.
Excludes 10,000 shares of Common Stock issuable upon exercise of warrants
which are not exercisable within 60 days of the date of this Prospectus,
219,395 shares of Common Stock owned by the Matthew Bronfman 1990 Long Term
Trust and 29,711 shares of Common Stock issuable upon exercise of warrants
granted by Front Royal to the Matthew Bronfman 1990 Long Term Trust, as to
all of which Mr. Bronfman disclaims beneficial ownership.
(13) Excludes 10,000 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Hatcher which are not exercisable within 60
days from the date of this Prospectus and 197 shares of Common Stock
issuable upon exercise of warrants which are not exercisable until June 1,
2001.
(14) Excludes 10,000 shares of Common Stock issued upon exercise of options
granted by Front Royal to Mr. Lubert which are not exercisable within 60
days after the date of this Prospectus and 1,419,412 shares of Common Stock
owned by Technology Leaders, L.P., of which Mr. Lubert is Managing
Director, as to which he disclaims beneficial ownership.
(15) Includes 10,000 shares of Common Stock held in an IRA trust for the benefit
of Mr. Wilkinson as to which Mr. Wilkinson claims beneficial ownership.
Excludes 10,000 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Wilkinson which are not exercisable within 60
days from the date of this Prospectus, 2,150 shares of Common Stock owned
by a trust for the benefit of
(Footnotes continued on next page)
78
<PAGE>
(Footnotes continued from previous page)
Mr. Wilkinson's son, and 472 shares of Common Stock issuable upon exercise
of warrants which are not exercisable until June 1, 2001.
(16) Excludes 10,000 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Wilde which are not exercisable within 60
days from the date of this Prospectus and 1,476 shares of Common Stock
issuable upon exercise of warrants which are not exercisable until June 1,
2001.
(17) Excludes 10,000 shares of Common Stock issuable upon exercise of options
granted by Front Royal to Mr. Fleishman which are not exercisable within 60
days from the date of this Prospectus and 492 shares of Common Stock
issuable upon exercise of warrants which are not exercisable until June 1,
2001.
(18) Includes 200,000 shares of Common Stock issuable upon exercise of warrants
from Front Royal to Mr. Lederman, 2,250,000 shares of Common Stock owned by
FWH Inc. ('FWH'), of which Mr. Lederman is President and Chief Executive
Officer, and 333,333 shares of Common Stock owned by Premier Auto Insurance
Company, of which Mr. Lederman is President, as to all of which he claims
beneficial ownership. Excludes 10,000 shares of Common Stock issuable upon
exercise of options granted by Front Royal to Mr. Lederman which are not
exercisable within 60 days after the date of this Prospectus.
(19) Mr. Colner is Managing Director, Private Equity Investments of the
investment advisor to each of Moore Global Investments, Ltd. ('MGI') and
Remington Investment Strategies, L.P. ('Remington'), and does not have
voting or investment power with respect to the shares of Common Stock owned
by MGI or Remington. Excludes 10,000 shares of Common Stock issuable upon
exercise of options granted by Front Royal to Mr. Colner which are not
exercisable within 60 days after the date of this Prospectus. Pursuant to
an agreement between Mr. Colner and the investment advisor for each of MGI
and Remington, all economic interest in options granted to Mr. Colner by
the Company will accrue to the benefit of MGI and Remington.
(20) Includes 1,272,500 shares of Common Stock owned by High Ridge Capital,
Inc., of which Mr. Zech is President, as to which he claims beneficial
ownership. Excludes 10,000 shares of Common Stock issuable upon exercise of
options granted by Front Royal to Mr. Zech which are not exercisable within
60 days after the date of this Prospectus.
(21) Includes 61,402 shares of Common Stock issuable upon exercise of warrants
issued by Front Royal, 560,783 shares of Common Stock owned by Technology
Leaders FR Corp. and 245,791 shares of Common Stock owned by Technology
Leaders Offshore CV, as to all of which Technology Leaders, L.P. claims
beneficial ownership.
(22) Moore Capital Management, Inc., a Connecticut corporation, is vested with
investment discretion with respect to portfolio assets held for the account
of MGI. Moore Capital Advisors, L.L.C., a New York limited liability
company, is the sole general partner of Remington. Mr. Louis M. Bacon is
the majority shareholder of Moore Capital Management, Inc. and is the
majority equity holder of Moore Capital Advisors, L.L.C. As a result, Mr.
Bacon, though he disclaims beneficial ownership of such shares, may be
deemed to be the beneficial owner of the aggregate shares held by MGI and
Remington.
(23) Includes 1,050,000 shares of Common Stock issuable upon exercise of
warrants to be granted by Front Royal to Mr. Weicholz pursuant to the
Preferred National Acquisition.
(24) The directors and officers group includes Messrs. Abram, Davis, Latham,
Yediny, Desch, Pilkington, Kift, Wright, Bronfman, Fleishman, Hatcher,
Lubert, Lederman, Colner, Zech, Wilkinson and Wilde.
79
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into employment agreements with certain of its
executive officers and consulting agreements with certain of its directors. See
'Management--Compensation Agreements.' Additionally, the Company has granted
options to certain of its officers and directors. All such grants were approved
by the Company's Board of Directors and the Company believes that the exercise
price of each such option represented the fair market value of the underlying
Common Stock on the date of grant. See 'Management--Stock Option Plans' and
'Principal and Selling Shareholders.'
In connection with the Rockwood Acquisition, Colony Insurance and Fort
Washington Holdings, Inc. ('Fort Washington'), an entity affiliated with Charles
M. Lederman, who became a director of the Company in connection with the
Rockwood Acquisition, entered into an Option Agreement pursuant to which Fort
Washington was granted an option, exercisable prior to June 30, 1997, to
purchase all of the outstanding capital stock of Hamilton, a wholly-owned
subsidiary of Colony Insurance, for an aggregate purchase price of $4.5 million.
In June 1997, Fort Washington exercised such option and the transaction was
completed after receiving regulatory approval on December 31, 1997. Management
believes that this transaction was on terms no less favorable to the Company
than could be obtained from independent third parties.
Pursuant to the Rockwood Acquisition, Premier, a company of which Mr.
Lederman is a controlling shareholder, issued a $2.5 million secured promissory
note in favor of the Company (which was repaid in full by July 1997) and FWH,
the parent company of Premier, acquired the Series A Preferred Stock. Management
believes that these transactions were on terms no less favorable to the Company
than could be obtained from independent third parties.
In connection with the Rockwood Acquisition, on December 31, 1996, the
Company issued 31,750 Units (defined below) to 27 individuals and entities and
on August 25, 1997 the Company issued an additional 733 Units to 11 individuals
and entities in private placements. The purchase price for each 'Unit' was $400
and each Unit consisted of 100 shares of Class C Common Stock, 100 purchase
price adjustment rights and one Warrant to purchase 7.874 shares of Class A
Common Stock. Certain directors and executive officers purchased securities in
this transaction upon the same terms as all other purchasers. Of such officers
and directors who purchased securities in this transaction, only J. Adam Abram,
Matthew Bronfman and Wilson Wilde, each a director, purchased in excess of
$60,000 worth of such securities. See 'Principal and Selling Shareholders.' The
Company loaned an aggregate of $200,000 to J. Adam Abram, Gregg T. Davis and
John K. Latham, each of whom is an executive officer of the Company, which
amounts were used by these individuals to purchase securities in this
transaction. These notes have an interest rate of 6.5%, mature on December 31,
2001, are secured by the stock purchased with the proceeds and require mandatory
prepayment of 25.0% of the net after-tax amount of any cash bonus paid to these
officers. The balance of such notes as of June 12, 1998 was approximately
$112,000.
Rockwood (prior to its acquisition by the Company) paid Rockwood Asset
Management, Inc. ('RAM'), an entity in which Mr. Lederman, a director of the
Company, is a controlling shareholder, $841,000, $636,000 and $319,000 during
1996, 1995 and 1994, respectively, under agreements for: (i) the lease of
Rockwood's main office facilities; (ii) the lease of certain computer equipment;
(iii) a software license; and (iv) an installment purchase of office equipment.
In connection with the Rockwood Acquisition, the Company entered into a new
lease with RAM (see 'Business--Facilities') and also entered into several
agreements with former owners and affiliates of Rockwood, including certain
non-solicitation and non-compete agreements, for periods of up to ten years. The
agreements require aggregate payments of $565,000 per year through 2001 and
$390,000 per year from 2002 through 2006. The net present value of such
agreements is recorded as an intangible asset with a corresponding liability
recorded in other liabilities.
In early 1995, the Company issued 51,648 shares of Class A Common Stock at
$2.50 per share in connection with the conversion of $129,122 of principal and
accrued interest on outstanding subordinated debt to certain shareholders. Of
such shares, approximately 25,000 were issued to J. Adam Abram. See 'Principal
and Selling Shareholders.'
80
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon consummation of the Offering and completion of the Recapitalization,
the Company's authorized capital stock will consist of 30,000,000 shares of
Common Stock, no par value per share, and 5,000,000 shares of Preferred Stock,
no par value per share (the 'Preferred Stock'). The discussions of the Common
Stock and Preferred Stock here and elsewhere in this Prospectus are qualified in
their entirety by reference to: (i) the Amended and Restated Articles of
Incorporation of Front Royal, a copy of which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part; and (ii) the
applicable North Carolina law. See 'The Recapitalization' and 'Capitalization.'
COMMON STOCK
Holders of Common Stock will be entitled to one vote for each share held on
all matters submitted to a vote of shareholders and will not have cumulative
voting rights. Shareholders casting a plurality of votes of the shareholders
entitled to vote in an election of directors will be able to elect all of the
directors standing for election. Holders of Common Stock will be entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of Preferred Stock that may be issued at such future time or
times. Upon the liquidation, dissolution or winding-up of the Company, the
holders of Common Stock will be entitled to receive ratably the net assets of
the Company after the payment of all debts and other liabilities and subject to
the prior rights of Preferred Stock that may be outstanding at such time.
Holders of Common Stock will have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock will be, and the
shares of Common Stock offered by the Company in the Offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to the rights of the holders
of shares of any series of Preferred Stock which the Company may designate and
issue in the future.
As of June 12, 1998, giving pro forma effect to the Recapitalization, there
were 11,959,259 shares of Common Stock outstanding held of record by
approximately 80 shareholders. After giving effect to the issuance of the
shares of Common Stock offered by the Company hereby, there will be shares
of Common Stock outstanding upon the closing of the Offering.
PREFERRED STOCK
The Board of Directors will have the authority to issue the Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the shareholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the shareholders and may
adversely affect the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control of others. At present, the Company has no plans to issue any of
the Preferred Stock.
WARRANTS
Class A Warrants. As of the date of this Prospectus, the Company has
outstanding Class A Common Stock Purchase Warrants ('Class A Warrants') to
purchase 826,376 shares of Common Stock, subject to adjustment. Of the Class A
Warrants: (i) 22,500 were issued in May 1992, have an exercise price of $2.00
per share, and have no expiration date; (ii) 60,750 were issued in December
1994, have an exercise price of $2.50 per share, are currently exercisable and
expire in December 1999; (iii) 210,418 were issued in September 1994 (the
'September 1994 Warrants'), have an exercise price of $0.01 per share, are
currently exercisable and expire in September 1999; (iv) 132,708 were issued in
December 1994 (the 'December 1994 Warrants'), have an exercise price of $0.01
per share, are currently exercisable and expire in September and December of
1999; and (v) 400,000 were issued in December 1996, have an exercise price of
$2.50 per share, are currently exercisable and expire on the later of December
31, 2001 or two years after the Company's initial public offering. The September
1994 Warrants and the December 1994 Warrants are subject to periodic adjustments
if not exercised by certain dates and contain certain registration rights with
respect to the underlying shares of Common Stock.
81
<PAGE>
Class C Warrants. As of the date of this Prospectus, the Company has
outstanding warrants (the 'Class C Warrants') to purchase an aggregate of
255,772 shares of Common Stock at an exercise price of $0.01 per share, subject
to adjustment. Of the Class C Warrants: (i) warrants to purchase an aggregate of
250,000 shares of common stock were issued on December 31, 1996; and (ii)
warrants to purchase an aggregate of 5,772 shares of Common Stock were issued on
August 25, 1997. The Class C Warrants may be exercised by the holders thereof at
the earliest to occur of (i) June 1, 2001; (ii) the sale by the Company of all
or substantially all of its assets; (iii) the date on which, immediately prior
to the date of such transaction as a result of one or a series of related
transactions, the holders of the then issued and outstanding Common Stock
beneficially own in the aggregate, less than 55.0% of the issued and outstanding
voting securities of the Company (or the successor to the Company if such
transaction was a merger or consolidation in which the Company was not the
surviving entity), determined on a fully diluted basis; or (iv) the date on
which the members who comprised the Board of Directors on December 31, 1996
cease for any reason to comprise at least a majority of the Board of Directors,
provided, that, any person who becomes a director subsequent to such date whose
election, or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors comprising the Board of
Directors on December 31, 1996 shall be, for all purposes of this definition,
considered as though such person were a member of the Board of Directors on such
date (each of (ii) to (iv) above, a 'Trigger Event'). The Class C Warrants
expire on December 31, 2006.
The Class C Warrants may be redeemed at the option of the Company, at a
redemption price of $0.01 per Class C Warrant, at any time (i) after December
31, 2000, if the book value per share of the Company is greater than $7.25,
subject to adjustment; or (ii) if at the end of each of the three immediately
preceding fiscal quarters the book value per share of the Company is greater
than $7.75, subject to adjustment. The Company shall have the right to redeem
such number of the Class C Warrants as is equal to (i) in the case of a
redemption following December 31, 2000, the number of Class C Warrants
represented by each Warrant certificate multiplied by 2.0% times each $0.01 by
which the book value per share of the Company exceeds $7.25, and (ii) in the
case of any redemption prior to December 31, 2000, all the Class C Warrants. All
of the computations above shall be adjusted to reflect any stock dividends and
any stock splits or combinations or similar transactions taking place after the
original issue date of the Class C Warrants through the end of the above
referenced fiscal quarters or December 31, 2000.
The Class C Warrants may also be redeemed at the option of the Company at a
price equal to $0.01 per Class C Warrant if, at the end of the fiscal quarter
immediately prior to the effective date of any Trigger Event the book value per
share of the Company is greater than (i) $7.25 less the book value per share of
the Company at December 31, 1996, divided by (ii) 16 and multiplied by (iii) the
number of fiscal quarters from January 1, 1997 through such effective date, as
adjusted.
Preferred National Warrants. In connection with the Preferred National
Acquisition, the Company will issue the Preferred National Warrants, which will
have an exercise price of $10.00 and be exercisable for seven and one-half years
from the closing of the Preferred National Acquisition. See 'Business--Preferred
National.'
All Warrants. The Class A Warrants, the Class C Warrants and the Preferred
National Warrants may be exercised upon surrender of the certificates therefor
on or prior to their expiration or any redemption date at the offices of the
Company upon, among other things, the payment of the exercise price for the
number of such warrants being exercised. Additionally, the Class A Warrants,
Class C Warrants and the Preferred National Warrants contain provisions that
protect the holders thereof against dilution by adjustment of the exercise price
in certain events, such as stock dividends, stock splits, mergers, the sale of
substantially all of the Company's assets and for other extraordinary events and
for sales of securities for a consideration less than the then current market
price of the Common Stock. The Company is not required to issue fractional
shares of Common Stock and, in lieu thereof, is required to make a cash payment
based upon the current market value of such fractional shares. The holders of
the Class A Warrants, Class C Warrants and Preferred National Warrants do not by
virtue of their ownership thereof possess any rights as a shareholder of the
Company unless and until their respective warrants are exercised.
REGISTRATION RIGHTS
In connection with the Rockwood Acquisition, the Company entered into an
Amended and Restated Registration Rights Agreement, dated as of December 31,
1996, as amended on August 25, 1997 (the 'Amended and Restated Registration
Rights Agreement'), with certain of its then Class A Common Stock, Class B
82
<PAGE>
Common Stock, Class C Common Stock, Class A Warrant and Class C Warrant holders
(the 'Holders'). The Company also entered into a Shareholder and Registration
Rights Agreement dated as of December 31, 1996 (the 'Preferred Registration
Rights Agreement') with Fort Washington Holdings, Inc., PIC Insurance Group,
Inc. Charles M. Lederman and Timothy I. McCarthy, Sr. (collectively, the
'Preferred Holders') pursuant to which the Preferred Holders were granted the
same registration rights as the Holders under the Amended and Restated
Registration Rights Agreement. Upon the closing of the Preferred National
Acquisition the person and/or entities to whom shares of Common Stock and the
Preferred National Warrants are issued will become parties to the Amended and
Restated Registration Rights Agreement. The Amended and Restated Registration
Rights Agreement and the Preferred Registration Rights Agreement are referred to
herein as the 'Registration Rights Agreement.' The Holders and the Preferred
Holders are referred to herein as the 'Registration Rights Holders.'
Pursuant to the Registration Rights Agreement the Registration Rights
Holders, with respect to substantially all of the Common Stock issuable or
outstanding immediately prior to the Offering (the 'Registrable Securities'),
have: (i) 'piggyback' registration rights to any registration by the Company of
any of the Company's equity securities, other than offerings registered on Form
S-4 or S-8; and (ii) 'demand' registration rights which are exercisable: (a) on
four separate occasions upon the receipt by the Company of written notice from
the Registration Rights Holders holding at least 15.0% of the Common Stock (such
percentage based upon the number of shares outstanding at December 31, 1996 on a
fully diluted basis), that such holders desire to offer or cause to be offered
for public sale at least 10.0% of the shares of Common Stock (such percentage
based upon the number of shares outstanding at December 31, 1996 on a fully
diluted basis), and the fulfillment of certain other conditions; and (b) once
every 12-months for a period of 10 years, commencing on the date on which the
Company becomes eligible to use Form S-3, but only if such registration can be
effected on Form S-3, upon written request by the holders of at least 15.0% of
the securities held by the Registration Rights Holders (such percentage based
upon the number of shares outstanding at December 31, 1996 on a fully diluted
basis) and upon the good faith estimation by the Board of Directors that the
market value of the securities requested to be registered exceeds $500,000.
Shares of Common Stock that are Registrable Securities shall cease to be
Registrable Securities (i) upon the consummation of any sale of such shares
pursuant to an effective registration statement under the Securities Act or Rule
144 under the Securities Act or (ii) at such time as such Registrable Securities
become eligible for sale under Rule 144(k) under the Securities Act.
Immediately following the Offering, without giving effect to the Reverse
Split, the Registration Rights Holders will have the foregoing registration
rights with respect to 11,959,259 shares of Common Stock and with respect to an
additional 1,082,148 shares of Common Stock issuable upon exercise of the Class
A Warrants and the Class C Warrants described above. See 'Shares Eligible for
Future Sale.'
STATUTORY PROVISIONS
The Business Corporation Act contains a 'Shareholder Protection Act' which,
with certain exceptions discussed below, requires approval of certain business
combinations between a North Carolina corporation and any beneficial holder of
more than 20.0% of the voting shares of the corporation by the holders of at
least 95.0% of the voting shares of the corporation. Business combinations
subject to this approval requirement include any merger or consolidation of the
corporation with or into any other corporation, the sale or lease of all or any
substantial part of the corporation's assets to, or any payment, sale or lease
to the corporation or any subsidiary thereof in exchange for securities of the
corporation of any assets (except assets having an aggregate fair market value
of less than $5.0 million) of any other entity. The principal exception to the
special voting requirement applies to business combinations that satisfy various
complex statutory provisions, including provisions relating to the fairness of
the price and the constituency of the Board of Directors. In addition, the
special voting requirement shall not be applicable to any corporation if, for
example: (i) the corporation was not a public corporation at the time such other
entity acquired in excess of 10.0% of the voting shares; (ii) the corporation
adopted an amendment to its bylaws within 90 days of becoming a public company
or incorporated a provision in its original articles of incorporation providing
that the provisions shall not apply to it in accordance with the statute; or
(iii) the business combination in question was the subject of an existing
agreement of the corporation on April 23, 1987. The Company has not 'opted out'
of the Shareholder Protection Act.
Certain North Carolina public corporations are also subject to 'The North
Carolina Control Share Acquisition Act.' This law provides that shares acquired
in a transaction that would cause the acquiring person's
83
<PAGE>
voting strength to meet or exceed any of three thresholds (20.0%, 33.3% or a
majority) of voting power, depending on the circumstances of the transaction,
have no voting rights unless granted by a majority vote of all the outstanding
shares of the corporation (not including Interested Shares) entitled to vote for
the election of directors. 'Interested Shares' means the shares of a corporation
beneficially owned by (i) any person who has acquired or proposes to acquire
control shares in a control share acquisition; (ii) any officer of the
corporation; or (iii) any employee of the covered corporation who is also a
director of the corporation. This provision empowers an acquiring person to
require the North Carolina corporation to hold a special meeting of shareholders
to consider the matter within 50 days and, if so requested, no sooner than 30
days of its request. The Company has not 'opted out' of The North Carolina
Control Share Acquisition Act.
These provisions were designed to deter certain takeovers of North Carolina
corporations.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock. In addition, any such sale or perception could make
it more difficult for the Company to sell equity securities or equity related
securities in the future at a time and price that the Company deems appropriate.
Upon consummation of the Offering, the Company will have a total of shares
of Common Stock outstanding, of which the shares of Common Stock sold in
the Offering and an additional shares currently outstanding will be
eligible for immediate sale in the public market without restriction, unless
they are held by 'affiliates' of the Company within the meaning of Rule 144
under the Securities Act, and of which shares will be 'restricted'
securities within the meaning of Rule 144 under the Securities Act.
Additionally, the Company has granted options to certain directors and officers
of the Company to purchase an aggregate of shares of Common Stock and there
are currently warrants exercisable into shares of Common Stock. Certain
officers, directors and major shareholders, who hold an aggregate of shares
of Common Stock and such options and warrants to purchase shares of Common
Stock, have agreed that they will not without the prior written consent of DLJ
directly or indirectly offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any other equity
security of the Company, or any securities convertible into or exercisable or
exchangeable for, or warrants, options or rights to purchase or acquire, Common
Stock or any other equity security of the Company,
or enter into any agreement to do any of the foregoing, for a period of 180 days
from the date of this Prospectus. As a result of the foregoing, shares of
Common Stock will become eligible for resale on , subject to such
additional restrictions to the extent applicable and subject to Rule 144. See
'Principal and Selling Shareholders,' 'Description of Capital Stock' and
'Underwriting.'
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any 'affiliate' of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1.0%
of the then outstanding Common Stock or the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the date on which notice
of the sale is filed with the Commission. Sales under Rule 144 also are subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. If two years have elapsed since
the date of acquisition of restricted shares from the Company or from any
'affiliate' of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an 'affiliate' of the Company at any time during the
three months preceding a sale, such person would be entitled to sell such shares
in the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common
Stock, or the perception that such sales could occur, may affect adversely
prevailing market prices of the Common Stock.
84
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated , 1998 (the 'Underwriting Agreement'), the Underwriters
named below, who are represented by DLJ, BT Alex. Brown Incorporated and Wheat
First Securities, Inc. (the 'Representatives'), have severally agreed to
purchase from the Company and the Selling Shareholders the respective number of
shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
THE UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........................................
BT Alex. Brown Incorporated................................................................
Wheat First Securities, Inc................................................................
---------
Total.................................................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth in
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers, a concession not in excess of $ per share. After the
initial offering of the Common Stock, the offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The [Company] [the Selling Shareholders] [has] [have] granted to the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of additional shares of Common Stock at the initial public
offering price less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover over-allotments, if any, made in connection
with the Offering. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase its pro rata portion of such additional shares based on such
Underwriter's percentage underwriting commitment as indicated in the preceding
table.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, 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 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) for a period of 180 days after the date of this Prospectus
without the prior written consent of DLJ. In addition, during such period, the
Company has also agreed not to file any registration statement with respect to,
and each of its executive officers and directors and certain stockholders of the
Company (including the Selling Shareholders) has
85
<PAGE>
agreed not to 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 without DLJ's prior written
consent.
Prior to the Offering there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Common Stock was
determined by negotiation between the Company and the Representatives. Factors
considered in determining such price, in addition to prevailing market
conditions, included the history of and the prospects for the Company and the
industry in which the Company competes, an assessment of the Company's
management, the Company's capital structure and such other factors as were
deemed relevant.
An affiliate of Wheat First Securities, Inc. is the agent and a lender
under the Term Loan, which is being paid off with the proceeds of the Offering.
The Offering is being conducted in accordance with Schedule E, which
provides that, among other things, when an NASD member participates in the
underwriting of securities of a company where it is receiving more than 10% of
the proceeds of the offering, the initial public offering price can be no higher
than that recommended by a 'qualified independent underwriter' meeting certain
standards. In accordance with this requirement, DLJ is serving in such role and
will recommend a price in compliance with the requirements of Schedule E. In
connection with the Offering, DLJ in its role as qualified independent
underwriter has performed due diligence investigations and reviewed and
participated in the preparation of this Prospectus and the Registration
Statement of which this Prospectus forms a part.
Application will be made to list the Common Stock on Nasdaq under the
symbol 'FRYL.' There can be no assurance that such listing application will be
approved.
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering of the Common Stock and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Robinson
Silverman Pearce Aronsohn & Berman LLP, New York, New York, and for the
Underwriters by Simpson Thacher & Bartlett, New York, New York. Robinson
Silverman Pearce Aronsohn & Berman LLP and Simpson Thacher & Bartlett may rely
as to matters of North Carolina law on the opinion of Brooks Pierce McLendon
Murphy & Leonard, Greensboro, North Carolina.
Herbert Teitelbaum, who is a member of Robinson Silverman Pearce Aronsohn &
Berman LLP, beneficially owns 20,000 shares of Common Stock and warrants which
are exercisable into an additional 9,903 shares of
86
<PAGE>
Common Stock. Mr. Teitelbaum's wife owns 71,847 shares of Common Stock, as to
all of which shares Mr. Teitelbaum disclaims beneficial ownership.
EXPERTS
The consolidated financial statements and schedules of Front Royal and
subsidiaries and the consolidated statements of operations and cash flows of
Rockwood and subsidiaries appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, to the
extent indicated in their reports thereon also appearing elsewhere herein and in
the Registration Statement. Such consolidated financial statements have been
included herein in reliance upon such reports given upon the authority of such
firm as experts in auditing and accounting.
The combined financial statements of Preferred National Insurance Company
and Affiliates as of December 31, 1997 and for the year then ended included in
this Prospectus and Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Rockwood and subsidiaries at
December 31, 1995 and 1994 and for the years then ended appearing in this
Prospectus and Registration Statement have been audited by Parente, Randolph,
Orlando, Carey & Associates, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in auditing and
accounting.
87
<PAGE>
GLOSSARY OF SELECTED INSURANCE TERMS
Except as otherwise specified or as the context may otherwise require, the
following terms used herein shall have the meanings assigned to them below. All
terms in the singular shall have the same meanings when used in the plural and
vice versa.
<TABLE>
<S> <C>
Accident year........................ The annual accounting period in which loss events occurred, regardless of
when the losses are actually reported, booked or paid.
Actuary or Actuarial firm............ A person or firm which conducts various statistical studies used to
evaluate risks, the adequacy of premium charged therefor and the adequacy
of provisions made for losses and loss expenses.
Admitted insurer..................... An insurer that has received a license or certificate of authority from a
state regulatory authority to transact an insurance business in that
state.
A.M. Best............................ A.M. Best Company, Inc., a rating agency and publisher for the insurance
industry.
Binding authority.................... The authority given to an agent to bind an insurance company to an
insurance policy within prescribed parameters.
Case reserves........................ Loss reserves established with respect to individual reported claims.
Cede; Ceding company................. When a company reinsures its risk with another, it 'cedes' business and is
referred to as the 'ceding company.'
Claims-made basis.................... A form of insurance that provides coverage for claims made (reported or
filed) during the year the policy is in force for any incidents which
occur during that year or during any previous period in which the
policyholder was insured under the 'claims-made' contract. This form of
coverage is in contrast to the occurrence policy which covers losses from
claims which occurred during the policy period, regardless of when the
claims are asserted.
Combined ratio....................... A combination of the underwriting expense ratio and the loss and LAE
ratio, determined in accordance with either SAP or GAAP. The underwriting
expense ratio measures the ratio of underwriting expenses to net written
premiums, if determined in accordance with SAP, or the ratio of
underwriting expenses (adjusted by deferred policy acquisition costs) to
net earned premiums if determined in accordance with GAAP. The loss and
LAE ratio measures the ratio of incurred losses and LAE to net earned
premiums, determined in accordance with either SAP or GAAP. A combined
ratio on a GAAP or SAP basis below 100.0% generally indicates profitable
underwriting prior to the consideration of investment income. A combined
ratio on a GAAP or SAP basis over 100.0% generally indicates unprofitable
underwriting prior to the consideration of investment income.
Commission........................... The fee paid to an agent or a broker for placing insurance which is
generally a percentage of the premium.
Deferred policy acquisition costs.... The costs that vary with and are primarily related to the acquisition of
new and renewal insurance policies including commissions and certain other
underwriting expenses. These costs are capitalized and charged to expense
in proportion to premium revenue earned.
Dividend ratio....................... The ratio of 'dividends to policyholders' to net earned premiums,
expressed as a percentage.
</TABLE>
88
<PAGE>
<TABLE>
<S> <C>
Excess and surplus lines ('E&S')..... Lines of insurance which are generally unavailable from admitted insurers
and which, consequently, are placed by surplus lines agents or brokers
with insurers that are not admitted in the subject jurisdiction.
Expense ratio........................ Under SAP, the ratio of underwriting expenses to net written premiums. On
a GAAP basis, the ratio of underwriting expenses (excluding interest
expense) to net earned premiums.
Fronting............................. Procedure under which the ceding company cedes the risk it has
underwritten to its reinsurer with the ceding company retaining none or a
very small portion of that risk for its own account.
Generally accepted accounting
principles ('GAAP')................ United States generally accepted accounting principles as promulgated by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board.
Gross written premiums............... Direct written premiums plus reinsurance assumed written premiums during a
given period.
Hard market.......................... The portion of the market cycle of the property and casualty insurance
industry characterized by constricted industry capital and underwriting
capacity, increasing premium rates and, typically, enhanced underwriting
performance.
Incurred but not yet reported
('IBNR') reserves.................. Loss reserves for estimated losses which have been incurred but not yet
reported to the insurer.
Incurred losses...................... The total losses sustained by an insurance company under a policy or
policies, whether paid or unpaid. Incurred losses include a provision for
claims that have occurred but have not yet been reported to the insurer.
Inland marine insurance.............. Coverage for property damage or destruction of an insured's property and
liability expense of an insured for damage or destruction of someone
else's property under his/her care, custody or control.
Loss ratio........................... The ratio of the sum of incurred losses and loss adjustment expenses to
net premiums earned based on consolidated financial information prepared
in accordance with GAAP or SAP. Unless otherwise indicated, loss ratio
refers to calendar year loss ratio.
Loss adjustment expenses ('LAE')..... The expenses of settling claims, including legal and other fees, and the
portion of general expenses allocated to claim settlement costs.
Loss and LAE reserves................ Liabilities established by insurers to reflect the estimated cost of
claims payments that the insurer will ultimately be required to pay in
respect of insurance it has written. Reserves are established for losses
and for LAE, and consist of case reserves and IBNR reserves.
Loss development..................... Increases or decreases in losses and LAE greater than or less than
anticipated loss and LAE experience over a given period of time.
National Association of Insurance
Commissioners ('NAIC')............. A voluntary organization of state insurance officials that promulgates
model laws regulating the insurance industry, values securities owned by
insurers, develops and modifies insurer financial reporting statements and
insurer performance criteria and performs other services with respect to
the insurance industry.
</TABLE>
89
<PAGE>
<TABLE>
<S> <C>
Net earned premiums.................. The portion of net written premiums that is recognized for accounting
purposes as income during a period.
Net written premiums................. Gross written premiums for a given period less premiums ceded to
reinsurers during such period.
Occurrence basis..................... Coverage, in liability insurance, for harm suffered by others because of
events occurring while a policy is in force, regardless of when a claim is
actually made.
Policy acquisition costs............. The expense incurred associated with the placing of insurance business and
the issuance of the policy.
Policyholders' (or Statutory)
surplus............................ Total admitted assets less total liabilities, as determined in accordance
with statutory accounting practices.
Premiums earned...................... The amount of net premiums allocable to the expired period of an insurance
policy or policies.
Primary insurer...................... An insurance company that issues insurance policies to the public
generally or to certain non-insurance entities.
Property damage liability insurance.. Coverage in the event that the negligent acts or omissions of an insured
result in damage or destruction to another's property.
Quota share reinsurance.............. A type of reinsurance whereby the reinsurer, in return for a predetermined
portion or share of the insurance premium charged by the primary insurer,
indemnifies the primary insurer against a predetermined portion of the
losses and loss adjustment expenses of the primary insurer under the
covered primary policy or policies.
Reinsurance.......................... The practice whereby one party, called the reinsurer, in consideration of
a premium paid to it agrees to indemnify another party, called the
reinsured, for part or all of the liability assumed by the reinsured under
a policy or policies of insurance which it has issued. The reinsured may
be referred to as the original or primary insurer, the direct writing
company, or the ceding company.
Reinsurers........................... Insurers (known as the reinsurer or assuming company) who agree to
indemnify another insurer (known as the reinsured or ceding company)
against all or part of a loss which the latter may incur under a policy or
policies it has issued.
Retention............................ The amount or portion of risk which an insurer or reinsurer retains or
assumes for its own account. Losses, or a portion thereof, in excess of
the retention level are paid by the reinsurer or a retrocessionaire. In
proportional treaties, the retention may be a percentage of the original
policy's limit. In excess of loss business, the retention is a dollar
amount of loss, a loss ratio or a percentage.
Retrocession; Retrocessionaire....... A transaction whereby a reinsurer cedes to another reinsurer (the
'retrocessionaire') all or part of the reinsurance it has assumed.
Retrocessions do not legally discharge the ceding reinsurer from its
liability with respect to its obligations to the reinsured.
Soft market.......................... The portion of the market cycle of the property and casualty insurance
industry characterized by heightened premium rate competition among
insurers, increased underwriting capacity and, typically, depressed
underwriting performance.
</TABLE>
90
<PAGE>
<TABLE>
<S> <C>
Statutory accounting practices
('SAP')............................ Those accounting principles and practices which provide the framework for
the preparation of insurance company financial statements, and the
recording of transactions, in accordance with the rules and procedures
adopted by regulatory authorities, generally emphasizing solvency
considerations rather than a going-concern concept of accounting. The
principal differences between SAP and GAAP are as follows: (a) under SAP,
certain assets (non-admitted assets) are eliminated from the balance
sheet; (b) under SAP, policy acquisition costs are expensed upon policy
inception, while under GAAP they are deferred and amortized over the terms
of the policies; (c) under SAP, no provision is made for deferred income
taxes; and (d) under SAP, certain reserves are recognized which are not
recognized under GAAP.
Statutory or policyholders'
surplus............................ The excess of admitted assets over total liabilities (including loss
reserves), determined in accordance with SAP.
Underwriting......................... The insurer's process of reviewing applications submitted for the
insurance coverage, deciding whether to accept all or part of the coverage
requested and determining the applicable premiums.
Underwriting expenses................ The aggregate of policy acquisition costs, including commissions, and the
portion of administrative, general and other expenses attributable to
underwriting operations.
Underwriting profits; Underwriting
profitability...................... Refers to the profits or profitability of an insurance company's operation
prior to inclusion of investment income or loss and gains or losses from
sale of invested assets.
Unearned premiums.................... The portion of a premium representing the unexpired portion of the
contract term as of a certain date.
Wholesale general agent.............. Agents (also known as wholesale agents) used by excess and surplus lines
and specialty admitted insurance carriers to write their insurance
products. The general agents' clients are retail insurance brokers who
deal directly with the insureds.
</TABLE>
91
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
FRONT ROYAL, INC. AND SUBSIDIARIES
Report of Independent Auditors............................................................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996................................................. F-3
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995.................... F-4
Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Common Shareholders'
Equity for the years ended December 31, 1997, 1996 and 1995............................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995................ F-6
Notes to Consolidated Financial Statements................................................................ F-7
Condensed Consolidated (Unaudited) Balance Sheets at March 31, 1998 and December 31, 1997................. F-28
Condensed Consolidated (Unaudited) Statements of Income for the three months ended
March 31, 1998 and 1997................................................................................. F-30
Condensed Consolidated (Unaudited) Statements of Changes in Redeemable Convertible Preferred Stock and
Common Shareholders' Equity for the three months ended March 31, 1998 and 1997.......................... F-31
Condensed Consolidated (Unaudited) Statements of Cash Flows for the three months ended
March 31, 1998 and 1997................................................................................. F-32
Notes to Condensed Consolidated (Unaudited) Financial Statements.......................................... F-33
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
Report of Independent Auditors............................................................................ F-35
Combined Balance Sheet at December 31, 1997............................................................... F-36
Combined Statement of Operations for the year ended December 31, 1997..................................... F-37
Combined Statement of Changes in Stockholders' Equity for the year ended December 31, 1997................ F-38
Combined Statement of Cash Flows for the year ended December 31, 1997..................................... F-39
Notes to Combined Financial Statements.................................................................... F-40
Combined (Unaudited) Balance Sheet at March 31, 1998...................................................... F-49
Combined (Unaudited) Statement of Operations for the three months ended March 31, 1998.................... F-50
Combined (Unaudited) Statement of Changes in Stockholders' Equity for the three months ended
March 31, 1998.......................................................................................... F-51
Combined (Unaudited) Statement of Cash Flows for the three months ended March 31, 1998.................... F-52
Notes to Combined (Unaudited) Financial Statements........................................................ F-53
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
Report of Independent Auditors............................................................................ F-54
Consolidated Statement of Operations for the year ended December 31, 1996................................. F-55
Consolidated Statement of Cash Flows for the year ended December 31, 1996................................. F-56
Notes to Consolidated Statements of Operations and Cash Flow.............................................. F-57
Report of Independent Auditors............................................................................ F-65
Consolidated Balance Sheets at December 31, 1995 and 1994................................................. F-66
Consolidated Statements of Operations for the years ended December 31, 1995 and 1994...................... F-67
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995 and 1994............ F-68
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994...................... F-69
Notes to Consolidated Financial Statements................................................................ F-70
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Front Royal, Inc.
We have audited the accompanying consolidated balance sheets of Front Royal,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in redeemable preferred stock and
common shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Front Royal, Inc.
and Subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Richmond, Virginia
February 20, 1998
F-2
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31
----------------------------
1997 1996
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities:
Available-for-sale at fair value (amortized cost: 1997, $122,304,263; 1996,
$92,633,656).............................................................. $125,374,861 $ 94,461,765
Held-to-maturity at amortized cost (fair value: 1997, $111,403,288; 1996,
$125,371,347)............................................................. 109,536,621 125,371,347
Equity securities at fair value (cost: 1997, $16,635,621; 1996, $8,665,191).... 18,601,221 8,973,330
Short-term investments......................................................... 24,208,843 15,332,716
------------ ------------
Total investments...................................................... 277,721,546 244,139,158
Cash............................................................................. 2,907,311 9,415,787
Accrued investment income........................................................ 3,304,784 2,792,792
Reinsurance recoverable on unpaid loss and loss adjustment expenses.............. 22,543,301 25,735,843
Reinsurance recoverable on paid loss and loss adjustment expenses................ 1,917,547 1,019,055
Prepaid reinsurance premiums..................................................... 2,777,992 4,606,223
Premiums receivable and agents' balances......................................... 16,657,272 19,893,003
Deferred federal income tax...................................................... 9,173,818 9,099,427
Deferred policy acquisition costs................................................ 8,775,710 9,138,342
Intangible assets, net........................................................... 5,812,352 6,166,542
Other assets..................................................................... 4,723,136 7,980,475
------------ ------------
Total assets........................................................... $356,314,769 $339,986,647
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses................................ $195,330,919 $188,075,278
Unearned premiums.............................................................. 36,007,585 40,328,234
Accrued expenses............................................................... 7,388,830 6,783,442
Accrued policyholders' dividends............................................... 6,054,289 6,341,095
Accrued preferred stock dividend............................................... 1,085,000 --
Other liabilities.............................................................. 13,140,717 11,804,826
------------ ------------
259,007,340 253,332,875
------------ ------------
Senior bank debt............................................................... 36,545,430 38,000,000
------------ ------------
Total liabilities...................................................... 295,552,770 291,332,875
------------ ------------
Commitments and contingent liabilities
Series A Redeemable Convertible Preferred Stock, no par value, 155,000 shares
authorized and 155,000 shares issued and outstanding in 1997 and 1996....... 15,500,000 15,500,000
Common shareholders' equity:
Common Stock--Class A, no par value, 20,000,000 shares authorized and 5,859,144
and 5,442,030 shares issued and outstanding in 1997 and 1996,
respectively................................................................ 13,739,979 13,402,208
Common Stock--Class B, no par value, 700,000 shares authorized and 268,482 and
272,895 shares issued and outstanding in 1997 and 1996, respectively........ 557,348 575,000
Common Stock--Class C, no par value, 3,500,000 and 3,200,000 shares authorized
and 3,248,300 and 3,175,000 shares issued and outstanding in 1997 and 1996,
respectively................................................................ 12,993,200 12,700,000
------------ ------------
27,290,527 26,677,208
Unrealized gains on available-for-sale securities.............................. 3,323,891 2,136,248
Notes receivable from officers................................................. (166,386) (200,000)
Retained earnings.............................................................. 14,813,967 4,540,316
------------ ------------
Total common shareholders' equity...................................... 45,261,999 33,153,772
------------ ------------
60,761,999 48,653,772
------------ ------------
Total liabilities, redeemable convertible preferred stock and common
shareholders' equity................................................. $356,314,769 $339,986,647
------------ ------------
------------ ------------
</TABLE>
F-3
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Net premiums earned.............................................. $ 90,523,053 $42,115,460 $36,537,388
Net investment income............................................ 17,983,571 5,867,009 5,449,126
Net realized gains/(losses) on investments....................... (479,853) (1,175) 837,619
Other income..................................................... 331,105 630,792 725,778
------------ ----------- -----------
Total revenues........................................... 108,357,876 48,612,086 43,549,911
------------ ----------- -----------
Losses and expenses:
Net losses and loss adjustment expenses.......................... 56,195,994 26,110,279 22,565,776
Policy acquisition costs amortized............................... 25,828,874 12,728,649 11,132,274
Other underwriting expenses...................................... 3,470,821 2,073,558 2,076,439
Dividends to policyholders....................................... 3,602,923 -- --
Interest expense................................................. 3,883,121 2,029,066 1,644,792
Other operating costs and expenses............................... 1,806,048 538,868 1,314,436
------------ ----------- -----------
Total losses and expenses................................ 94,787,781 43,480,420 38,733,717
------------ ----------- -----------
Income before federal income taxes................................. 13,570,095 5,131,666 4,816,194
Federal income tax expense/(benefit):
Current.......................................................... 3,998,141 1,631,279 931,328
Deferred......................................................... (1,786,697) (1,010,535) 332,672
------------ ----------- -----------
Total federal income tax expense/(benefit)............... 2,211,444 620,744 1,264,000
------------ ----------- -----------
Net income......................................................... 11,358,651 4,510,922 3,552,194
Dividends to preferred shareholders................................ 1,085,000 -- --
------------ ----------- -----------
Net income available to common shareholders........................ $ 10,273,651 $ 4,510,922 $ 3,552,194
------------ ----------- -----------
------------ ----------- -----------
Net income per share--basic........................................ $ 1.13 $ .79 $ .62
------------ ----------- -----------
------------ ----------- -----------
Net income per share--diluted...................................... $ .88 $ .70 $ .56
------------ ----------- -----------
------------ ----------- -----------
Weighted average common shares outstanding......................... 9,125,333 5,723,624 5,710,538
Weighted average common and common stock equivalent shares
outstanding...................................................... 12,861,010 6,446,434 6,396,126
</TABLE>
See accompanying notes.
F-4
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON
COMMON SHAREHOLDERS' EQUITY SHAREHOLDERS'
----------------------------------------------------------------- EQUITY AND
REDEEMABLE RETAINED REDEEMABLE
CONVERTIBLE COMMON STOCK UNREALIZED EARNINGS/ CONVERTIBLE
PREFERRED ------------------------------------ GAINS/ (ACCUMULATED PREFERRED
STOCK CLASS A CLASS B CLASS C (LOSSES) DEFICIT) STOCK
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1994..................... $ -- $12,673,086 $575,000 $ -- $ (126,862) $(3,522,800) $ 9,598,424
Issuance of common
stock--conversion of
debt................... -- 129,122 -- -- -- -- 129,122
Net income............... -- -- -- -- -- 3,552,194 3,552,194
Net unrealized gains..... -- -- -- -- 4,129,388 -- 4,129,388
----------- ----------- -------- ----------- ----------- ------------ -------------
Balances at December 31,
1995..................... -- 12,802,208 575,000 -- 4,002,526 29,394 17,409,128
Issuance of common
stock.................. -- -- -- 12,700,000 -- -- 12,700,000
Issuance of preferred
stock.................. 15,500,000 -- -- -- -- -- 15,500,000
Issuance of discounted
warrants............... -- 600,000 -- -- -- -- 600,000
Notes receivable from
stock sales............ -- -- -- (200,000) -- -- (200,000)
Net income............... -- -- -- -- -- 4,510,922 4,510,922
Net unrealized losses.... -- -- -- -- (1,866,278) -- (1,866,278)
----------- ----------- -------- ----------- ----------- ------------ -------------
Balances at December 31,
1996..................... 15,500,000 13,402,208 575,000 12,500,000 2,136,248 4,540,316 48,653,772
Exercise of warrants..... -- 365,939 -- -- -- -- 365,939
Repurchase of common
stock.................. -- (28,168) (17,652) -- -- -- (45,820)
Payments on notes
receivable from stock
sales.................. -- -- -- 33,614 -- -- 33,614
Issuance of common
stock.................. -- -- -- 293,200 -- -- 293,200
Net income............... -- -- -- -- -- 11,358,651 11,358,651
Net unrealized gains..... -- -- -- -- 1,187,643 -- 1,187,643
Accrual of preferred
dividend............... -- -- -- -- -- (1,085,000) (1,085,000)
----------- ----------- -------- ----------- ----------- ------------ -------------
Balances at December 31,
1997..................... $15,500,000 $13,739,979 $557,348 $12,826,814 $ 3,323,891 $14,813,967 $60,761,999
----------- ----------- -------- ----------- ----------- ------------ -------------
----------- ----------- -------- ----------- ----------- ------------ -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income.................................................... $ 11,358,651 $ 4,510,922 $ 3,552,194
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of policy acquisition costs................... 25,828,874 12,728,649 11,132,274
Policy acquisition costs deferred.......................... (25,466,241) (13,049,489) (11,491,247)
Net realized (gains)/losses on sale of investments......... 479,853 1,175 (837,619)
Provision for depreciation and amortization................ (908,926) (267,082) (385,661)
Non-cash interest expense.................................. 1,308,689 518,041 231,142
Amortization of goodwill................................... (15,403) (438,637) (445,280)
Deferred income taxes...................................... (1,786,697) (1,010,535) 332,672
Change in operating assets and liabilities:
Unearned premiums........................................ (4,320,649) 1,778,989 1,295,008
Accrued investment income................................ (511,992) 129,315 (177,003)
Reserve for losses and loss adjustment expenses.......... 7,255,641 4,037,638 3,129,355
Reinsurance recoverable and payable...................... 3,512,073 87,720 774,385
Federal income tax payable............................... (147,682) 715,779 101,328
Receivables, payables and accrued expenses............... 6,233,157 (336,315) 750,277
Other.................................................... 2,318,874 (2,014,457) (997,691)
------------- ------------ ------------
Net cash provided by operating activities....................... 25,138,222 7,391,713 6,964,134
------------- ------------ ------------
Investing activities:
Securities available-for-sale:
Purchases--fixed maturities and equities................... (102,292,973) (32,282,424) (67,813,823)
Sales-fixed maturities and equities........................ 64,571,879 16,002,594 58,650,355
Maturities and calls--fixed maturities..................... 500,000 4,425,000 5,320,000
Securities held-to-maturity:
Purchases--fixed maturities................................ (10,489,067) -- --
Maturities and calls--fixed maturities..................... 26,714,776 -- --
Net (purchases)/sales of short-term investments............ (9,810,062) 6,799,509 (4,444,779)
Acquisitions, net of cash acquired......................... -- (29,343,718) --
------------- ------------ ------------
Net cash used in investing activities........................... (30,805,447) (34,399,039) (8,288,247)
------------- ------------ ------------
Financing activities:
Proceeds from bank borrowings and other debt issuances, net of
issuance cost.............................................. -- 37,307,050 74,568
Proceeds from issuance of common stock........................ 613,319 12,700,000 --
Retirement of debt............................................ (1,454,570) (14,067,068) (62,500)
------------- ------------ ------------
Net cash provided by/(used in) financing activities............. (841,251) 35,939,982 12,068
------------- ------------ ------------
Increase/(decrease) in cash..................................... (6,508,476) 8,932,656 (1,312,045)
Cash at beginning of year....................................... 9,415,787 483,131 1,795,176
------------- ------------ ------------
Cash at end of year............................................. $ 2,907,311 $ 9,415,787 $ 483,131
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts and operations of Front Royal, Inc. and its wholly-owned subsidiaries,
Colony Insurance Company ('Colony'), Rockwood Casualty Insurance Company
('Rockwood Casualty'), Colony Management Services, Inc. and Front Royal
Environmental Insurance Management, Inc. ('FREIM').
Significant intercompany accounts and transactions have been eliminated.
The accounts of the acquired subsidiaries are included in the consolidated
financial statements from the dates of acquisition. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions may
be subject to change in the future as more information becomes known which could
impact the amounts reported and disclosed herein.
Business Operations and Organization
Front Royal, Inc., the parent, was incorporated in September 1990 and
commenced doing business in 1992.
Colony is a Virginia-domiciled insurer that was incorporated in 1962 and
which provides commercial property and casualty insurance on both an admitted
and non-admitted basis throughout most of the United States, focusing primarily
on specialty excess and surplus lines.
Rockwood Casualty is a Pennsylvania-domiciled insurer that was incorporated
in 1990 and which provides commercial property and casualty insurance primarily
in Pennsylvania and Maryland. Rockwood Casualty specializes in underwriting
workers' compensation coverage for both underground and surface coal mining
operations and other commercial risks.
Front Royal Insurance Company ('FRIC'), a wholly-owned subsidiary of
Colony, is an Ohio-domiciled insurer that was incorporated in 1978 and which
provides commercial property and casualty insurance on both an admitted and
non-admitted basis in certain states, supplementing production for Colony.
Colony Management Services, Inc. was incorporated in 1994 and provides
management, accounting, claims, underwriting and data processing services, as
required, to certain Front Royal, Inc. subsidiaries.
FREIM was incorporated in 1991 and provides fee-based insurance services
and risk management services to insurance companies, risk retention groups,
associations and other industry groups.
$12,857,216 (25.4%) and $11,756,612 (23.5%) of Colony's gross written
premiums for the years ended December 31, 1997 and 1996, respectively, were
derived from one agent which sells Colony's products in 28 of its offices.
$7,945,330 (16.0%) and $5,068,717 (10.2%) of Rockwood Casualty's gross
written premiums were derived from two agents for the year ended December 31,
1997.
The loss of any of these agents could have a material adverse effect on the
Company.
Investments
Effective December 31, 1996, upon the acquisition of Rockwood Casualty, the
Company designated certain of Rockwood Casualty's investments as
held-to-maturity. Accordingly, the Company has a portfolio including both
available-for-sale and held-to-maturity investments.
F-7
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
Management determines the appropriate classification of its investments in
fixed maturity securities at the time of purchase. Fixed maturity securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold these securities to maturity. Fixed maturity securities not
classified as held-to-maturity and all equity securities are classified as
available-for-sale. The Company records the following for its entire portfolio:
The amortized cost of fixed maturity investments is adjusted for
amortization of premiums and accretion of discounts. That amortization or
accretion is included in net investment income.
For the mortgage-backed bond portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments, the estimated economic life is recalculated and the remaining
unamortized premium or discount is amortized prospectively over the
remaining economic life.
Realized gains and losses on sales of investments, and declines in
value considered to be other-than-temporary, are recognized in operations
on the specific identification basis for debt securities and on the
first-in, first-out basis for equity securities.
For the held-to-maturity portion of its portfolio, the Company records
its securities at amortized cost.
For the available-for-sale portion of its portfolio, the Company
records its securities at fair value. Changes to this fair value are
recorded as unrealized gains or losses directly in shareholders' equity
with no corresponding effect on net income.
Premiums
Premiums are earned on a pro rata basis over the terms of the policies,
generally twelve months. That portion of premiums written applicable to the
unexpired terms of the policies in force is recorded as unearned premiums.
Workers' compensation premiums based on payroll reporting are recorded as
written when payroll reports are received from the insured or are estimated if
reports have not been received.
Workers' compensation premiums on policies with deferred installment
payment plans are recorded as written when individual installments are billed.
Accrued retrospectively rated premiums have been determined based upon
estimated ultimate loss experience on individual policyholder accounts.
Participating Policies
Participating business (which is written for the Company only by Rockwood
Casualty) represents approximately 17.1% of net premiums written for the year
ended December 31, 1997. The participating business is comprised of workers'
compensation policies. The amount of dividends to be paid on these policies is
determined based on the terms of the individual policies.
Deferred Policy Acquisition Costs
Acquisition costs, consisting principally of agents' commissions and
premium taxes, are deferred and amortized over the period in which the related
premiums are earned, generally twelve months. Commissions related to insurance
risks ceded to other insurance companies are recorded as a reduction to deferred
policy acquisition costs.
F-8
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
Reserve for Losses and Loss Adjustment Expenses
Loss and loss adjustment expense reserves represent the estimated ultimate
net cost of all reported and unreported losses incurred through December 31. The
Company does not discount loss and loss adjustment expense reserves (except for
Rockwood Casualty's workers' compensation coverages, which are discounted at a
4% rate). The reserves for unpaid losses and loss adjustment expenses are
estimated using individual case-basis valuations and statistical analyses. Those
estimates are subject to the effects of trends in loss severity and frequency.
Although considerable variability is inherent in such estimates, management
believes that the reserves for losses and loss adjustment expenses are adequate.
These estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations.
Reinsurance
The Company assumes and cedes reinsurance to allow management to control
exposure to potential losses arising from large risks, to provide additional
capacity for growth and to provide for greater diversification of business. This
reinsurance is effected primarily under excess of loss and quota-share
reinsurance contracts.
Reinsurance premiums, commissions, and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Expense reimbursements received in connection with reinsurance ceded have been
accounted for as a reduction of the related policy acquisition costs. All
reinsurance receivables and prepaid reinsurance premium amounts are reported as
assets.
Accrued retrospectively rated reinsurance premiums have been determined
based upon estimated ultimate loss experience on business subject to such
experience rating adjustments.
Goodwill
Excess of purchase price over net assets of business acquired (i.e.,
goodwill) is amortized on a straight-line basis over periods up to 15 years. The
carrying value of goodwill is periodically reviewed by the Company based on the
expected future undiscounted operating cash flows of the related business unit.
The Company believes that no impairment of goodwill exists at December 31, 1997.
Excess of net assets of business acquired over the related purchase price
(i.e., negative goodwill) is amortized on a straight-line basis over a 10 year
period.
Income Taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax effects attributable to temporary differences between the financial
reporting and tax basis of assets and liabilities, based on enacted tax rates
and other provisions of tax laws.
Net Income Per Share
In 1997, the Financial Accounting Standards Board ('FASB') issued Statement
No. 128, Earnings per Share, ('Statement 128') which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the requirements of
Statement 128.
F-9
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
Reclassifications
Certain amounts in the financial statements for 1996 and 1995 have been
reclassified to conform to the 1997 presentation. Such reclassifications had no
effect on previously reported results of operations or shareholders' equity.
New Accounting Standards
In 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income,
('Statement 130') effective for years beginning after December 15, 1997. The new
rules require companies to display items of other comprehensive income either
below the total for net income on the income statement, on the statement of
changes in shareholders' equity or in a new, separate statement of comprehensive
income. The Company would then disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet.
The adoption of Statement 130 will not affect results of operations or
financial position. Currently the Company has no other comprehensive income, as
defined, other than unrealized gains or losses on available-for-sale securities
which have been disclosed separately in the equity section of the balance sheet.
In June 1997, FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information ('Statement 131'), effective for years
beginning after December 15, 1997. Statement 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by
senior management in deciding how to allocate resources and in assessing
performance. The adoption of Statement 131 will not affect results of operations
or financial position, but will affect the disclosure of segment information.
F-10
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
The Company's investments, excluding short-term investments, at December 31
of each year, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
<S> <C> <C> <C> <C>
Available-for-sale
Corporate bonds..................................... $ 26,219,425 $ 533,268 $ -- $ 26,752,693
U.S. Government bonds............................... 53,384,736 1,337,277 -- 54,722,013
Non-U.S. Government bonds........................... 2,074,121 29,869 -- 2,103,990
Mortgage-backed bonds............................... 40,625,981 1,170,184 -- 41,796,165
------------ ---------- ---------- ------------
Total fixed maturity securities................ 122,304,263 3,070,598 -- 125,374,861
Equity securities................................... 16,635,621 2,644,657 (679,057) 18,601,221
------------ ---------- ---------- ------------
Total available-for-sale....................... 138,939,884 5,715,255 (679,057) 143,976,082
------------ ---------- ---------- ------------
Held-to-maturity
Corporate bonds..................................... 18,778,616 348,596 -- 19,127,212
U.S. Government bonds............................... 21,123,575 277,665 -- 21,401,240
Mortgage-backed bonds............................... 44,471,462 305,178 (98,733) 44,677,907
State and municipal bonds........................... 25,162,968 1,034,734 (773) 26,196,929
------------ ---------- ---------- ------------
Total held-to-maturity......................... 109,536,621 1,966,173 (99,506) 111,403,288
Short-term investments................................ 24,208,843 -- -- 24,208,843
------------ ---------- ---------- ------------
Total investments.............................. $272,685,348 $7,681,428 $ (778,563) $279,588,213
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
<S> <C> <C> <C> <C>
Available-for-sale
Corporate bonds..................................... $ 26,509,425 $ 767,493 $ (420,847) $ 26,856,071
U.S. Government bonds............................... 30,943,289 1,031,845 (286,854) 31,688,280
Mortgage-backed bonds............................... 34,432,866 975,057 (273,405) 35,134,518
State and municipal bonds........................... 748,076 36,165 (1,345) 782,896
------------ ---------- ---------- ------------
Total fixed maturity securities................ 92,633,656 2,810,560 (982,451) 94,461,765
Equity securities................................... 8,665,191 308,139 -- 8,973,330
------------ ---------- ---------- ------------
Total available-for-sale....................... 101,298,847 3,118,699 (982,451) 103,435,095
------------ ---------- ---------- ------------
Held-to-maturity
Corporate bonds..................................... 22,305,685 -- -- 22,305,685
U.S. Government bonds............................... 25,704,836 -- -- 25,704,836
Mortgage-backed bonds............................... 51,872,041 -- -- 51,872,041
State and municipal bonds........................... 25,488,785 -- -- 25,488,785
------------ ---------- ---------- ------------
Total held-to-maturity......................... 125,371,347 -- -- 125,371,347
Short-term investments................................ 15,332,716 -- -- 15,332,716
------------ ---------- ---------- ------------
Total investments.............................. $242,002,910 $3,118,699 $ (982,451) $244,139,158
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
F-11
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS--(CONTINUED)
The fair values for fixed maturity securities are based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing services.
The fair values for equity securities are based on quoted market prices.
The amortized cost and estimated fair value of investments in fixed
maturities at December 31, 1997, are summarized by estimated maturity as
follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
--------------------------- --------------------------- ---------------------------
AMORTIZED AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
<S> <C> <C> <C> <C> <C> <C>
Maturity:
Due in 1998........ $ 3,771,117 $ 3,858,000 $ 9,195,139 $ 9,337,824 $ 12,966,256 $ 13,195,824
Due in 1999-2002... 50,491,667 51,438,498 19,149,577 19,491,240 69,641,244 70,929,738
Due in 2003-2007... 27,056,724 27,915,698 16,794,263 17,358,252 43,850,987 45,273,950
Due after 2007..... 358,774 366,500 19,926,180 20,538,065 20,284,954 20,904,565
------------ ------------ ------------ ------------ ------------ ------------
81,678,282 83,578,696 65,065,159 66,725,381 146,743,441 150,304,077
Mortgage-backed
securities....... 40,625,981 41,796,165 44,471,462 44,677,907 85,097,443 86,474,072
------------ ------------ ------------ ------------ ------------ ------------
Total.............. $122,304,263 $125,374,861 $109,536,621 $111,403,288 $231,840,884 $236,778,149
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
The foregoing data is based on the contractual maturities of the
securities. Actual maturities may differ for some securities because borrowers
have the right to call or prepay obligations with or without penalties.
Major categories of the Company's investment income are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Fixed maturity securities............................................. $15,417,389 $5,457,294 $5,036,569
Short-term investments................................................ 1,618,653 661,583 865,823
Equity securities..................................................... 1,384,576 282,403 42,146
Other................................................................. 201,408 -- --
----------- ---------- ----------
Gross investment income............................................. 18,622,026 6,401,280 5,944,538
Investment expenses................................................... (638,455) (534,271) (495,412)
----------- ---------- ----------
Net investment income............................................... $17,983,571 $5,867,009 $5,449,126
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The Company's realized gains and losses on investments are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Fixed maturity securities:
Gross realized gains................................................ $ 487,218 $ 36,053 $ 861,440
Gross realized losses............................................... (346,854) (46,734) (172,436)
----------- ---------- ----------
Net gains/(losses)............................................... 140,364 (10,681) 689,004
Equity securities:
Gross realized gains................................................ 70,749 9,506 862,451
Gross realized losses............................................... (690,966) -- (713,836)
----------- ---------- ----------
Net gains/(losses)............................................... (620,217) 9,506 148,615
----------- ---------- ----------
Net realized gains/(losses)...................................... $ (479,853) $ (1,175) $ 837,619
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
At December 31, 1997 and 1996, investments with market values of
$12,403,843 and $9,608,840, respectively, were on deposit with state insurance
departments to satisfy regulatory requirements.
F-12
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INTANGIBLE ASSETS
Intangible assets at December 31, are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Non-compete and non-solicitation agreements............................... $ 3,017,314 $ 3,386,907
Goodwill.................................................................. 6,578,732 7,104,806
Negative goodwill......................................................... (3,783,694) (4,325,171)
----------- -----------
Total................................................................ $ 5,812,352 $ 6,166,542
----------- -----------
----------- -----------
</TABLE>
4. OTHER ASSETS
Other assets at December 31, are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Capital lease on real estate................................................ $1,562,876 $1,603,470
Furniture, fixtures and equipment, net...................................... 1,182,075 1,354,936
Receivables pursuant to sale of subsidiaries................................ 1,177,466 --
Deposit with appeals court.................................................. 274,312 274,312
Note receivable............................................................. -- 2,500,000
Receivables pursuant to closing the Rockwood Casualty acquisition........... -- 619,122
Insurance settlement receivable............................................. -- 536,681
Other....................................................................... 526,407 1,091,954
---------- ----------
Total.................................................................. $4,723,136 $7,980,475
---------- ----------
---------- ----------
</TABLE>
5. ACQUISITIONS
On May 21, 1992, the Company completed its first acquisition for a total
cost of $5,766,115. The transaction was accounted for as purchase and resulted
in $1,028,400 of costs in excess of net assets acquired (which is being
amortized on a straight-line basis over ten years).
On December 30, 1994, the Company acquired all of the outstanding stock of
Colony and certain other assets and liabilities (the 'Colony Acquisition') for a
cash purchase price of $15,750,000 which was comprised of a $15,000,000 payment
on December 30, 1994 and a holdback payment of $750,000 due on December 30,
2000. In addition to the cash and deferred purchase price, the Company incurred
other costs in connection with the Colony Acquisition of $1,465,631, bringing
the total cost (when discounting the holdback payment to $498,000 at December
31, 1994) to $16,963,631.
The Colony Acquisition was accounted for using the purchase method and
resulted in a $5,414,768 excess of net assets acquired over the total purchase
price (i.e., negative goodwill) which is being amortized on a straight-line
basis over ten years.
On December 31, 1996, the Company acquired all of the outstanding stock of
Rockwood Casualty and certain other assets and liabilities (the 'Rockwood
Casualty Acquisition') for cash of $41,500,000 and $15,500,000 of Series A
Redeemable Convertible Preferred Stock. The Company also issued discounted
warrants to purchase an aggregate of 400,000 shares of Class A Common Stock at
an exercise price of $2.50 per share for non-compete and non-solicitation
agreements (see Notes 11 and 12 for further discussion). In addition to the cash
paid and the preferred stock issued, the Company incurred costs associated with
the Rockwood Casualty Acquisition of $2,943,649 bringing the total cost to
$60,543,649.
The purchase price of the Rockwood Casualty Acquisition and its related
closing costs were funded with the proceeds of a portion of the $38,000,000
senior bank debt, the issuance of the $15,500,000, Series A Redeemable
Convertible Preferred Stock, the issuance of $12,700,000 of Class of C Common
Stock and an $8,500,000 return of capital from Rockwood Casualty (see Notes 9,
11 and 18 for further discussion).
F-13
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS--(CONTINUED)
The Rockwood Casualty Acquisition was accounted for as a purchase and
resulted in $6,348,503 of costs in excess of net assets acquired which is being
amortized on a straight-line basis over fifteen years.
As part of this acquisition, Rockwood Casualty entered into a fifteen year
lease agreement with an affiliate of the sellers for the property which houses
all of Rockwood Casualty's operations. Under the terms of this lease, Rockwood
Casualty has the option to purchase the property at any time during the lease
for a scheduled price which equals all of the remaining fixed payments
discounted at 8.5%, including a required payment of $2,500,000 at the end of the
lease term. If Rockwood Casualty fails to exercise such option, the lessor may
require Rockwood Casualty to purchase the property for $2,500,000 at the
conclusion of the lease. Total lease payments, over the duration of this lease
exclusive of the $2,500,000 required payment, are $5,288,973. For financial
reporting purposes, the lease has been recorded in other liabilities at its
present value using a discount rate of 8.5% (see Note 14 for further
discussion).
The following table summarizes the effects of Front Royal, Inc.'s
acquisitions:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MAY 21,
1996 1994 1992
TRANSACTION TRANSACTION TRANSACTION TOTAL
<S> <C> <C> <C> <C>
Total purchase price....................... $ 60,543,649 $ 16,963,631 $ 5,766,115 $ 83,273,395
Liabilities assumed at fair market value... 166,242,686 67,399,881 1,119,388 234,761,955
Less: Assets acquired at fair market
value.................................... (220,437,832) (89,778,280) (5,857,103) (316,073,215)
------------- ------------- ----------- -------------
Excess/(shortfall) of purchase price over
net assets acquired...................... $ 6,348,503 $ (5,414,768) $ 1,028,400 $ 1,962,135
------------- ------------- ----------- -------------
------------- ------------- ----------- -------------
</TABLE>
The accompanying consolidated results of operations for 1996 and 1995 do
not include the results of the Rockwood Casualty Acquisition due to the December
31, 1996 closing date.
The following unaudited pro forma financial information assumes that the
Rockwood Casualty Acquisition had occurred at the beginning of 1995.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 (IN THOUSANDS, 1995
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues................................................................... $ 111,453 $ 107,930
Net income................................................................. 25,017 10,815
Net income available to common shareholders................................ 23,932 9,730
Net income per share:
Basic.................................................................... $ 2.69 $ 1.09
Diluted.................................................................. $ 1.98 $ .86
</TABLE>
6. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company does not believe any of the policies currently being written,
or written in recent years, expose the Company to asbestos-related risks. The
Company, however, has identified three insured accounts with policy terms of up
to five years (the latest of which expired in 1987) where an asbestos-related
exposure exists. Reserves for asbestos-related exposures cannot be estimated
with traditional loss reserving techniques. Case reserves (and the costs of
related litigation) have been established based on information that has been
developed on known claimants. In addition, incurred but not reported reserves
have been established to cover additional exposure on both known and unasserted
claims. Those reserves are reviewed and updated continually by management and
outside actuaries. In establishing liabilities for claims for asbestos-related
illnesses, management considers facts currently known, the current state of the
law and litigation arising from coverage issues. Management has performed
extensive reviews of its records to identify insured accounts for which exposure
for asbestos-related
F-14
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES--(CONTINUED)
illnesses have been established; however, courts and legislatures have, in the
past, attempted to expand coverage and liability. Accordingly, an indeterminable
amount of additional liability could develop. However, this amount should be
limited by the very small number of identified insured accounts, limited policy
terms, already partially exhausted policy limits, and the existence of
significant applicable reinsurance.
Rockwood Casualty discounts its workers' compensation reserves for both
statutory and GAAP financial reporting purposes. The discount rate at December
31, 1997 and 1996 was 4%. Included in the reserve for unpaid losses at December
31, 1997 and 1996 is $87,601,000 and $90,035,000, respectively, related to
workers' compensation coverages (which is net of a discount of $15,061,000 and
$15,509,389, respectively).
The following table provides a reconciliation of the beginning and ending
reserve balances for losses and loss adjustment expenses ('LAE'),
net-of-reinsurance, for 1997, 1996 and 1995 to the gross amounts reported in the
balance sheet.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Reserve for losses and LAE, net of related reinsurance recoverables, at
beginning of year........................................................... $162,339 $ 44,160 $ 40,397
Add:
Provision for losses and LAE for claims occurring in the current year, net
of reinsurance........................................................... 63,725 27,058 22,870
Increase (decrease) in incurred losses and LAE for claims occurring in prior
years, net of reinsurance................................................ (7,978) (948) (304)
Provision for discount on claims occurring in the current year.............. (3,014) -- --
Provision for discount on claims occurring in prior years................... 3,463 -- --
-------- -------- --------
Incurred losses and LAE during the current year, net of reinsurance and
discount............................................................... 56,196 26,110 22,566
-------- -------- --------
Deduct:
Losses and LAE payments for claims, net of reinsurance, occurring during:
Current year............................................................. (13,650) (6,325) (5,642)
Prior years.............................................................. (32,097) (15,055) (13,161)
-------- -------- --------
Total paid............................................................... (45,747) (21,380) (18,803)
-------- -------- --------
Add: Reserves related to acquisitions, net of discount........................ -- 113,449 --
-------- -------- --------
Reserve for losses and LAE, net of related reinsurance recoverables, at end of
year........................................................................ 172,788 162,339 44,160
Add: Reinsurance recoverables on unpaid losses and LAE, at end of year
($14,356 in 1996 related to acquisitions)................................... 22,543 25,736 12,073
-------- -------- --------
Reserve for losses and LAE, gross of reinsurance recoverables on unpaid losses
and LAE, at end of year..................................................... $195,331 $188,075 $ 56,233
-------- -------- --------
-------- -------- --------
</TABLE>
The foregoing reconciliation shows that a $7,978,000 redundancy in the 1996
and prior year reserves emerged in 1997. This redundancy is primarily a result
of lower than expected costs of settling workers' compensation claims which were
open at the end of 1996 and lower than expected per claim costs for incurred but
unreported claims at December 31, 1996. The Company attributes these lower costs
primarily to the effects of enacted legislation resulting in the lowering of
medical costs and indemnity costs to workers' compensation carriers.
F-15
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. REINSURANCE
The Company's insurance subsidiaries remain liable to their policyholders
if their reinsurers are unable to meet their contractual obligations under
applicable reinsurance agreements. To minimize exposure to significant losses
from reinsurance insolvencies, the Company evaluates the financial condition of
its reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers.
At December 31, 1997, reinsurance recoverables from three reinsurers were
$7,339,000, $2,857,000 and $1,625,000, representing approximately 48% of the
total balance of reinsurance outstanding.
Net written premiums are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Direct premiums.......................................... $ 99,665,229 $49,507,334 $42,949,993
Assumed premiums......................................... 580,435 440,806 620,986
Ceded premiums........................................... (12,215,025) (6,544,153) (5,915,747)
------------ ----------- -----------
Net premiums written................................ $ 88,030,639 $43,403,987 $37,655,232
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
Net premiums earned are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Direct premiums.......................................... $103,702,417 $47,632,943 $41,535,362
Assumed premiums......................................... 862,672 536,211 740,605
Ceded premiums........................................... (14,042,036) (6,053,694) (5,738,579)
------------ ----------- -----------
Net premiums earned................................. $ 90,523,053 $42,115,460 $36,537,388
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
Losses and LAE are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Direct losses and LAE..................................... $59,090,303 $28,776,472 $26,327,637
Assumed losses and LAE.................................... 324,627 106,973 (303,406)
Ceded losses and LAE...................................... (3,218,936) (2,773,166) (3,458,455)
----------- ----------- -----------
Net losses and LAE................................... $56,195,994 $26,110,279 $22,565,776
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
8. OTHER LIABILITIES
Other liabilities at December 31, are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Amounts payable to reinsurers............................................ $ 3,342,299 $ 2,124,276
Capital lease obligation................................................. 3,168,022 3,006,265
Obligations under non-compete/non-solicitation agreements................ 3,017,314 3,386,907
Federal income tax payable............................................... 930,102 1,077,784
Deferred purchase price payable.......................................... 643,000 593,000
Accounts payable......................................................... 930,896 450,860
Other.................................................................... 1,109,084 1,165,734
----------- -----------
Total............................................................... $13,140,717 $11,804,826
----------- -----------
----------- -----------
</TABLE>
F-16
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT
In connection with the Rockwood Casualty Acquisition and in order to reduce
the interest cost associated with its then existing debt, Front Royal, Inc.
obtained a debt facility with a bank for an original amount of $38,000,000,
payable semi-annually through the maturity date of December 1, 2003 and
requiring the remaining payments as follows:
<TABLE>
<CAPTION>
PRINCIPAL
DATE PAYMENT
<S> <C>
1998....................................................... $ 3,375,000
1999....................................................... 4,625,000
2000....................................................... 5,500,000
2001....................................................... 6,125,000
2002....................................................... 6,625,000
2003....................................................... 10,295,430
-----------
Total................................................. $36,545,430
-----------
-----------
</TABLE>
The debt requires a $6,000,000 escrow (which is recorded in short-term
investments in the accompanying financial statements) be posted by the Company
until maturity.
The facility is subject to mandatory prepayment (which may be waived by the
bank) equal to:
o the net cash proceeds of an initial public offering in an amount equal to
the lesser of 75% of such proceeds or an amount necessary to bring the
ratio of debt to total debt and equity to .20 to 1.0 (no prepayment is
necessary if such ratio is less than .20 to 1.0);
o 50% of the net cash proceeds of any other equity offering exceeding
$250,000 (for which the Company paid $204,570 during 1997);
o 100% of the proceeds of any asset dispositions greater than $2,000,000
(excluding the sale of Hamilton Insurance Company--see Note 13 for
further discussion); and/or
o up to 35% of the Company's excess cash flow (as defined) beginning in
fiscal year 1997 (and payable in 1998).
Interest is payable quarterly or according to an alternative period chosen
by the Company of one, two or three-month periods. The debt can be segregated
into one or more Base Rate Tranches or one or more LIBOR Tranches. A Base Rate
Tranche will bear interest at the higher of either the bank's prime rate or the
Federal Funds Rate plus .5%. In the case of a LIBOR Tranche, the rate will equal
the three month LIBOR rate plus 2.25%, 2.00% or 1.75% if the ratio of debt to
total debt and equity is greater than or equal to .40 to 1.0, less than .40 but
greater than or equal to .35 to 1.0, or less than .35 to 1.0, respectively.
The note is secured by all of the outstanding stock of the primary
subsidiaries of the Company and substantially all of the Company's other assets.
The terms of the debt require Front Royal, Inc. and its subsidiaries to maintain
certain prescribed levels of shareholders' equity, consolidated statutory
surplus and various key operating indices. Additionally, the terms of the debt
prohibit Front Royal, Inc. from paying dividends or issuing additional debt.
On February 2, 1995, the Company entered into a contract with the holder of
the senior bank debt for 50% of its then existing debt (i.e., $5,250,000) which
capped the maximum interest rate payable at 11% (i.e., the three month LIBOR
rate of 8.25% as of February 2, 1995 plus 2.75%). Pursuant to this contract, if
the three month LIBOR interest rate dropped below 8.25%, Front Royal, Inc. was
obligated to pay 59% of the difference between this 8.25% and the lower rate on
the $5,250,000 balance.
F-17
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEBT--(CONTINUED)
During 1997, 1996 and 1995, the three month LIBOR rate ranged from 5.91% to
5.50%, 5.70% to 5.25% and 6.3% to 5.5%, respectively, and the Company paid
$79,496, $85,125 and $60,946, respectively, under this agreement.
The $5,250,000 outstanding principal on the debt was fully repaid at
December 31, 1996 in connection with the $38,000,000 debt facility noted above.
However, the underlying contract remains in effect until its expiration on March
30, 1998 and has been incorporated as part of the contract detailed below.
On February 18, 1997, the Company entered into another contract with the
holder of the senior bank debt for the balance of the debt in excess of
$5,250,000 (reduced periodically for applicable maturities). This contract caps
the maximum three month LIBOR rate at 6.40%. This contract expires April 1,
2002. The cost of the contract is being amortized into investment expense over
the life of the contract.
Interest paid by the Company was $3,031,264, $1,516,434 and $1,272,390 for
1997, 1996 and 1995, respectively.
10. INCOME TAXES
Front Royal, Inc. files a consolidated federal income tax return with its
subsidiaries. At December 31, 1997, the Company had net operating loss
carryforwards of $3,765,273 for income tax purposes which expire in 2009.
Utilization of these losses for income tax purposes is subject to certain
limitations under Internal Revenue Code Section 382.
Front Royal, Inc.'s effective income tax rate on pre-tax income is lower
than the prevailing corporate federal income tax rate and is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income tax expense at federal rates........................... $4,613,832 $1,744,766 $1,637,506
Change in valuation allowance on deferred tax assets.......... (2,318,613) (1,402,249) (320,270)
Other......................................................... (83,775) 278,227 (53,236)
---------- ---------- ----------
Income tax expense....................................... $2,211,444 $ 620,744 $1,264,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Federal income taxes paid by the Company was $4,139,812, $1,437,500 and
$830,000 for 1997, 1996 and 1995, respectively.
F-18
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
The significant components of the net deferred tax asset at the current
prevailing tax rate are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Deferred tax assets:
Reserve for losses and loss adjustment expenses............. $8,160,949 $8,522,295 $2,950,453
Unearned premiums........................................... 2,259,612 2,429,097 1,329,635
Basis difference on investments resulting from the Colony
and Rockwood Acquisitions................................ 960,666 1,434,901 1,139,276
Net operating losses........................................ 1,280,193 1,427,937 1,575,336
Accrued policyholder dividends.............................. 988,397 1,050,622 --
Other....................................................... 1,500,243 940,417 884,331
---------- ---------- ----------
Deferred tax assets........................................... 15,150,060 15,805,269 7,879,031
Less: valuation allowance..................................... (1,280,193) (2,872,482) (3,640,196)
---------- ---------- ----------
Total deferred tax assets................................ 13,869,867 12,932,787 4,238,835
---------- ---------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs........................... 2,983,742 3,107,036 1,856,396
Unrealized gains on available-for-sale securities........... 1,712,307 726,324 1,360,859
---------- ---------- ----------
Total deferred tax liabilities........................... 4,696,049 3,833,360 3,217,255
---------- ---------- ----------
Net deferred tax asset........................................ $9,173,818 $9,099,427 $1,021,580
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The components of the changes in the valuation allowance were recorded
through shareholders' equity and operations as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Change recognized in shareholders equity:
Change related to net unrealized (gains)/losses............. $ 726,324 $ 634,535 $(1,360,859)
Change recognized in statement of operations:
Reduction for increased likelihood of realization........... (2,318,613) (1,402,249) (320,270)
----------- ---------- -----------
Total change in valuation allowance........................... $(1,592,289) $ (767,714) $(1,681,129)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
F-19
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CAPITAL STOCK
Common Stock--Class A Shares
On June 30, 1997, 426,166 warrants for the Company's Class A Common Stock
with exercise prices from $.76 to $2.00 were scheduled to expire. Of this
amount, shareholders exercised 424,156 warrants for total proceeds of $365,939
and the Company issued a corresponding number of shares of Class A Common Stock
(see Note 12 for further discussion).
Common Stock--Class B Shares
The shares of Class B Common Stock generally have the same rights as the
shares of Class A Common Stock except for certain voting rights and restrictions
on the Class B shares. All Class B shares will convert automatically to Class A
shares on the earliest of (a) approval of 2/3 vote of Class A shareholders, (b)
approval by Class A Directors or (c) April 15, 2002.
Common Stock--Class C Shares
In connection with the Rockwood Casualty Acquisition, on December 31, 1996,
the Company issued 31,750 units in a private placement (the 'Private Placement')
at a price of $400 per unit. Each unit included 100 shares of a new Class C
Common Stock, 100 rights (the 'Rights') and one warrant to purchase 7.874 shares
of Class A Common Stock. As a result, the Company raised $12,700,000, issued
3,175,000 shares of Class C Common Stock, a corresponding number of Rights and
issued warrants to purchase 250,000 shares of Class A Common Stock.
These warrants are exercisable at an exercise price of $.01 at any time
after June 1, 2001 or earlier in the event of a sale of all (or substantially
all) of the Company's assets or a change in control of the Company. However, the
Company has the right to reacquire some or all of these warrants at $.01 each
contingent upon the achievement of certain financial goals on or before December
31, 2000. Management believes such financial goals will be achieved and intends
to reacquire these warrants prior to December 31, 2000.
Each Right entitles the holder to the difference between $4.00 per share of
Class C Common Stock and the fair market value of the Class A Common Stock (if
the fair market value of Class A Common Stock is less than $4.00) on certain
trigger event dates. The Company may fulfill its obligations with respect to the
Rights, if any, by the payment of cash or the issuance of securities, at the
option of the Company.
The shares of Class C Common Stock have a liquidation preference over the
Class A and Class B shares and are convertible into Class A shares at any time
at the option of the holder. In the event of liquidation, the Class C Common
Stockholders have priority up to $4.00 over the Class A and B shares.
On August 25, 1997, the Company issued an additional 733 units of Class C
Common Stock for total proceeds of $293,200 on terms and conditions identical to
the December 31, 1996 issuance detailed above. Accordingly, the Company issued
73,300 shares of Class C Common Stock, a corresponding amount of rights and
issued warrants to purchase 5,772 shares of Class A Common Stock.
Redeemable Convertible Preferred Stock--Series A
Also in connection with the Rockwood Casualty Acquisition, on December 31,
1996 the Company issued 155,000 shares of Series A Redeemable Convertible
Preferred Stock. This stock has a 7% per annum dividend which can be accrued or
paid at the option of the Company. The stock is convertible at any time at the
option of the holder into 2,583,333 shares of Class A Common Stock (i.e., $6.00
per share) except in the event of an initial public offering when such
conversion is mandatory.
In the event of conversion, all accrued but unpaid dividends become an 8%
subordinated debt of the Company. This debt would mature on December 31, 2003.
F-20
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CAPITAL STOCK--(CONTINUED)
The holder of the Series A Redeemable Convertible Preferred Stock is
entitled to one vote for each share, voting together as a single class to
nominate and elect one member of the Board of Directors. This right ceases to
exist if less than 50,000 shares are outstanding at the record date. The holder
of these shares has no other voting rights except as required by law.
Each holder of these shares has the right, not earlier than 180 days and
not later than 60 days before December 31, 2006, to require the Company to
redeem all or any portion of such holder's shares not previously converted at a
price per share equal to the stated value (i.e., $100.00 per share) plus all
accrued and unpaid dividends at such time. The Company shall have the option to
pay the redemption price in cash, by delivery of 8% promissory notes due on
demand or by a combination of each. The promissory notes would be subordinate in
all respects to the Company's senior debt.
12. WARRANTS AND OPTIONS
Warrants
As of December 31, 1997, Front Royal, Inc. had warrants outstanding for the
purchase of Class A Common Stock comprised of the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
<S> <C> <C>
598,898 $ .01 1999 to 2006
460,750 $ 2.50 1999 to 2001
22,500 $ 2.20 --
- ----------------
1,082,148
- ----------------
- ----------------
</TABLE>
Included in the total of 598,898 warrants with an exercise price of $.01
per share are warrants to purchase 255,772 shares which are contingent and were
issued in connection with the Private Placement (see Note 11 for further
discussion).
In connection with the Rockwood Casualty Acquisition, the Company issued
warrants to purchase an aggregate of 400,000 shares of Class A Common Stock at
an exercise price of $2.50 per share to two individuals in consideration of
their entering into non-compete and non-solicitation agreements that expire on
December 31, 2001. These warrantholders were former owners of Rockwood Casualty
and are currently owners and officers of insurance companies writing business in
lines other than those offered by the Company.
A summary of the warrant activity, by year, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Outstanding at January 1........................................... 1,502,542 852,542 850,038
Warrants granted................................................... 5,772 650,000 2,504
Warrants exercised................................................. (424,156) -- --
Warrants cancelled................................................. (2,010) -- --
--------- --------- -------
Outstanding at December 31......................................... 1,082,148 1,502,542 852,542
--------- --------- -------
--------- --------- -------
Exercisable at December 31......................................... 826,376 1,252,542 852,542
--------- --------- -------
--------- --------- -------
</TABLE>
Options
During 1996, the Company established an incentive Stock Option Plan
pursuant to which stock options may be granted to officers, employees,
consultants, advisors and directors of the Company. The number of shares of
Class A Common Stock reserved for issuance under this plan is 500,000. The
Company had previously established a management incentive Stock Option Plan
pursuant to which options to purchase Class B Common
F-21
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. WARRANTS AND OPTIONS--(CONTINUED)
Stock were granted to officers and a director of the Company. The number of
shares of Class B Common Stock reserved for issuance under this plan was
250,000. All options granted are exercisable over a four year period commencing
from the anniversary date of the grant except for 150,000 options granted in
December 1995 which were fully vested upon their issuance.
As of December 31, 1997, the aggregate shares issuable upon exercise of
Class A and Class B options is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
<S> <C> <C>
506,500 $ 5.00 2007
93,500 $ 4.00 2003
90,000 $ 2.00 2002
60,000 $ 2.50 2005
- ----------------
750,000
- ----------------
- ----------------
</TABLE>
A summary of the option activity, by year, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Outstanding at January 1........................................... 258,500 150,000 --
Options granted.................................................... 506,500 108,500 150,000
Options exercised.................................................. -- -- --
Options cancelled.................................................. (15,000) -- --
--------- --------- -------
Outstanding at December 31......................................... 750,000 258,500 150,000
--------- --------- -------
--------- --------- -------
Exercisable at December 31......................................... 173,375 150,000 150,000
--------- --------- -------
--------- --------- -------
</TABLE>
13. RELATED PARTY TRANSACTIONS
During 1997, 1996 and 1995, the Company issued equity to individuals who
were also directors, officers and/or shareholders. The pricing of all such
issuances was approved by the Board of Directors and was deemed to be the then
fair market value.
As part of the Rockwood Casualty Acquisition, the Company issued warrants
to purchase 400,000 shares of Class A Common Stock to two former owners of
Rockwood. One of these warrantholders is also a director of Front Royal, Inc.
Additionally, these two warrantholders are the owners of a company which:
o was an obligor of a $2,500,000, 13% secured note to the Company due on
December 31, 1997. This note was fully repaid during 1997. The note
represented the balance of a $3,500,000 purchase price for a wholly-owned
subsidiary of Rockwood, Premier Auto Insurance Company ('Premier').
o purchased the $15,500,000 Series A Redeemable Convertible Preferred Stock
of the Company issued pursuant to the Rockwood Casualty Acquisition from
one of the sellers of Rockwood Casualty.
The Chairman and a member of the Board of Directors of the Company have
consulting contracts with the Company for $40,000 and $24,000 per year,
respectively, which can be terminated by either party upon 90 days' written
notice.
As part of the December 31, 1996 Private Placement, the Company loaned a
total of $200,000 to three of its officers to purchase units in the transaction.
A total of 50,000 shares of Class C Common Stock were purchased along with 3,937
contingent warrants to purchase Class A Common Stock at an exercise price of
$.01 per share (see Note 11 for further discussion). The notes have an interest
rate of 6.5%, mature on December 31, 2001, are secured by the underlying stock
and require mandatory prepayment of 25% of the net after-tax amount of any cash
bonus paid to these officers (pursuant to which $33,614 was repaid in 1997).
F-22
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
In connection with the Rockwood Casualty Acquisition, the Company entered
into an option agreement to sell a wholly-owned subsidiary of Colony, Hamilton
Insurance Company ('Hamilton'), for an aggregate purchase price of $4,500,000 to
the obligor of the $2,500,000 note described above. This transaction was
completed in December 1997, prior to which Hamilton had transferred its assets
and liabilities in excess of $4,000,000 of statutory surplus to Colony.
Hamilton's business was transferred to Colony via a reinsurance treaty. New
business written by Hamilton on behalf of Colony in states in which Colony is
not yet licensed will also be transferred to Colony via a reinsurance treaty.
14. COMMITMENTS AND CONTINGENCIES
Colony and Rockwood Casualty are named as defendants in legal actions
arising primarily from claims made under insurance policies or in connection
with previous reinsurance agreements. Those actions have been considered in
establishing the Company's reserve liabilities. Management and its legal counsel
are of the opinion that the settlement of these actions will not have a material
adverse effect on Front Royal, Inc.'s financial position or the results of its
operations.
In connection with the Rockwood Casualty Acquisition, Rockwood Casualty
entered into a fifteen-year capital lease agreement. The future minimum rental
payments required under this lease as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 78,000
1999........................................................ 78,000
2000........................................................ 86,000
2001........................................................ 86,000
2002........................................................ 272,475
Thereafter.................................................. 7,188,498
----------
Total.................................................. $7,788,973
----------
----------
</TABLE>
Additionally as part of the Rockwood Casualty Acquisition, the Company
entered into several agreements with former owners and affiliates of Rockwood
Casualty, including certain non-solicitation and non-compete agreements, for
periods of up to ten years. The agreements require payments as follows: 1998 to
2001--$565,000 per year; 2002 to 2006--$390,000 per year. The net present value
of such agreements is recorded as an intangible asset with a corresponding
liability recorded in other liabilities.
Also as part of the Rockwood Casualty Acquisition, Premier assumed all of
the private passenger automobile insurance previously written by Rockwood
Casualty via a reinsurance treaty. On December 31, 1996, Premier transferred
$8,700,627 into an escrow account held by Rockwood Casualty to collaterize
outstanding ceded losses and unearned premium. Rockwood Casualty remains
contingently liable to its policyholders if Premier is unable to meet its
contractual obligations under the reinsurance agreement. As of December 31, 1997
the balance of such escrow was $1,389,308, which exceeded the contractually
determined escrow amount at September 30, 1997 of $969,283. This September 30,
1997 balance was based upon Premier's independent consulting actuary's estimate
of such reserve liability for private passenger automobile insurance at that
date.
Rockwood Insurance Company of Indiana ('RIND'), a Company that merged into
Rockwood Casualty on December 31, 1990, issued certain medical malpractice
policies for claims occurring between January 1, 1978 and October 1, 1990. RIND
reinsured these policies pursuant to a loss portfolio transfer agreement with
Covenant Mutual Insurance Company ('Covenant'). Covenant subsequently went into
liquidation and was unable to meet its obligation on the reinsurance agreement.
In May 1993, Rockwood Insurance Company, Rockwood Casualty's former parent,
which went into liquidation proceedings in 1991, established and funded a
Liquidating Trust ('Trust') in accordance with an agreement approved by an order
of the Commonwealth Court of Pennsylvania to service medical malpractice claims
related to Covenant's default.
F-23
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Trust was originally funded with $6,500,000, and on June 30, 1994 an
additional $623,000 was deposited in the Trust by Rockwood Casualty's former
parent in accordance with the Trust agreement, as amended. The total assets in
the Trust available to pay claims and expenses at December 31, 1997 and 1996,
were $2,680,000 and $3,282,000, respectively. As part of the Trust agreement, a
certification of reserve liabilities is prepared annually by an independent
consulting actuary acceptable to both the former parent and Rockwood Casualty.
The amount of actuarially determined liabilities related to Covenant's default
as of December 31, 1997 and 1996 was $1,266,230 and $2,256,459, respectively. If
the amount of reserve liabilities on a discounted basis, times 115%, exceeds the
amount in the Trust Fund as of the date of the report, the former parent shall
pay to the Trustee, monies or investment securities in the aggregate amount of
the deficiency. Any amount in excess of the actuarially determined liabilities,
times 115%, may be returned to the former parent.
Rockwood Casualty remains contingently liable for the medical malpractice
claims, in the event that the Trust's assets, which consist primarily of
investments in short term U.S. Treasury obligations and cash equivalents, and
future deficiency funding by the former parent, if necessary, are not sufficient
to fund the ultimate liability. Management believes that there is minimal
exposure relating to this liability.
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has purchased, where necessary, year 2000 compliant
software and begun converting critical data processing systems. The Company
currently expects the project to be substantially complete by early 1999 and to
cost approximately $1,500,000 (unaudited). This estimate includes internal
costs, but excludes the costs to upgrade and replace systems in the normal
course of business. The Company does not expect this project to have a
significant effect on operations. As of December 31, 1997, $806,818 has been
incurred.
F-24
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Numerator:
Net income available to common shareholders (numerator for
basic earnings per share).............................. $10,273,651 $4,510,922 $3,552,194
Dividends to preferred shareholders....................... 1,085,000 -- --
----------- ---------- ----------
Net income (numerator for diluted earnings per share)..... $11,358,651 $4,510,922 $3,552,194
----------- ---------- ----------
Denominator:
Weighted average common shares outstanding (denominator
for basic earnings per share).......................... 9,125,333 5,723,624 5,710,538
----------- ---------- ----------
Effect of dilutive securities:
Warrants............................................. 1,024,652 674,319 650,220
Employee stock options............................... 127,692 48,491 35,368
Convertible preferred stock.......................... 2,583,333 -- --
----------- ---------- ----------
Dilutive potential common shares.......................... 3,735,677 722,810 685,588
----------- ---------- ----------
Adjusted weighted average common shares outstanding and
assumed conversions (denominator for diluted earnings
per share)............................................. 12,861,010 6,446,434 6,396,126
----------- ---------- ----------
Net income per share--basic................................. $ 1.13 $ .79 $ .62
----------- ---------- ----------
----------- ---------- ----------
Net income per share--diluted............................... $ .88 $ .70 $ .56
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and short-term
investments approximate those assets and liabilities' fair values. Fair values
for investment securities are based on quoted market prices and are disclosed in
Note 2. The Company has not determined the fair value of its senior bank debt
obligation or the contracts which cap interest rates related to this debt. The
Company does not believe, however, that the fair value of these financial
instruments would differ materially from their recorded values.
17. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, ('APB 25') and related
Interpretations in accounting for its employee stock options. Under APB 25, when
the exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized (see Note 12 for a summary of the options issued and
outstanding). This methodology was deemed preferable because, as discussed
below, the alternative fair value accounting, as provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation, ('Statement 123'),
requires use of option valuation models that were not developed for use in
valuing employee stock options.
Pro forma information regarding net income and earnings per share is,
however, required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method
prescribed by that Statement. The fair value for these options (which is
amortized to expense over the
F-25
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. STOCK BASED COMPENSATION--(CONTINUED)
vesting period of the options) was estimated at the grant dates using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997, 1996 and 1995 respectively:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.13% 7.25% 6.69%
Expected life of the option................................. 10.63 years 7.00 years 8.27 years
Expected stock price volatility............................. .31 .31 .31
</TABLE>
The expected dividend yield used is 0% for all years since the debt
facility prohibits the payment of dividends (see Note 9 for further discussion).
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of the employee stock options.
However, the Company's pro forma disclosures, as required under Statement
123, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Pro forma net income........................................ $11,312,836 $4,510,922 $3,408,794
Pro forma net income per share:
Basic..................................................... $ 1.12 $ .79 $ .60
Diluted................................................... $ .88 $ .70 $ .53
</TABLE>
The effects of applying Statement 123 for providing pro forma disclosures
are not likely to be representative of the effect on pro forma net income for
future years as the expense recognition will vary depending on the vesting
schedule of the options.
No compensation expense has been recorded in operations in 1997, 1996 or
1995 since all options were issued with exercise prices that equaled or exceeded
the then fair market value of the Company's stock.
18. STATUTORY MATTERS
The Company is required to periodically submit financial statements
prepared in accordance with statutory accounting practices to insurance
regulatory authorities. Statutory accounting practices for Colony, Hamilton,
FRIC, and Rockwood Casualty prescribed or permitted by state regulatory
authorities differ from generally accepted accounting principles. The following
net income amounts determined in accordance with statutory accounting practices
was reported to regulatory authorities for the years ended 1997, 1996, and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Colony...................................................... $3,046,875 $ 3,170,460 $3,156,814
Hamilton.................................................... 740,853 639,451 329,636
FRIC........................................................ 1,220,440 141,889 645,093
Rockwood Casualty........................................... 6,747,430 18,981,074 5,143,737
</TABLE>
As part of the Rockwood Casualty Acquisition, Rockwood Casualty requested
and received permission from the state regulatory authority to transfer
$8,500,000 to Front Royal, Inc. as a return of capital. The proceeds of
F-26
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. STATUTORY MATTERS--(CONTINUED)
this return of capital were utilized to finance a portion of the purchase price,
pay certain closing costs and to fund a $6 million senior bank debt escrow (see
Notes 5 and 9 for further discussion).
In 1997, Colony's statutory net income includes $1,242,375 of income
related to the sale of Hamilton (see Note 13 for further discussion).
Additionally, in December 1996, and in 1995, Hamilton and FRIC paid dividends of
$500,000 and $850,000, respectively, to their parent, Colony. The dividends are
included in Colony's statutory net income above. These dividends had been
approved by regulatory authorities.
The net assets of Colony and Rockwood Casualty that are transferable to
Front Royal, Inc. are limited to the amounts by which statutory capital and
surplus exceed minimum statutory requirements. An analysis of such requirement
at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
ROCKWOOD
COLONY CASUALTY
<S> <C> <C>
Statutory Capital and Surplus.................................. $30,535,456 $43,881,750
Minimum Statutory Capital Required............................. 4,000,000 3,000,000
----------- -----------
Excess over Minimum Statutory Capital Requirement.............. $26,535,456 $40,881,750
----------- -----------
----------- -----------
</TABLE>
Despite such excess over statutory minimums, regulatory approval is
required for any distribution in a twelve month period, other than for dividends
or other distributions which, in the aggregate, do not exceed the lesser (in
Virginia, the greater in Ohio and Pennsylvania) of either (i) ten percent of the
insurer's surplus to policyholders as of the immediately preceding December 31
or (ii) net income (excluding realized gains in Virginia) of the prior year.
19. SUBSEQUENT EVENTS
In March 1998, the Company expects to execute a definitive agreement to
purchase the stock of a Florida-domiciled insurance company, certain assets of a
captive wholesale general agency (and an affiliate of the Florida-domiciled
insurance company) and certain other assets and liabilities for a total purchase
price of $35,000,000 in cash, 500,000 shares of Class A Common Stock and
warrants to purchase 1,050,000 shares of Class A Common Stock at an exercise
price of $10.00 per share.
The agreement will be conditional upon state regulatory approval and
governmental clearance under the Hart Scott Rodino Act. The Company expects both
of such approvals to occur in the second quarter of 1998.
The agreement will also be conditional upon the seller delivering the
insurance company with certain levels of invested assets, statutory surplus and
GAAP equity. Front Royal, Inc. will provide a $1,000,000 down payment which
would be refunded should the insurance company not achieve these prescribed
levels of invested assets, statutory surplus or GAAP equity. Additionally, under
certain circumstances, if the transaction is not ultimately completed, Front
Royal, Inc. may be required to forfeit its down payment.
The purchase price will be funded from a combination of internal sources
and debt. The Company is negotiating an increase to its senior bank debt on
terms and conditions similar to its current facility.
F-27
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities:
Available-for-sale at fair value (amortized cost: 1998, $125,098,803;
1997, $122,304,263)....................................................... $128,163,987 $125,374,861
Held-to-maturity at amortized cost (fair value: 1998, $95,012,544;
1997, $111,403,288)....................................................... 93,152,847 109,536,621
Equity securities at fair value (cost: 1998, $16,582,369;
1997, $16,635,621).......................................................... 18,775,263 18,601,221
Short-term investments......................................................... 37,852,749 24,208,843
------------ ------------
Total investments......................................................... 277,944,846 277,721,546
Cash............................................................................. 1,567,869 2,907,311
Accrued investment income........................................................ 2,800,000 3,304,784
Reinsurance recoverable on unpaid loss and loss adjustment expenses.............. 22,952,346 22,543,301
Reinsurance recoverable on paid loss and loss adjustment expenses................ 2,583,137 1,917,547
Prepaid reinsurance premiums..................................................... 2,436,687 2,777,992
Premiums receivable and agents' balances......................................... 17,446,996 16,657,272
Deferred federal income tax...................................................... 9,307,339 9,173,818
Deferred policy acquisition costs................................................ 8,665,767 8,775,710
Intangible assets, net........................................................... 5,787,526 5,812,352
Other assets..................................................................... 5,832,007 4,723,136
------------ ------------
Total assets.............................................................. $357,324,520 $356,314,769
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-28
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses................................ $197,092,824 $195,330,919
Unearned premiums.............................................................. 35,378,270 36,007,585
Accrued expenses............................................................... 5,945,836 7,388,830
Accrued policyholders' dividends............................................... 5,919,403 6,054,289
Accrued preferred stock dividend............................................... 1,356,250 1,085,000
Other liabilities.............................................................. 13,338,237 13,140,717
------------ ------------
259,030,820 259,007,340
Senior bank debt............................................................... 35,295,430 36,545,430
------------ ------------
Total liabilities......................................................... 294,326,250 295,552,770
------------ ------------
Commitments and contingent liabilities
Series A Redeemable Convertible Preferred Stock, no par value,
155,000 shares authorized and 155,000 shares
issued and outstanding in 1998 and 1997........................................ 15,500,000 15,500,000
Common shareholders' equity:
Common Stock--Class A, no par value, 20,000,000
shares authorized and 5,859,144 shares issued and
outstanding in 1998 and 1997, net of issuance costs......................... 13,739,979 13,739,979
Common Stock--Class B, no par value, 700,000 shares authorized
and 268,482 shares issued and outstanding in 1998 and 1997.................. 557,348 557,348
Common Stock--Class C, no par value, 3,500,000 shares authorized
and 3,248,300 shares issued and outstanding in 1998 and 1997................ 12,993,200 12,993,200
------------ ------------
27,290,527 27,290,527
Notes receivable from officers................................................. (166,386) (166,386)
Retained earnings.............................................................. 16,956,378 14,813,967
Accumulated other comprehensive income......................................... 3,417,751 3,323,891
------------ ------------
Total common shareholders' equity......................................... 47,498,270 45,261,999
------------ ------------
62,998,270 60,761,999
------------ ------------
------------ ------------
Total liabilities, redeemable convertible preferred stock, and common
shareholders' equity................................................... $357,324,520 $356,314,769
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-29
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
<S> <C> <C>
Revenues:
Net premiums earned.............................................................. $20,167,287 $24,308,254
Net investment income............................................................ 4,264,544 4,265,364
Net realized gains on investments................................................ 4,432 42,352
Other income..................................................................... 55,994 27,327
----------- -----------
Total revenues........................................................... 24,492,257 28,643,297
----------- -----------
Losses and expenses:
Net losses and loss adjustment expenses.......................................... 12,186,532 15,790,698
Policy acquisition costs amortized............................................... 5,763,284 6,457,328
Other underwriting expenses...................................................... 1,170,597 956,437
Dividends to policyholders....................................................... 737,284 1,129,691
Interest expense................................................................. 880,631 1,154,571
Other operating costs and expenses............................................... 206,804 40,210
----------- -----------
Total losses and expenses................................................ 20,945,132 25,528,935
----------- -----------
Income before federal income taxes................................................. 3,547,125 3,114,362
Federal income tax expense
Current.......................................................................... 1,127,963 519,307
Deferred......................................................................... 5,501 272,218
----------- -----------
Total federal income tax expense......................................... 1,133,464 791,525
----------- -----------
Net income......................................................................... 2,413,661 2,322,837
Dividends to preferred shareholders................................................ 271,250 271,250
----------- -----------
Net income available to common shareholders........................................ $ 2,142,411 $ 2,051,587
----------- -----------
----------- -----------
Net income per share--basic........................................................ $ .23 $ .23
----------- -----------
----------- -----------
Net income per share--diluted...................................................... $ .18 $ .18
----------- -----------
----------- -----------
Weighted average common shares outstanding......................................... 9,375,926 8,889,925
Weighted average common and common stock equivalent shares outstanding............. 13,197,228 12,647,066
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-30
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON SHAREHOLDERS' EQUITY
------------------------------------------------------------------
REDEEMABLE ACCUMULATED
CONVERTIBLE COMMON STOCK OTHER
PREFERRED ------------------------------------ RETAINED COMPREHENSIVE
STOCK CLASS A CLASS B CLASS C EARNINGS INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1996........ $15,500,000 $13,402,208 $575,000 $12,500,000 $ 4,540,316 $ 2,136,248 $48,653,772
-----------
Net income............... -- -- -- -- 2,322,837 -- 2,322,837
Net unrealized losses.... -- -- -- -- -- (1,122,491) (1,122,491)
-----------
Comprehensive income... -- -- -- -- -- -- 1,200,346
-----------
Accrual of preferred
dividend............... -- -- -- -- (271,250) -- (271,250)
----------- ----------- -------- ----------- ----------- ------------- -----------
Balances at
March 31, 1997........... $15,500,000 $13,402,208 $575,000 $12,500,000 $ 6,591,903 $ 1,013,757 $49,582,868
----------- ----------- -------- ----------- ----------- ------------- -----------
----------- ----------- -------- ----------- ----------- ------------- -----------
Balances at
December 31, 1997........ $15,500,000 $13,739,979 $557,348 $12,826,814 $14,813,967 $ 3,323,891 $60,761,999
-----------
Net income............... -- -- -- -- 2,413,661 -- 2,413,661
Net unrealized gains..... -- -- -- -- -- 93,860 93,860
-----------
Comprehensive income... -- -- -- -- -- -- 2,507,521
-----------
Accrual of preferred
dividend............... -- -- -- -- (271,250) -- (271,250)
----------- ----------- -------- ----------- ----------- ------------- -----------
Balances at
March 31, 1998........... $15,500,000 $13,739,979 $557,348 $12,826,814 $16,956,378 $ 3,417,751 $62,998,270
----------- ----------- -------- ----------- ----------- ------------- -----------
----------- ----------- -------- ----------- ----------- ------------- -----------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-31
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
<S> <C> <C>
Operating activities:
Net cash provided by/(used in) operating activities............................... $ (248,276) $ 9,276,871
------------ ------------
Investing activities:
Securities available-for-sale:
Purchases--fixed maturities and equities..................................... (9,264,153) (13,620,745)
Sales--fixed maturities and equities......................................... 4,898,148 32,515,561
Maturities and calls--fixed maturities....................................... 1,711,714 --
Securities held-to-maturity:
Purchases--fixed maturities.................................................. -- (9,993,129)
Maturities and calls--fixed maturities....................................... 16,460,031 2,855,800
Net purchases of short-term investments...................................... (13,646,906) (19,103,932)
------------ ------------
Net cash provided by/(used in) investing activities............................... 158,834 (7,346,445)
------------ ------------
Financing activities:
Net cash used in financing activities............................................. (1,250,000) --
------------ ------------
Increase/(decrease) in cash....................................................... (1,339,442) 1,930,426
Cash at beginning of period....................................................... 2,907,311 9,415,787
------------ ------------
Cash at end of period............................................................. $ 1,567,869 $ 11,346,213
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-32
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial information included in this
report has been prepared in conformity with the accounting principles and
practices reflected in the consolidated financial statements for the year ended
December 31, 1997. This report should be read in conjunction with the
aforementioned financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of this information have been made. The results of operations for
the interim periods are not necessarily indicative of results for a full year.
Significant intercompany accounts and transactions have been eliminated.
The accounts of the acquired subsidiaries are included in the condensed
consolidated financial statements from the dates of acquisition. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Such
estimates and assumptions may be subject to change in the future as more
information becomes known which could impact the amounts reported and disclosed
herein.
Net Income Per Share
The Company's net income per share amounts have been calculated in
accordance with Statement of Financial Accounting Standards No. 128, Earnings
per Share ('Statement 128'). The treasury stock method was applied to options
and warrants using the initial public offering price and the estimated average
market price during the period for the period March 31, 1998 and 1997,
respectively.
Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported in
shareholders' equity, to be included in other comprehensive income. Prior
financial statements have been reclassified to conform to the requirements of
Statement 130.
F-33
<PAGE>
FRONT ROYAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------
1998 1997
<S> <C> <C>
Numerator:
Net income available to common shareholders (numerator
for basic earnings per share)......................... $ 2,142,411 $ 2,051,587
Dividends to preferred shareholders...................... 271,250 271,250
-------------------- --------------------
Net income (numerator for diluted earnings per share).... $ 2,413,661 $ 2,322,837
-------------------- --------------------
Denominator:
Weighted average common shares outstanding (denominator
for basic earnings per share)......................... 9,375,926 8,889,925
-------------------- --------------------
Effect of dilutive securities:
Warrants.............................................. 916,002 1,106,308
Employee stock options................................ 321,967 67,500
Convertible preferred stock........................... 2,583,333 2,583,333
-------------------- --------------------
Dilutive potential common shares......................... 3,821,302 3,757,141
-------------------- --------------------
Adjusted weighted average common shares outstanding and
assumed conversions (denominator for diluted earnings
per share)............................................ 13,197,228 12,647,066
-------------------- --------------------
Net income per share--basic................................ $.23 $.23
-------------------- --------------------
-------------------- --------------------
Net income per share--diluted.............................. $.18 $.18
-------------------- --------------------
-------------------- --------------------
</TABLE>
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Preferred National Insurance Company
Wycon Corporation
Americlaim Adjustment Corp.
United American Financial Services Corporation:
We have audited the accompanying combined balance sheet of Preferred National
Insurance Company and Affiliates (the 'Companies') as of December 31, 1997, and
the related combined statements of operations, changes in stockholders' equity,
and cash flows for the year then ended. The combined financial statements
include the accounts of Preferred National Insurance Company and three related
companies, Wycon Corporation, Americlaim Adjustment Corp. and United American
Financial Services Corporation. These companies are under ultimate common
ownership and common management. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Companies as of December 31,
1997, and the combined results of their operations and their combined cash flows
for the year then ended in conformity with generally accepted accounting
standards.
/S/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Miami, Florida
May 22, 1998
F-35
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash on hand and on deposit........................................................................ $ 4,383,318
Securities available for sale...................................................................... 58,115,468
Accounts and agents balances receivable............................................................ 2,969,632
Reinsurance recoverable............................................................................ 3,118,960
Deferred acquisition costs......................................................................... 4,752,294
Prepaid insurance premiums......................................................................... 2,294,686
Accrued investment income.......................................................................... 314,745
Receivable from affiliates......................................................................... 8,062
Deferred tax asset................................................................................. 487,990
Cash surrender value of life insurance............................................................. 870,033
Other assets, net.................................................................................. 106,736
-----------
Total......................................................................................... $77,421,924
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses............................................................................................. $15,676,015
Loss adjustment expenses........................................................................... 4,781,567
Other liabilities.................................................................................. 1,023,910
Income taxes payable............................................................................... 1,183,541
Unearned premiums.................................................................................. 19,905,709
S Corporation distributions payable................................................................ 2,244,062
-----------
Total liabilities............................................................................. 44,814,804
-----------
Commitments and contingencies (Note 9)
Common capital stock............................................................................... 3,501,160
Additional paid-in capital......................................................................... 23,160,351
Retained earnings.................................................................................. 5,878,724
Net unrealized gains on securities available for sale (net of tax provision of $40,131)............ 66,885
-----------
Total stockholders' equity.................................................................... 32,607,120
-----------
Total......................................................................................... $77,421,924
-----------
-----------
</TABLE>
See notes to combined financial statements.
F-36
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues:
Premiums......................................................................................... $28,578,474
Fees and commissions............................................................................. 3,294,368
Net investment income............................................................................ 2,876,744
Realized capital gains and losses................................................................ 3,359
Other income..................................................................................... 17,655
-----------
Total revenues.............................................................................. 34,770,600
-----------
Expenses:
Losses........................................................................................... 14,027,805
Loss expenses incurred........................................................................... 3,128,593
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs............................................. 4,682,008
Salaries and employee benefits................................................................ 4,357,437
Other......................................................................................... 4,159,938
-----------
Total expenses.............................................................................. 30,355,781
-----------
Earnings before provision for income taxes......................................................... 4,414,819
Provision for income taxes......................................................................... 812,458
-----------
Net income......................................................................................... 3,602,361
-----------
-----------
Basic earnings per share........................................................................... $ 1.03
-----------
-----------
Weighted average shares outstanding................................................................ 3,501,250
-----------
</TABLE>
F-37
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES)
COMMON ADDITIONAL ON AVAILABLE
CAPITAL PAID-IN RETAINED FOR SALE
STOCK CAPITAL EARNINGS SECURITIES TOTAL
---------- ----------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996...................... $3,501,160 $19,660,351 $4,403,530 $(40,329) $27,524,712
Net income.................................... 3,602,361 3,602,361
Net unrealized gains on securities available
for sale, net of taxes...................... 107,214 107,214
S Corporation distributions to stockholders... (2,127,167) (2,127,167)
Capital contribution.......................... 3,500,000 3,500,000
---------- ----------- ---------- ---------------- -----------
BALANCE, DECEMBER 31, 1997...................... $3,501,160 $23,160,351 $5,878,724 $ 66,885 $32,607,120
---------- ----------- ---------- ---------------- -----------
---------- ----------- ---------- ---------------- -----------
</TABLE>
See notes to combined financial statements
F-38
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income............................................................................ $ 3,602,361
------------
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums/discounts on bonds.................................... 140,203
Net realized capital gain.......................................................... (3,359)
Deferred income tax benefit........................................................ (307,223)
Increase in accrued interest receivable............................................ (60,175)
Increase in deferred acquisition costs............................................. (3,620,226)
Increase in accounts and agents balances receivable................................ (2,084,612)
Increase in other assets and receivable from affiliates............................ (61,597)
Increase in cash surrender value of life insurance................................. (284,336)
Increase in prepaid insurance premiums............................................. (1,580,520)
Increase in reinsurance recoverable on paid losses................................. (2,452,295)
Increase in losses and loss adjustment expenses.................................... 15,142,404
Increase in unearned premiums...................................................... 13,451,072
Increase in income taxes payable................................................... 501,062
Increase in other liabilities...................................................... 234,774
------------
Total adjustments................................................................ 19,015,172
------------
Net cash provided by operating activities........................................ 22,617,533
------------
Cash flows from investing activities:
Purchases of available for sale securities............................................ (76,501,016)
Proceeds from maturities and sales of available for sale securities................... 52,707,725
------------
Net cash used in investing activities............................................ (23,793,291)
------------
Cash flows from financing activities:
S Corporation distributions to stockholders........................................... (520,281)
Capital contribution.................................................................. 3,500,000
------------
Net cash provided by financing activities........................................ 2,979,719
------------
Net increase in cash.................................................................... 1,803,961
Cash, beginning of year................................................................. 2,579,357
------------
Cash, end of year....................................................................... $ 4,383,318
------------
------------
</TABLE>
See notes to combined financial statements.
F-39
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations and cash flows of Preferred National Insurance
Company (Preferred), Wycon Corporation (Wycon), Americlaim Adjustment Corp.
(Americlaim) and United American Financial Services Corporation (Unamark) (the
Companies). The Companies are affiliated through ultimate common ownership and
management. All significant intercompany balances and transactions are
eliminated in combination.
Preferred, a wholly-owned subsidiary of Preferred National Financial Corp.
(PNFC), is a property and casualty insurance company and files its annual report
with the Insurance Department of the State of Florida. Prior to 1996, the
Company principally underwrote fidelity bonds and surety bonds. In 1996, the
Company began underwriting special multi-peril, professional liability and other
liability insurance. Preferred was incorporated in 1988 and obtained a license
to write specified coverages in the State of Florida on March 10, 1989.
Underwriting activities began in October 1989.
Wycon is the underwriting manager for Preferred and Britamco Underwriters,
Inc. (Britamco). Britamco is a property and casualty insurance company owned by
PNFC. Wycon's duties as underwriting manager include providing all of the
underwriting and administrative services necessary to operate Preferred and
Britamco. Wycon is also a general agent providing underwriting and
administrative services for an independent insurance company. Americlaim
provides claims adjustment services to Preferred and Britamco. Unamark is a
captive general agency that solicits insurance accounts to be written by
Preferred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid debt
instruments with an original maturity of three months or less.
Premiums and Policy Acquisition Costs
Premiums are earned on a pro rata basis over the periods covered by the
policies. Policy acquisition costs that vary with and are primarily related to
new and renewal business are deferred and amortized over future periods as the
related premiums on policies are earned. The Companies continuously review all
elements of policy acquisition and renewal costs for consideration of proper
inclusion in deferred acquisition costs. Deferred income taxes on deferred
policy acquisition costs are reflected in the financial statements.
Fees and Commissions
Fee income represents policy fees and inspection fees collected from
insureds by the agent. These fees are recognized as the services are performed.
Commission income represents commissions earned in connection with the
underwriting of policies for an independent insurance company. Commissions are
recognized upon the processing of the related policy.
F-40
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Unpaid Losses and Loss Adjustment Expenses
Loss reserves represent the estimated liability on claims reported plus
estimates for losses incurred but not yet reported and the estimated loss
adjustment expenses related to these claims. The liabilities for losses and
related loss adjustment expenses are determined using case basis evaluations and
statistical analyses for incurred but not yet reported claims. They represent
estimates of the ultimate net cost of all losses incurred. These liabilities are
subject to the impact of future changes in claim severity, frequency, and other
factors. While variability is inherent in such estimates, management believes
that the liabilities for losses and related adjustment expenses are adequate.
The estimates are continually reviewed and, as adjustments to these liabilities
become necessary, such adjustments are reflected in current operations.
As discussed above, during 1996, Preferred began underwriting special
multi-peril, professional liability and other liability insurance. Certain
critical assumptions Preferred relied on to estimate reserves for unpaid losses
and loss adjustment expenses for the new business were based on management's
prior experience and external industry sources. Although these data are relevant
to the operations of Preferred, the uncertainty of the reserve projections is
increased by the lack of historical experience.
Securities
Bonds, notes and debentures for which the Companies have the positive
intent and ability to hold to maturity are carried at cost, as adjusted for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity. Debt and equity securities that have readily
determinable fair values are carried at fair value unless they are classified as
held to maturity. Securities are classified as held to maturity and carried at
amortized cost only if the reporting entity has a positive intent and ability to
hold these securities to maturity. Securities held principally for resale in the
near term are classified as trading account securities and recorded at fair
value. Unrealized gains and losses on trading account securities are included in
income. If not classified as trading or held to maturity, such securities are
classified as available for sale. Unrealized holding gains or losses for
securities available for sale are excluded from earnings and reported as a
separate component of stockholders equity.
Income Taxes
Wycon and Unamark elected with the consent of their stockholders to be
taxed as S Corporations under Section 1362(a) of the Internal Revenue Code.
Under this section, Wycon and Unamark do not pay Federal income taxes. Instead,
the stockholders reflect the taxable income or losses in their personal income
tax returns. Consequently, no provisions for Federal income taxes of Wycon and
Unamark are reflected in the combined financial statements. With respect to
Preferred and Americlaim, certain items of income and expense are reported in
different periods for financial statement purposes and for federal income tax
purposes. The differences relate primarily to different methods of accounting
for deferred acquisition costs, loss reserves, and unearned premiums. Preferred
and Americlaim account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires the liability method of computing deferred income taxes. For federal
and state income tax purposes, PNFC and Preferred file consolidated tax returns.
PNFC is liable and makes the payments to the taxing authorities but, pursuant to
an agreement, recovers from Preferred its share of the income taxes. Preferred
records a tax provision as if it were a separate filing entity.
Reinsurance
Premiums written are ceded on a treaty and facultative basis. Property per
risk excess and casualty excess of loss and catastrophe reinsurance contracts
are maintained to protect against losses over specified amounts arising from any
one occurrence or event. Reinsurance premiums, commissions, expense
reimbursements, and reserves
F-41
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
related to reinsured business are accounted for on bases consistent with those
used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums ceded to other companies have been reported as a
reduction of premium income. Amounts applicable to reinsurance ceded for
unearned premium reserves and loss and loss adjustment expense reserves have
been reported as prepaid insurance premiums and reinsurance recoverable,
respectively.
Property and Equipment
Property and equipment of $35,354 is included in other assets and is
carried at cost less accumulated depreciation. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which range
from five to seven years. Accumulated depreciation on property and equipment was
$77,879 at December 31, 1997. Depreciation expense on property and equipment was
$8,014 for the year ended December 31, 1997.
New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires that all components of comprehensive income be reported on
one of the following: (1) the statement of income, (2) the statement of changes
in stockholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to stockholders
equity, except those due to investments by owners (changes in paid-in capital)
and distributions to owners (dividends). SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 is not
expected to have a material impact on the Companies financial statements
presentation.
2. SECURITIES
The amortized cost and estimated fair values of available for sale
securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Bonds:
U.S. Treasury securities and obligations of
U.S. Government agencies.................... $35,833,000 $120,000 $ 22,000 $35,931,000
Obligations of states and political
subdivisions................................ 771,000 1,000 770,000
Corporate securities........................... 21,404,000 10,000 21,414,000
----------- -------- ---------- -----------
Total bonds.................................... $58,008,000 $130,000 $ 23,000 $58,115,000
----------- -------- ---------- -----------
----------- -------- ---------- -----------
</TABLE>
The estimated fair values have been determined by the Companies using
available market information and appropriate valuation methodologies. The fair
values are significantly affected by the assumptions used. Accordingly, the use
of different assumptions may have a material effect on the fair values. The
estimated fair values presented herein are not necessarily indicative of the
amounts that the Companies could realize in a current market exchange nor of the
aggregate underlying value of the Companies themselves.
F-42
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
2. SECURITIES--(CONTINUED)
The amortized cost and estimated fair value of bonds at December 31, 1997,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less.................................................. $11,163,000 $11,170,000
Due after one year through five years.................................... 20,247,000 20,347,000
Due after five years through ten years................................... 11,978,000 11,978,000
Due after ten years...................................................... 14,620,000 14,620,000
----------- -----------
$58,008,000 $58,115,000
----------- -----------
----------- -----------
</TABLE>
Net investment income for the year ended December 31, 1997 is comprised of
the following:
<TABLE>
<S> <C>
Securities available for sale............................................................. $2,899,393
Other..................................................................................... 78,923
----------
Investment income, before expense......................................................... 2,978,316
Investment expense........................................................................ 101,572
----------
Net investment income..................................................................... $2,876,744
----------
----------
</TABLE>
Proceeds from sales of securities available for sale during 1997 were
$10,142,000. Gross gains of $45,000 were realized on the sales during 1997.
Gross losses of $41,000 were realized on sales during 1997.
As of December 31, 1997, $2,526,000, $100,000, $210,000 and $157,000 of
securities available for sale were on deposit with the insurance departments of
the States of Florida, Louisiana, Arkansas and South Carolina respectively, as
required by state insurance regulations.
3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for unpaid losses and loss adjustment expenses
for the year ended December 31, 1997 is summarized as follows:
<TABLE>
<S> <C>
Balance at January 1..................................................................... $ 5,313,000
Less reinsurance recoverable........................................................... 665,000
-----------
Net balance at January 1................................................................. 4,648,000
-----------
Incurred related to:
Current year........................................................................... 17,460,000
Prior years............................................................................ (304,000)
-----------
Total incurred........................................................................... 17,156,000
-----------
Paid related to:
Current year........................................................................... 2,807,000
Prior years............................................................................ 1,353,000
-----------
Total paid............................................................................... 4,160,000
-----------
Net balance at December 31............................................................... 17,644,000
Plus reinsurance recoverable........................................................... 2,813,000
-----------
Balance at December 31................................................................... $20,457,000
-----------
-----------
</TABLE>
F-43
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES--(CONTINUED)
As a result of changes in estimates of insured events in prior years,
losses and loss adjustment expenses incurred decreased by $304,000 in 1997
primarily because of favorable development in the fidelity and surety business.
4. INCOME TAXES
The components of the provision for income taxes for the year ended
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current income taxes:
Federal................................................................................. $1,024,100
State................................................................................... 95,581
----------
Total..................................................................................... 1,119,681
Deferred income tax benefit............................................................... (307,223)
----------
Total..................................................................................... $ 812,458
----------
----------
</TABLE>
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes; and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Companies net deferred tax asset as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred tax asset:
Difference between accounting and tax basis of unearned premiums........................ $1,325,406
Difference between accounting and tax basis of loss reserves............................ 991,004
----------
Total deferred tax asset.................................................................. 2,316,410
----------
Deferred tax liability:
Deferred policy acquisition costs....................................................... 1,788,289
Write-up of securities available for sale................................................. 40,131
----------
Total deferred tax liability.............................................................. 1,828,420
----------
Net deferred tax asset.................................................................... $ 487,990
----------
----------
</TABLE>
Although realization is not assured, management believes it is more likely
than not that all of the deferred tax asset will be realized based on the
assumption that the historical levels of income will be achieved.
F-44
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
5. REINSURANCE
Surety Bond Surplus Share Reinsurance
In May 1994, Preferred entered into a surety bond surplus reinsurance
agreement with Winterthur Reinsurance Corporation of America under which
Preferred retains all bonds for $99,999 or less. For bonds greater than $100,000
but not more than $3,000,000, Preferred retains the pro rata share as defined
below and cedes the remainder to the reinsurer as follows:
<TABLE>
<CAPTION>
COMPANY REINSURER'S
BOND AMOUNT RETENTION PARTICIPATION
- ------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
$0-$99,999..................................................................... 100% 0%
$100,000-$199,999.............................................................. 90% 10%
$200,000-$299,999.............................................................. 75% 25%
$300,000-$399,999.............................................................. 65% 35%
$400,000-$499,999.............................................................. 55% 45%
$500,000-$1,000,000............................................................ 40% 60%
$1,000,001-$1,500,000.......................................................... 35% 65%
$1,500,001-$3,000,000.......................................................... 30% 70%
</TABLE>
Preferred receives a 40% flat ceding commission with a contingent
commission of 25% of the net profit, if any, generated during each accounting
period beginning May 1, 1994 through December 31, 1994, and the twelve-month
period beginning each January 1st thereafter. Prior to the agreement described
above, Preferred ceded large contract surety bonds on a facultative basis.
Commercial Liability Excess of Loss
Preferred entered into a commercial liability excess of loss reinsurance
agreement effective January1, 1996 with General Reinsurance Corporation. This
treaty covers commercial multi-peril, medical malpractice, and other liability
business written by Preferred. The policy provides for two levels of coverage as
follows: Limit of $250,000 per occurrence in excess of $250,000 per occurrence
(First Excess); and a limit of $500,000 per occurrence in excess of $500,000 per
occurrence (Second Excess).
Rate as percentages of written premiums are as follows:
<TABLE>
<CAPTION>
FIRST SECOND
LINE OF BUSINESS EXCESS EXCESS
- ------------------------------------------------------------------------- --------------- -------------
<S> <C> <C>
Professional Liability (Non-medical)..................................... 11.63% 8.17%
Dental Professional...................................................... 5.33% 4.69%
Liquor Liability......................................................... 5.16% 1.46%
General Liability........................................................ 4.19% 3.03%
</TABLE>
Preferred receives a contingent commission on the first excess layer of 50%
of the net profit (as defined in the agreement) with a three-year rating period.
The first rating period is from January 1, 1996 to December 31, 1998 with annual
interim adjustments to be made.
Property Per Risk Excess of Loss
Effective May 1, 1996, Preferred entered into a property per risk excess of
loss agreement with General Reinsurance Corporation which provides for two
layers of coverage. The first layer has limits of $500,000 per risk in excess of
$500,000 per risk subject to an occurrence limitation of $1,500,000. The second
layer has limits of $1,000,000 per risk in excess of $1,000,000 per risk subject
to an occurrence limitation of $2,000,000. The first layer requires ceded
premiums of 2.75% of Preferred's subject premium earned. The second layer
requires
F-45
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
5. REINSURANCE--(CONTINUED)
ceded premiums of 1.50% of Preferred's subject premium earned. Effective January
1, 1997, the first layer rate was adjusted to 2.0% of Preferred's subject
premium earned.
Property Catastrophe Excess of Loss
Effective May 1, 1996, Preferred and an insurance company affiliated
through common ownership entered into a property catastrophe excess of loss
agreement with third-party reinsurers. The first layer has limits of 95% of
$5,000,000 ultimate net loss, each loss event in excess of $5,000,000. The
second layer has limits of 95% of $10,000,000 ultimate net loss, each loss event
in excess of $10,000,000. The minimum premium and deposit premiums for the first
layer are $400,720 and $534,300, respectively, adjustable at 5.084% of net
written premium. The minimum and deposit premiums for the second layer are
$445,260 and $593,700, respectively, adjustable at 5.649% of net written
premium. Payment of the deposit premium has been allocated between Preferred and
the affiliated insurance company based upon the pro rata portion of premiums
written by each company. This agreement expired on April 30, 1997.
Effective May 1, 1997, Preferred entered into a property catastrophe excess
of loss agreement with third party reinsurers. The first and second layers have
limits identical to those in the treaty effective May 1, 1996 which expired
April 30, 1997. The minimum and deposit premium for the first layer are $484,500
and $646,000, respectively, adjustable at 4.472% of net written premium. The
minimum and deposit premiums for the second layer are $534,375 and $712,500,
respectively, adjustable at 4.933% of net written premium. The third layer has
limits of 95% of $10,000,000 ultimate net loss, each loss event in excess of
$20,000,000. The minimum and deposit premiums are $320,625 and $427,500,
respectively, adjustable at 2.96% of net written premium.
Facultative Reinsurance--Preferred cedes property and liability business to
various reinsurers on a facultative basis.
The effects of reinsurance on unpaid losses and loss adjustment expenses,
premiums written, premiums earned, and unearned premiums at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
UNPAID LOSSES
AND LOSS
ADJUSTMENT PREMIUMS PREMIUMS UNEARNED
DECEMBER 31, 1997 EXPENSES WRITTEN EARNED PREMIUMS
- ------------------------------------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Direct.................................... $20,457,000 $46,133,000 $32,682,000 $19,906,000
Ceded..................................... (2,813,000) (5,684,000) (4,104,000) (2,295,000)
------------- ----------- ----------- -----------
Total..................................... $17,644,000 $40,449,000 $28,578,000 $17,611,000
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
In the event that all or any of the reinsuring companies might be unable to
meet their obligations under existing reinsurance agreements, Preferred would be
liable for such defaulted amounts. Estimated amounts recoverable from reinsurers
deducted from the reserve for losses and loss adjustment expenses was
approximately $2,813,000 for 1997. Amounts deducted from unearned premiums for
ceded premiums was $2,295,000 as of December 31, 1997. Amounts for ceded
incurred losses and loss adjustment expenses of $2,918,000 were deducted from
incurred losses for 1997.
6. REGULATORY MATTERS
Preferred is subject to comprehensive supervision and regulation by the
Florida Department of Insurance.
Florida insurance regulations require Preferred to maintain not less than
the greater of unimpaired paid-in surplus of $2,100,000 or 10% of total
liabilities as of December 31, 1997. Preferred is restricted by Florida
insurance statutes as to the amount of dividends which can be paid. Dividends
can only be paid out of available
F-46
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
6. REGULATORY MATTERS--(CONTINUED)
and accumulated surplus funds which are derived from realized net operating
profits and net realized capital gains. Dividend payments are limited to 10% of
such surplus in any one year. In addition, an insurance company may make
dividend payments out of the entire net operating profits and realized net
capital gains derived during the immediate preceding calendar year. During 1997,
no dividends were paid.
During 1995, Preferred underwent an examination for the three-year period
ended December31, 1994, conducted by the Florida Department of Insurance. A
final report, dated February 2, 1996, has been received by Preferred and did not
indicate any material instances of noncompliance or adjustments to surplus as
regards policyholders.
The following schedule reconciles statutory net income and surplus of
Preferred as reported in the 1997 annual statement filed with the Florida
Department of Insurance, prepared on the basis of statutory accounting
principles (SAP) to Preferreds net income and stockholders' equity under
generally accepted accounting principles (GAAP) at December 31, 1997:
<TABLE>
<CAPTION>
NET INCOME
(LOSS) SURPLUS
----------- -----------
<S> <C> <C>
Balance per statutory accounting practices................................ $(2,464,172) $26,751,558
Write-up of securities available for sale................................. 107,016
Deferred policy acquisition costs......................................... 3,620,226 4,752,294
Deferred income taxes..................................................... 307,223 487,990
Elimination of provision for reinsurance.................................. 8,600
Non-admitted assets....................................................... 426,418
----------- -----------
Balance per generally accepted accounting principles...................... $ 1,463,277 $32,533,876
----------- -----------
----------- -----------
</TABLE>
7. STOCKHOLDERS' EQUITY
The components of combined stockholders' equity as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON CAPITAL STOCK GAINS ON
------------------------------------- ADDITIONAL SECURITIES
SHARES SHARES PAID-IN RETAINED AVAILABLE FOR
AUTHORIZED ISSUED AMOUNT CAPITAL EARNINGS SALE--NET
---------- --------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Preferred National Insurance
Company
$1 par value.............. 5,000,000 3,500,000 $3,500,000 $23,041,334 $5,925,657 $ 66,885
Wycon Corporation
$1 par value.............. 500,000 1,000 1,000
Americlaim Adjustment Corp.
$1 par value.............. 1,000 150 150 50,000 (46,933)
United American Financial
Services Corporation
$.10 par value............ 10,000 100 10 69,017
--------- ---------- ----------- ---------- --------------
3,501,250 $3,501,160 $23,160,351 $5,878,724 $ 66,885
--------- ---------- ----------- ---------- --------------
--------- ---------- ----------- ---------- --------------
</TABLE>
During 1997, PNFC contributed capital in the form of cash in the amount of
$3,500,000 to PNIC.
F-47
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO UNAUDITED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, 1997
8. SUBSEQUENT EVENT
PFNC, Wycon, Americlaim and Unamark executed a Stock and Asset Purchase and
Sale Agreement (the 'Agreement') dated March 6, 1998. The Agreement stipulates
that:
(1) PNFC will sell all of the stock of Preferred National Insurance
Company to Front Royal, Inc. or one or more of its affiliates, and
(2) Wycon, Unamark and Americlaim will sell certain fixed and
intangible assets, specifically their furniture, fixtures and
equipment and their customer lists, renewal rights and other
intangible assets, to Front Royal, Inc. or one or more of its
affiliates, and
(3) Wycon, Americlaim and Unamark will assign certain liabilities to
Front Royal, Inc. or one or more of its affiliates.
The Agreement is subject to regulatory approval from the Florida Department
of Insurance.
9. COMMITMENTS
The Companies are lessees under operating leases for office space and
equipment. As of December 31, 1997, the approximate future minimum annual lease
payments with initial or remaining terms of more than one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
---------------------------------------------------------------------- ----------
<S> <C>
1998.................................................................. $ 434,136
1999.................................................................. 407,458
2000.................................................................. 322,191
2001.................................................................. 6,130
----------
Total................................................................. $1,169,915
----------
----------
</TABLE>
Total rent expense for the year ended December 31, 1997 was approximately
$410,000.
* * * * * *
F-48
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash on hand and on deposit........................................................................ $ 3,872,822
Securities available for sale...................................................................... 61,094,347
Accounts and agents balances receivable............................................................ 2,285,870
Reinsurance recoverable............................................................................ 3,937,971
Deferred acquisition costs......................................................................... 4,489,067
Prepaid insurance premiums......................................................................... 2,312,145
Accrued investment income.......................................................................... 427,280
Receivable from affiliates......................................................................... 22,124
Deferred tax asset................................................................................. 766,753
Cash surrender value of life insurance............................................................. 870,033
Due from stockholders.............................................................................. 25,000
Other assets, net................................................................................ 93,913
-----------
Total......................................................................................... $80,197,325
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses............................................................................................. $19,111,760
Loss adjustment expenses........................................................................... 5,885,725
Other liabilities.................................................................................. 998,650
Income taxes payable............................................................................... 664,573
Unearned premiums.................................................................................. 19,566,288
Note payable to affiliate.......................................................................... 500,000
-----------
Total liabilities............................................................................. 46,726,996
-----------
Common capital stock............................................................................... 3,501,160
Additional paid-in capital......................................................................... 23,160,351
Retained earnings.................................................................................. 6,725,096
Net unrealized gains on securities available for sale (net of tax provision of $50,233)............ 83,722
-----------
Total stockholders' equity.................................................................... 33,470,329
-----------
Total......................................................................................... $80,197,325
-----------
-----------
</TABLE>
See notes to combined unaudited financial statements.
F-49
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Revenues:
Premiums................................................................................ $8,938,127
Fees and commissions.................................................................... 448,511
Net investment income................................................................... 963,956
Realized capital gains and losses....................................................... 40,220
Other income............................................................................ 4,764
----------
Total revenues....................................................................... 10,395,578
----------
Expenses:
Losses.................................................................................. 4,141,410
Loss expenses incurred.................................................................. 1,233,653
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs.................................... 2,106,070
Salaries and employee benefits....................................................... 961,076
Other................................................................................ 832,962
----------
Total expenses..................................................................... 9,275,171
----------
Earnings before provision for income taxes................................................ 1,120,407
Provision for income taxes................................................................ 274,035
----------
Net income................................................................................ $ 846,372
----------
----------
Basic earnings per share.................................................................. $ 0.24
----------
----------
Weighted average shares outstanding....................................................... 3,501,250
</TABLE>
See notes to combined unaudited financial statements.
F-50
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE-MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS
COMMON ADDITIONAL ON AVAILABLE
CAPITAL PAID-IN RETAINED FOR SALE
STOCK CAPITAL EARNINGS SECURITIES TOTAL
---------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997............. $3,501,160 $23,160,351 $5,878,724 $ 66,885 $32,607,120
Net income........................... 846,372 846,372
Net unrealized gains on securities
available for sale, net of tax
provision of $10,102.............. 16,837 16,837
---------- ----------- ---------- -------------- -----------
Balance, March 31, 1998................ $3,501,160 $23,160,351 $6,725,096 $ 83,722 $33,470,329
---------- ----------- ---------- -------------- -----------
---------- ----------- ---------- -------------- -----------
</TABLE>
See notes to combined unaudited financial statements.
F-51
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
THREE-MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................................... $ 846,372
-------------
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premiums/discounts on bonds............................................. 48,612
Net realized capital gain................................................................... (40,220)
Deferred income tax benefit................................................................. (288,865)
Increase in accrued interest receivable..................................................... (112,535)
Decrease in deferred acquisition costs...................................................... 263,227
Decrease in accounts and agents balances receivable......................................... 683,762
Increase in other assets and receivable from affiliates..................................... (1,239)
Increase in prepaid insurance premiums...................................................... (17,459)
Increase in reinsurance recoverable on paid losses.......................................... (819,011)
Increase in losses and loss adjustment expenses............................................. 4,539,903
Decrease in unearned premiums............................................................... (339,421)
Decrease in income taxes payable............................................................ (518,968)
Decrease in other liabilities............................................................... (25,260)
-------------
Total adjustments...................................................................... 3,372,526
-------------
Net cash provided by operating activities.............................................. 4,218,898
-------------
Cash flows from investing activities:
Purchases of available for sale securities..................................................... (22,702,374)
Proceeds from maturities and sales of available for sale securities............................ 19,742,042
Advances to stockholders....................................................................... (25,000)
-------------
Net cash used in investing activities.................................................. (2,985,332)
-------------
Cash flows from financing activities:
S Corporation distributions to stockholders.................................................... (2,244,062)
Issuance of note payable to affiliate.......................................................... 500,000
-------------
Net cash used in financing activities.................................................. (1,744,062)
-------------
Net increase in cash............................................................................. (510,496)
Cash, beginning of period........................................................................ 4,383,318
-------------
Cash, end of period.............................................................................. $ 3,872,822
-------------
-------------
</TABLE>
See notes to combined unaudited financial statements.
F-52
<PAGE>
PREFERRED NATIONAL INSURANCE COMPANY AND AFFILIATES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
THREE-MONTH PERIOD ENDED MARCH 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations and cash flows of Preferred National Insurance
Company ('Preferred'), Wycon Corporation ('Wycon'), Americlaim Adjustment Corp.
('Americlaim') and United American Financial Services Corporation ('Unamark')
(the 'Companies'). The Companies are affiliated through ultimate common
ownership and management. All significant intercompany balances and transactions
are eliminated in combination.
Preferred, a wholly-owned subsidiary of Preferred National Financial Corp.
('PNFC'), is a property and casualty insurance company and files its annual
report with the Insurance Department of the State of Florida. Prior to 1996, the
Company principally underwrote fidelity bonds and surety bonds. In 1996, the
Company began underwriting special multi-peril, professional liability and other
liability insurance. Preferred was incorporated in 1988 and obtained a license
to write specified coverages in the State of Florida on March 10, 1989.
Underwriting activities began in October 1989.
Wycon is an underwriting manager for Preferred and Britamco Underwriters,
Inc. ('Britamco'). Britamco is a property and casualty insurance company owned
by PNFC. Wycon's duties as underwriting manager include providing all of the
underwriting and administrative services necessary to operate Preferred and
Britamco. Wycon is also a general agent providing underwriting and
administrative services for an independent insurance company. Americlaim
provides claims adjustment services to Preferred and Britamco. Unamark is a
captive general agency that solicits insurance accounts to be written by
Preferred.
The combined financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the 'Commission') for interim financial information. As such, the
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and they should be read in conjunction with the financial statements
and related footnotes included in the Companies' combined financial statements
for the year ended December 31, 1997.
The combined financial statements are unaudited but, in the opinion of
management, contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the combined balance sheet of the
Companies as of March 31, 1998, the combined statement of operations of the
Companies for the three-month period ended March 31, 1998, and the combined
statement of cash flows for the three-month period ended March 31, 1998.
Operating results for the three-month period ended March 31, 1998 are not
necessarily indicative of the results for the full fiscal year.
2. NOTE PAYABLE TO AFFILIATE
On January 27, 1998, Wycon executed a note payable to PNFC for $500,000.
The note bears interest at 6% per annum, is unsecured, and due on demand.
3. NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ('SFAS') No. 130, Reporting Comprehensive Income,
which requires the presentation of total nonowner changes in equity for all
periods displayed. The Companies hold securities which are accounted for under
SFAS No. 115 as available-for-sale. The unrealized gains and losses on these
securities are treated as a component of comprehensive income under SFAS No.
130. The Companies have no other transactions that affect comprehensive income
for the three-month period ended March 31, 1998. The following is a
reconciliation of the Companies' net income and comprehensive income for the
three-month period ended March 31, 1998.
<TABLE>
<S> <C>
Net income.................................................................................. $846,372
Unrealized gain on securities, net of tax................................................... 16,837
--------
Comprehensive income........................................................................ $863,209
--------
--------
</TABLE>
F-53
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Rockwood Casualty Insurance Company and Subsidiaries
We have audited the accompanying consolidated statements of operations and cash
flows of Rockwood Casualty Insurance Company and Subsidiaries for the year ended
December 31, 1996. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
statements of operations and cash flows based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of operations and cash flows are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of operations and cash
flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statements of operations and cash flows presentation. We believe that our audit
of the statements of operations and cash flows provides a reasonable basis for
our opinion.
In our opinion, the statements of operations and cash flows referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Rockwood Casualty Insurance Company and Subsidiaries for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Richmond, Virginia
September 3, 1997
F-54
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Revenues:
Net premiums earned....................................................................... $ 52,485
Net investment income..................................................................... 10,286
Net realized gains on investments......................................................... 54
Other income.............................................................................. 16
----------
Total revenues.................................................................... 62,841
----------
Losses and expenses:
Net losses and loss adjustment expenses................................................... 15,153
Policy acquisition costs amortized........................................................ 12,149
Other underwriting expenses............................................................... 1,629
Dividends to policyholders................................................................ 6,327
----------
Total losses and expenses......................................................... 35,258
----------
Income before federal income taxes.......................................................... 27,583
Federal income tax expense/(benefit):
Current................................................................................... 9,647
Deferred.................................................................................. (3,690)
----------
Net income.................................................................................. $ 21,626
----------
----------
</TABLE>
See accompanying notes.
F-55
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Operating activities:
Net income................................................................................ $ 21,626
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of policy acquisition costs............................................... 12,149
Policy acquisition costs deferred...................................................... (12,612)
Net realized gains on sale of investments.............................................. (54)
Provision for depreciation and amortization............................................ 115
Deferred income taxes.................................................................. (3,690)
Change in operating assets and liabilities:
Unearned premiums.................................................................... 4,746
Reserve for losses and loss adjustment expenses...................................... (4,449)
Reinsurance recoverable and payable.................................................. (6,636)
Policyholder dividends............................................................... 1,810
Premiums receivable.................................................................. (770)
Other................................................................................ 101
----------
Net cash provided by operating activities................................................... 12,336
----------
Investing activities:
Securities available-for-sale:
Purchases--fixed maturities and equities............................................... (17,997)
Sales--fixed maturities and equities................................................... 23,704
Securities held to maturity:
Purchases--fixed maturities............................................................ (39,086)
Maturities and calls of fixed securities............................................... 32,712
Net sales of short-term investments....................................................... 2,195
Note receivable........................................................................... (2,500)
Other..................................................................................... (120)
----------
Net cash used in investing activities....................................................... (1,092)
----------
Financing activities:
Dividend paid to parent................................................................... (8,500)
----------
Net cash used in financing activities....................................................... (8,500)
----------
Increase in cash............................................................................ 2,744
Cash at beginning of year................................................................... 1,745
----------
Cash at end of year......................................................................... $ 4,489
----------
----------
</TABLE>
See accompanying notes.
F-56
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated statements of operations and cash flows have
been prepared in conformity with generally accepted accounting principles
('GAAP') which vary in some respects from statutory accounting practices
prescribed or permitted by regulatory authorities.
Consolidation
The accompanying consolidated statements of operations and cash flows
include the accounts and operations of Rockwood Casualty Insurance Company and
its wholly-owned subsidiaries, Mid State Insurance Underwriters, Inc.,
Comprehensive Casualty Services, Inc. and Coal Operators Indemnity Company,
collectively referred to as the 'Company.'
Significant intercompany accounts and transactions have been eliminated.
The preparation of statements of operations and cash flows of insurance
companies requires management to make estimates and assumptions that affect
amounts reported in the statements of operations and cash flows and accompanying
notes. Such estimates and assumptions may be subject to change in the future as
more information becomes known which could impact the amounts reported and
disclosed herein.
Business Operations and Organization
The Company is a wholly-owned subsidiary of Front Royal, Inc. ('FRINC') who
acquired the Company on December 31, 1996. On January 1, 1996, the Company was a
wholly-owned subsidiary of Physicians Insurance Company ('PIC') and Tri-Rock
Limited Partnership ('TRI-Rock'). PIC and Tri-Rock acquired ownership effective
June 30, 1994. Prior to the acquisition by PIC and Tri-Rock, the Company was
owned by Rockwood Insurance Company ('RIC').
Rockwood Casualty Insurance Company is a Pennsylvania-domiciled insurer
which provides commercial property and casualty insurance primarily in
Pennsylvania and Maryland. The Company specializes in underwriting workers'
compensation coverage for both underground and surface coal mining operations
and other commercial risks.
The Company's subsidiaries are primarily in the business of providing
various insurance services to third parties. In aggregate, these subsidiaries
provide less than 1% of consolidated revenues and expenses.
Approximately $14,900,000 of the Company's gross written premiums were
derived from two agents for the year ended December 31, 1996. The loss of either
of these agents could have a material adverse effect on the Company.
Investments
The amortized cost of fixed maturity investments is adjusted for
amortization of premiums and accretion of discounts. That amortization or
accretion is included in investment income.
Income for mortgage-backed bonds is recognized using a constant effective
yield based on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments, the estimated economic life is recalculated and the remaining
unamortized premium or discount is amortized prospectively over the remaining
economic life.
Realized gains and losses on sales of investments, and declines in value
considered to be other-than-temporary, are recognized in operations on the
specific identification basis for debt securities and on the first-in, first-out
basis for equity securities.
F-57
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
Property and Equipment
Property and equipment is depreciated principally using the straight line
method over the estimated useful lives of the respective assets. Depreciation
expense was $103,000 in 1996.
Premiums
Premiums are earned on a pro rata basis over the terms of the policies,
generally twelve months. That portion of premiums written applicable to the
unexpired terms of the policies in force is recorded as unearned premium.
Workers' compensation premiums based on payroll reporting are recorded as
written when payroll reports are received from the insured or are estimated if
reports have not been received.
Workers' compensation premiums on policies with deferred installment
payment plans are recorded as written when individual installments are billed.
Accrued retrospectively rated premiums have been determined based upon
estimated ultimate loss experience on individual policyholder accounts.
Participating Policies
Participating business written by the Company represents approximately 30%
of the total premiums in force and premium income for the year ended December
31, 1996. The participating business is composed of workers' compensation
policies. The amount of dividends to be paid on these policies is determined
based on the terms of the individual policies.
Deferred Policy Acquisition Costs
Acquisition costs, consisting principally of agents' commissions, certain
operating expenses and premium taxes, are deferred and amortized over the period
in which the related premiums are earned, generally twelve months. Commission
related to insurance risks ceded to other insurance companies are recorded as a
reduction to deferred policy acquisition costs.
Reserve for Losses and Loss Adjustment Expenses
Loss and loss adjustment expense reserves represent the estimated ultimate
net cost of all reported and unreported losses incurred through December 31. The
Company discounts loss and loss adjustment expense reserves related to workers'
compensation coverages for both GAAP and statutory reporting purposes at 4%. The
Company does not discount reserves related to other lines of business. The
reserves for unpaid losses and loss adjustment expenses are estimated using
individual case-basis valuations and statistical analyses. Those estimates are
subject to the effects of trends in loss severity and frequency. Although
considerable variability is inherent in such estimates, management believes that
the reserves for losses and loss adjustment expenses are adequate. These
estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations.
Reinsurance
The Company assumes and cedes reinsurance to allow management to control
exposure to potential losses arising form large risks, to provide additional
capacity for growth and to provide for greater diversification of business. This
reinsurance is effected primarily under excess of loss and quota-share
reinsurance contracts.
F-58
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
Reinsurance premiums, commissions, and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Expense reimbursements received in connection with reinsurance ceded have been
accounted for as reductions of the related policy acquisition costs.
Accrued retrospectively rated reinsurance premiums have been determined
based upon estimated ultimate loss experience on business subject to such
experience rating adjustments.
2. INVESTMENTS
Major categories of the Company's investment income are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Fixed maturity securities............................................... $ 9,727
Short-term investments.................................................. 489
Equity securities....................................................... 179
Other................................................................... 25
----------
Gross investment income............................................... 10,420
Investment expenses..................................................... (134)
----------
Net investment income................................................. $10,286
----------
----------
</TABLE>
The Company's realized gains and losses on available-for-sale investments
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Fixed maturity securities:
Gross realized gains.................................................. $ 76
Gross realized losses................................................. (23)
----------
Net gains.......................................................... 53
Equity securities:
Gross realized gains.................................................. 26
Gross realized losses................................................. (25)
----------
Net gains.......................................................... 1
----------
Net realized gains................................................. $ 54
----------
----------
</TABLE>
F-59
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
3. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of the beginning and ending
reserve balances for loss and loss adjustment expenses ('LAE'),
net-of-reinsurance, for 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Reserve for losses and LAE, net of related reinsurance recoverables, at beginning
of year......................................................................... $120,934
Add:
Provision for losses and LAE for claims occurring in the current year, net of
reinsurance.................................................................. 37,279
Decrease in incurred losses and LAE for claims occurring in prior years, net of
reinsurance.................................................................. (23,755)
-----------
Incurred losses and LAE during the current year, net of reinsurance and gross of
discount..................................................................... 13,524
Provision for discount on current accident year reserves........................ (3,169)
Amortization of discount on prior accident years reserves....................... 4,798
-----------
Incurred losses and LAE during the current year, net of reinsurance and net
of discount................................................................. 15,153
-----------
Deduct:
Losses and LAE payments for claims, net of reinsurance, occurring during:
Current year................................................................. (5,789)
Prior years.................................................................. (16,850)
-----------
Net claim payments during the year........................................... (22,639)
-----------
Reserve for losses and LAE, net of related reinsurance recoverables, at end of
year............................................................................ 113,448
Add:
Reinsurance recoverables on unpaid losses and LAE, at end of year............... 14,356
-----------
Reserve for losses and LAE, gross of reinsurance recoverables on unpaid loses and
LAE, at end of year............................................................. $127,804
-----------
-----------
</TABLE>
The foregoing reconciliation shows that a $23,755,000 redundancy in the
1995 and prior year reserves emerged in 1996. This redundancy is primarily a
result of lower than expected costs of settling claims which were open at the
end of 1995 and lower than expected per claim costs for incurred but unreported
claims at December 31, 1995. The Company attributes the lower costs primarily to
the effects of Pennsylvania Act 44 ('Act 44') which was enacted in September
1993. While the Act was expected to result in the lowering of medical costs to
workers' compensation carriers, the full effect on the Company's medical costs
could not be determined with precision until sufficient experience had emerged
to provide a basis for such determination. The Company revised its estimates of
the ultimate net cost of all reported and unreported losses incurred through
December 31, 1995 by mid 1996, after accumulating ten quarters of loss
experience following the passage of Act 44. The Company's 1996 provision for
loss and loss adjustment expenses occurring in the current year also reflects
the Company's assessment of the effects of Act 44 on the medical cost component
of workers' compensation claims based on actual loss data through December 31,
1996.
F-60
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
4. REINSURANCE
The Company remains liable to its policyholders if its reinsurers are
unable to meet their contractual obligations under applicable reinsurance
agreements. To minimize exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurers.
Net written premiums are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Direct premiums................................................................ $ 68,212
Assumed premiums............................................................... 1,186
Ceded premiums................................................................. (15,153)
-----------
Net premiums written...................................................... $ 54,245
-----------
-----------
</TABLE>
Net premiums earned are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Direct premiums................................................................ $ 63,609
Assumed premiums............................................................... 1,044
Ceded premiums................................................................. (12,168)
-----------
Net premiums earned....................................................... $ 52,485
-----------
-----------
</TABLE>
Losses and LAE are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Direct losses and LAE.......................................................... $ 20,411
Assumed losses and LAE......................................................... 763
Ceded losses and LAE........................................................... (6,021)
-----------
Net losses and LAE........................................................ $ 15,153
-----------
-----------
</TABLE>
F-61
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
5. INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries. The Company's effective income tax rate on pre-tax income is lower
than the prevailing corporate federal income tax rate and is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Income tax expense at 35%........................... $9,654
Change in valuation allowance on deferred tax
assets............................................ (3,675)
Other............................................... (22)
-------
Income tax expense................................ $5,957
-------
-------
</TABLE>
The Company paid $9,300,000 of federal income taxes in 1996.
6. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined benefit pension plan covering substantially
all full-time employees. The plan invests in a combination of bonds, common
stocks and mutual funds. Benefits under the plan are based on years of service
and average compensation during the participant's highest three consecutive
calendar years. The funding policy is to make contributions to the plan annually
in amounts at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974 and deductible for federal income tax
purposes. Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future. The
Company intends to terminate the plan during 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1996
(DOLLARS IN THOUSANDS)
<S> <C>
Pension Cost:
Service cost--benefit earned during current year.... $117
Interest cost on projected benefit obligation....... 115
Expected return on plan assets...................... (132)
Amortization of transition obligation............... 10
------
Net periodic pension cost........................... $110
------
------
Expected long-term rate of return on assets......... 8.0%
Rates of increase in compensation levels............ 4.5%
</TABLE>
The 401(k) Profit Sharing Trust, established in 1984, is available to
substantially all full-time employees of Rockwood Casualty. The Company does not
match employee contributions and did not make any discretionary contributions in
1996.
7. RELATED PARTIES
Premier Auto Insurance Company ('Premier') is a property and casualty
insurance company formed during 1996 as a wholly-owned subsidiary of the
Company, with an initial capitalization of $3,500,000. As outlined in Note 10,
Premier was sold on December 31, 1996.
During 1996 the Company entered into quota share reinsurance agreements
with PIC and Premier related to private passenger automobile and workers'
compensation insurance. Under the private passenger automobile program, the
Company ceded 100% of the premium and losses written to Premier. Under the
workers'
F-62
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
7. RELATED PARTIES--(CONTINUED)
compensation program, the Company assumed 100% of the premium and losses on
policies written by PIC. The following is a summary of the activity under the
agreements during 1996:
<TABLE>
<CAPTION>
PRIVATE
WORKERS' PASSENGER
COMPENSATION AUTOMOBILE NET
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Written premium assumed/(ceded).............. $1,112 $ (9,543) $(8,431)
Earned premium assumed/(ceded)............... 964 (6,743) (5,779)
Incurred loss and ALAE assumed/(ceded)....... 484 (5,472) (4,988)
Commission assumed/(ceded)................... 128 (1,454) (1,326)
</TABLE>
See Note 10 regarding the disposition of these agreements.
8. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in legal actions arising primarily from
claims made under insurance policies. Those actions have been considered in
establishing the Company's reserve liabilities. Management and its legal counsel
are of the opinion that the settlement of these actions will not have a material
adverse effect on the Company.
Rockwood Insurance Company of Indiana ('RIND'), a company that merged into
Rockwood Casualty Insurance Company on December 31, 1990, issued certain medical
malpractice policies for claims occurring between January 1, 1978 and October 1,
1990. RIND reinsured these policies pursuant to a loss portfolio transfer
agreement with Covenant Mutual Insurance Company ('Covenant'). Covenant
subsequently went into liquidation and was unable to meet its obligation on the
reinsurance agreement. In May 1993, the Company's former parent, RIC, which went
into liquidation proceedings in 1991, established and funded a Liquidating Trust
('Trust') in accordance with an agreement approved by an order of the
Commonwealth Court of Pennsylvania, to service the medical malpractice claims
related to Covenant's default. Total assets in the Trust available to pay claims
and expenses at December 31, 1996 was $3,282,000. The Pennsylvania insurance
department currently manages the Trust and administers the claims.
As part of the Trust agreement, a certification of reserve liabilities is
prepared annually by an independent consulting actuary acceptable to both RIC
and the Company. The amount of actuarially determined liabilities related to
Covenant's default as of December 31, 1996 was $2,256,000. If the amount of
reserve liabilities on a discounted basis, times 115%, exceeds the amount in the
Trust Fund as of the date of the report, RIC shall pay to the Trustee, monies or
investment securities in the aggregate amount of the deficiency. Further, any
excess assets shall be returned to RIC.
The Company remains contingently liable for the medical malpractice claims
in the event that the Trust's assets, which consist primarily of investments in
short term U.S. Treasury obligations and cash equivalents, and future deficiency
funding by the former parent, if necessary, are not sufficient to fund the
ultimate liability. Management believes that there is minimal exposure relating
to this liability
9. STATUTORY MATTERS
The Company is required to periodically submit financial statements
prepared in accordance with statutory accounting practices to insurance
regulatory authorities. Statutory accounting practices differ from generally
accepted accounting principles. Net income determined in accordance with
statutory accounting practices reported to regulatory authorities for the year
ended December 31, 1996 was $18,981,000.
The net assets of the Company that are transferable to Front Royal, Inc.
are limited to the amounts by which statutory capital and surplus exceed minimum
statutory requirements and regulatory approval is required for any distribution
in a twelve month period, other than for dividends or other distributions which,
in the aggregate, do
F-63
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS--(CONTINUED)
9. STATUTORY MATTERS--(CONTINUED)
not exceed the greater of either (i) ten percent of the insurer's surplus to
policyholders as of the immediately preceding December 31 or (ii) net income,
excluding realized gains, of the prior year.
10. CHANGE IN OWNERSHIP
On December 31, 1996 all of the outstanding stock of the Company was sold
by PIC and Tri-Rock to FRINC. The sale of capital stock and related transactions
involving the Company were approved on December 30, 1996 by the Pennsylvania
Insurance Department.
In conjunction with the sale, the following transactions occurred on
December 31, 1996:
The Company received permission from the state regulatory authority
and transferred $8,500,000 to FRINC as a return of capital.
The Company sold all of the outstanding stock of its wholly-owned
subsidiary Premier for $3,500,000 to a company formed by certain former
owners of PIC. The Company received $1,000,000 in cash at closing and a
$2,500,000, 13% note due on December 31, 1997, secured by the stock of
Premier. The note was paid in full by July 1997. There was no gain or loss
on the sale.
Premier assumed all of the private passenger automobile insurance
previously written by the Company in Pennsylvania and West Virginia via an
assumption reinsurance treaty. Premier transferred $8,700,627 into an
escrow account held by the Company to collateralize outstanding ceded
losses and unearned premiums. The Company remains liable to the
policyholders if Premier is unable to meet its contractual obligations
under the reinsurance agreement.
The Company entered into a fifteen year lease agreement with an
affiliate of the Company's former owners for the property which houses all
of the Company's operations.
Following is a schedule of future minimum rental payments required
under the lease as of December 31, 1996.
<TABLE>
<S> <C>
1997........................................................ $ 78,000
1998........................................................ 78,000
1999........................................................ 78,000
2000........................................................ 86,000
2001........................................................ 86,000
Thereafter.................................................. 4,902,688
----------
Total.................................................. $5,308,688
----------
----------
</TABLE>
F-64
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Rockwood Casualty Insurance Company
Rockwood, Pennsylvania
We have audited the accompanying consolidated balance sheets of Rockwood
Casualty Insurance Company and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Rockwood Casualty
Insurance Company and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for investments by
adopting Statement of Financial Accounting Standards No. 115, 'Accounting for
Certain Investments in Debt and Equity Securities.'
/S/ Parente, Randolph, Orlando, Carey & Associates
PARENTE, RANDOLPH, ORLANDO, CAREY & ASSOCIATES
Wilkes-Barre, Pennsylvania
September 3, 1997
F-65
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities:
Available-for-sale at fair value (amortized cost: 1995, $19,354; 1994, $28,643)...... $ 20,018 $ 26,806
Held-to-maturity at amortized cost (fair value: 1995, $123,481; 1994, $80,940)....... 123,623 89,727
Equity securities at fair value (cost: 1995, $2,857; 1994, $9,622)...................... 3,258 8,628
Short-term investments.................................................................. 8,469 4,474
Other................................................................................... 345 375
-------- --------
Total investments.................................................................. 155,713 130,010
Cash...................................................................................... 1,745 1,585
Accrued investment income................................................................. 1,870 1,779
Reinsurance recoverable on unpaid loss and loss adjustment expenses....................... 11,320 8,988
Prepaid reinsurance premiums.............................................................. 880 1,334
Premiums receivable and agents' balances (less allowance for doubtful accounts of $50 at
December 31, 1995 and 1994, respectively)............................................... 14,149 12,356
Deferred policy acquisition costs......................................................... 2,894 2,491
Deferred federal income tax............................................................... 2,357 964
Other assets.............................................................................. 758 680
-------- --------
Total assets....................................................................... $191,686 $160,187
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses......................................... $132,254 $115,380
Unearned premiums....................................................................... 14,000 13,410
Accrued expenses........................................................................ 562 302
Reinsurance payable..................................................................... 1,308 771
Accrued policyholders' dividends........................................................ 4,530 3,729
Other liabilities....................................................................... 3,685 2,455
-------- --------
Total liabilities.................................................................. 156,339 136,047
-------- --------
Shareholders' equity:
Common Stock--Class A, no par value, 500,000 shares authorized, issued and
outstanding.......................................................................... 1,792 1,792
Common Stock--Class B, no par value, 572,961 shares authorized, issued and
outstanding.......................................................................... 2,053 2,053
-------- --------
3,845 3,845
Additional paid-in capital.............................................................. 1,000 --
Unrealized gains/(losses) on available-for-sale securities.............................. 703 (1,868)
Retained earnings....................................................................... 29,799 22,163
-------- --------
Total shareholders' equity......................................................... 35,347 24,140
-------- --------
Total liabilities and shareholders' equity......................................... $191,686 $160,187
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-66
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues:
Net premiums earned................................................................ $ 55,329 $ 52,617
Net investment income.............................................................. 9,324 8,344
Net realized losses on investments................................................. (466) (590)
Gain on termination of tax sharing agreement....................................... -- 2,652
Other income....................................................................... 193 28
---------- ----------
Total revenues................................................................ 64,380 63,051
---------- ----------
Losses and expenses:
Net losses and loss adjustment expenses............................................ 37,708 42,300
Policy acquisition costs amortized................................................. 12,647 11,282
Other underwriting expenses........................................................ 363 219
Dividends to policyholders......................................................... 5,026 3,816
---------- ----------
Total losses and expenses..................................................... 55,744 57,617
---------- ----------
Income before federal income taxes................................................... 8,636 5,434
Federal income tax expense/(benefit):
Current............................................................................ 2,718 1,629
Deferred........................................................................... (2,718) --
---------- ----------
Net income........................................................................... $ 8,636 $ 3,805
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-67
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
PAID-IN GAINS/ RETAINED SHAREHOLDERS'
CLASS A CLASS B CAPITAL (LOSSES) EARNINGS EQUITY
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993............... $ 2,000 $ -- $ 1,845 $ 457 $ 18,358 $22,660
Recapitalization of common stock.......... (208) 2,053 (1,845) -- -- --
Cumulative effect of a change in
accounting principle................... -- -- -- 1,218 -- 1,218
Net income................................ -- -- -- -- 3,805 3,805
Net unrealized losses..................... -- -- -- (3,543) -- (3,543)
------- ------- ---------- ---------- -------- -------------
Balances at December 31, 1994............... 1,792 2,053 -- (1,868) 22,163 24,140
Transfer to paid-in capital............... -- -- 1,000 -- (1,000) --
Net income................................ -- -- -- -- 8,636 8,636
Net unrealized gains...................... -- -- -- 2,571 -- 2,571
------- ------- ---------- ---------- -------- -------------
Balances at December 31, 1995............... $ 1,792 $ 2,053 $ 1,000 $ 703 $ 29,799 $35,347
------- ------- ---------- ---------- -------- -------------
------- ------- ---------- ---------- -------- -------------
</TABLE>
See accompanying notes.
F-68
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1995 1994
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income.......................................................................... $ 8,636 $ 3,805
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of policy acquisition costs......................................... 12,647 11,282
Policy acquisition costs deferred................................................ (13,050) (11,482)
Net realized losses on investments............................................... 466 590
Provision for depreciation and amortization...................................... 103 75
Deferred income taxes............................................................ (2,718) --
Change in operating assets and liabilities:
Unearned premiums........................................................... 590 1,219
Accrued investment income................................................... (91) (180)
Reserve for losses and loss adjustment expenses............................. 16,874 20,898
Reinsurance recoverable and payable......................................... (1,341) (812)
Policyholder dividends...................................................... 801 852
Premiums receivable......................................................... (1,792) (1,135)
Other liabilities........................................................... 1,580 (1,164)
------- -------
Net cash provided by operating activities............................................. 22,705 23,948
------- -------
Investing activities:
Securities available-for-sale:
Purchases--fixed maturities and equities......................................... (6,083) (7,159)
Sales--fixed maturities and equities............................................. 22,799 6,540
Securities held-to-maturity:
Purchases-fixed maturities....................................................... (74,637) (40,216)
Maturities and calls of fixed securities......................................... 39,614 20,576
Net purchases of short-term investments............................................. (3,995) (4,174)
Other............................................................................... (243) (155)
------- -------
Net cash used in investing activities................................................. (22,545) (24,588)
------- -------
Increase (decrease) in cash........................................................... 160 (640)
Cash at beginning of year............................................................. 1,585 2,225
------- -------
Cash at end of year................................................................... $ 1,745 $ 1,585
------- -------
------- -------
</TABLE>
See accompanying notes.
F-69
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ('GAAP') which vary in
some respects from statutory accounting practices prescribed or permitted by
regulatory authorities.
Consolidation
The accompanying consolidated financial statements include the accounts and
operations of Rockwood Casualty Insurance Company and its wholly-owned
subsidiaries Mid State Insurance Underwriters, Inc., Comprehensive Casualty
Services, Inc. and Coal Operators Indemnity Company, collectively referred to as
the 'Company.'
Significant intercompany accounts and transactions have been eliminated.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions may
be subject to change in the future as more information becomes known which could
impact the amounts reported and disclosed herein.
Business Operations and Organization
Effective June 30, 1994, the Company was acquired by Physicians Insurance
Company ('PIC') and Tri-Rock Limited Partnership ('Tri-Rock'). Prior to June 30,
1994, the Company was a wholly-owned subsidiary of Rockwood Insurance Company
('RIC').
Rockwood Casualty Insurance Company is a Pennsylvania-domiciled insurer
which provides commercial property and casualty insurance primarily in
Pennsylvania and Maryland. The Company specializes in underwriting workers'
compensation coverage for both underground and surface coal mining operations
and other commercial risks.
The Company's subsidiaries are primarily in the business of providing
various insurance services to third parties. In aggregate, these subsidiaries
provide less than 1% of consolidated revenues and expenses.
Approximately $14,600,000 and $13,300,000 of Rockwood's gross written
premiums were derived from two agents for the years ended December 31, 1995 and
1994, respectively. The loss of either of these agents could have a material
adverse effect on the Company.
Investments
The Company invests only in high quality investments. Management determines
the appropriate classification of its investments in fixed maturity securities
at the time of purchase. Fixed maturity securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
these securities to maturity. Fixed maturity securities not classified as
held-to-maturity and all equity securities are classified as available-for-sale.
The Company records the following for its portfolio:
The amortized cost of fixed maturity investments is adjusted for
amortization of premiums and accretion of discounts. That amortization or
accretion is included in investment income.
For the mortgage-backed bond portion of the fixed maturity securities
portfolio, the Company recognizes income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments,
F-70
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
the estimated economic life is recalculated and the remaining unamortized
premium or discount is amortized prospectively over the remaining economic
life.
Realized gains and losses on sales of investments, and declines in
value considered to be other-than-temporary, are recognized in operations
on the specific identification basis for debt securities and on the
first-in, first-out basis for equity securities.
For the held-to-maturity portion of its portfolio, the Company records
its securities at amortized cost.
For the available-for-sale portion of its portfolio, the Company
records its securities at fair value. Changes to this fair value are
recorded as unrealized gains or losses, directly in shareholders' equity,
net of related deferred income taxes, with no corresponding effect on net
income.
Short-term investments, primarily consisting of money-market mutual funds
are carried at cost, which approximates fair value.
Premiums
Premiums are earned on a pro rata basis over the terms of the policies,
generally twelve months. That portion of premiums written applicable to the
unexpired terms of the policies in force is recorded as unearned premium.
Workers' compensation premiums based on payroll reporting are recorded as
written when payroll reports are received from the insured or are estimated if
reports have not been received.
Workers' compensation premiums on policies with deferred installment
payment plans are recorded as written when individual installments are billed.
Accrued retrospectively rated premiums have been determined based upon
estimated ultimate loss experience on individual policyholder accounts.
Participating Policies
Participating business written by the Company represents approximately 28%
and 26% of the total premiums in force at December 31, 1995 and 1994,
respectively. The participating business is composed of workers' compensation
policies. The amount of dividends to be paid on these policies is determined
based on the terms of the individual policies.
Deferred Policy Acquisition Costs
Acquisition costs, consisting principally of agents' commissions, certain
operating expenses and premium taxes, are deferred and amortized over the period
in which the related premiums are earned, generally twelve months. Commission
related to insurance risks ceded to other insurance companies are recorded as a
reduction to deferred policy acquisition costs.
Reserve for Losses and Loss Adjustment Expense
Loss and loss adjustment expense reserves represent the estimated ultimate
net cost of all reported and unreported losses incurred through December 31. The
Company discounts loss and loss adjustment expense reserves related to workers'
compensation coverages for both GAAP and statutory reporting purposes at 4%. The
Company does not discount reserves related to other lines of business. The
reserves for unpaid losses and loss adjustment expenses are estimated using
individual case-base valuations and statistical analyses. Those estimates are
subject to the effects of trends in loss severity and frequency. Although
considerable variability is inherent in such estimates, management believes that
the reserves for losses and loss adjustment expenses are adequate.
F-71
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES--(CONTINUED)
These estimates are continually reviewed and adjusted as necessary as experience
develops or new information becomes known; such adjustments are included in
current operations.
REINSURANCE
The Company assumes and cedes reinsurance to allow management to control
exposure to potential losses arising from large risks, to provide additional
capacity for growth and to provide for greater diversification of business. This
reinsurance is effected primarily under excess of loss and quota-share
reinsurance contracts.
Reinsurance premiums, commissions, and expense reimbursements on reinsured
business are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Expense reimbursements received in connection with reinsurance ceded have been
accounted for as a reduction of the related policy acquisition costs. All
reinsurance receivables and prepaid reinsurance premiums are reported as assets.
Accrued retrospectively rated reinsurance premiums have been determined
based upon estimated ultimate loss experience on business subject to such
experience rating adjustments.
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the expected
future tax effects attributable to temporary differences between the financial
reporting and tax basis of assets and liabilities, based on enacted tax rates
and other provisions of tax laws.
F-72
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
The Company's investments, excluding short-term investments, mortgage
loans, and real estate, at December 31 of each year, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
Corporate bonds...................................... $ 7,986 $ 654 $ (2) $ 8,638
U.S. Government bonds................................ 1,499 170 -- 1,669
Mortgage-backed bonds................................ 9,869 105 (263) 9,711
--------- ---------- ---------- --------
Total fixed maturity securities................... 19,354 929 (265) 20,018
Equity securities.................................... 2,857 496 (95) 3,258
--------- ---------- ---------- --------
Total available-for-sale.......................... 22,211 1,425 (360) 23,276
--------- ---------- ---------- --------
Held-to-maturity:
Corporate bonds...................................... 24,258 284 (122) 24,420
U.S. Government bonds................................ 25,338 193 (7) 25,524
--------- ---------- ---------- --------
Mortgage-backed bonds................................ 48,330 279 (836) 47,773
State and municipal bonds............................ 25,697 183 (116) 25,764
--------- ---------- ---------- --------
Total held-to-maturity............................ 123,623 939 (1,081) 123,481
--------- ---------- ---------- --------
Total investments................................. $ 145,834 $2,364 $ (1,441) $146,757
--------- ---------- ---------- --------
--------- ---------- ---------- --------
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
Corporate bonds...................................... $ 13,214 $ 169 $ (258) $ 13,125
U.S. Government bonds................................ 5,500 69 (98) 5,471
Mortgage-backed bonds................................ 9,432 -- (1,670) 7,762
State and municipal bonds............................ 497 -- (49) 448
--------- ---------- ---------- --------
Total fixed maturity securities................... 28,643 238 (2,075) 26,806
Equity securities.................................... 9,622 306 (1,300) 8,628
--------- ---------- ---------- --------
Total available-for-sale.......................... 38,265 544 (3,375) 35,434
--------- ---------- ---------- --------
Held-to-maturity:
Corporate bonds...................................... 14,027 33 (974) 13,086
U.S. Government bonds................................ 17,193 38 (755) 16,476
Mortgage-backed bonds................................ 33,670 7 (4,447) 29,230
State and municipal bonds............................ 24,837 3 (2,692) 22,148
--------- ---------- ---------- --------
Total held-to-maturity............................ 89,727 81 (8,868) 80,940
--------- ---------- ---------- --------
Total investments................................. $ 127,992 $ 625 $(12,243) $116,374
--------- ---------- ---------- --------
--------- ---------- ---------- --------
</TABLE>
The fair values for fixed maturity securities are based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent brokers. The fair
values for equity securities are based on quoted market prices.
F-73
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS--(CONTINUED)
The amortized cost and estimated fair value of investments in fixed
maturities at December 31, 1995, are summarized by estimated maturity as
follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY TOTAL
-------------------- --------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Maturity:
Due in 1996............................. $ -- $ -- $ 7,693 $ 7,772 $ 7,693 $ 7,772
Due in 1997-2000........................ 6,003 6,506 21,826 22,084 27,829 28,590
Due in 2001-2005........................ 3,482 3,801 19,306 19,443 22,788 23,244
Due after 2005.......................... -- -- 26,468 26,409 26,468 26,409
--------- ------- --------- -------- --------- --------
9,485 10,307 75,293 75,708 84,778 86,015
Mortgage-backed securities................ 9,869 9,711 48,330 47,773 58,199 57,484
--------- ------- --------- -------- --------- --------
Total..................................... $19,354 $20,018 $ 123,623 $123,481 $ 142,977 $143,499
--------- ------- --------- -------- --------- --------
--------- ------- --------- -------- --------- --------
</TABLE>
The foregoing data is based on the estimated maturities of the securities.
Actual maturities may differ for some securities because borrowers have the
right to call or prepay obligations with or without penalties.
Major categories of the Company's investment income for the years ended
December 31, are summarized are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Fixed maturity securities............................................ $8,564 $7,225
Short-term investments............................................... 380 357
Equity securities.................................................... 455 818
Other................................................................ 27 45
------ ------
Gross investment income............................................ 9,426 8,445
Investment expense................................................... (102) (101)
------ ------
Net investment income.............................................. $9,324 $8,344
------ ------
------ ------
</TABLE>
At December 31, 1994 the Company permanently marked down to market a
held-to-maturity fixed income security and recorded a $615,000 realized capital
loss. In March 1995 the security matured, with payment based upon a combination
of foreign currencies, resulting in the Company reporting an additional $177,000
loss on the security.
F-74
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS--(CONTINUED)
The Company's realized gains and losses on investments are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Fixed maturity securities:
Gross realized gains......................................................... $ 133 $ 17
Gross realized losses........................................................ (27) --
------ ------
Net gains............................................................... 106 17
Equity securities:
Gross realized gains......................................................... 26 18
Gross realized losses........................................................ (421) (10)
------ ------
Net gains/(losses)...................................................... (395) 8
------ ------
Net realized gains/(losses).................................................. (289) 25
Loss on permanent impairment of investment................................... (177) (615)
------ ------
Net realized losses.......................................................... $ (466) $ (590)
------ ------
------ ------
</TABLE>
At December 31, 1995 and 1994, investments with market values of $572,000
and $529,000, respectively, were on deposit with state insurance departments to
satisfy regulatory requirements.
3. OTHER ASSETS
Other assets at December 31, are composed of the following:
<TABLE>
<CAPTION>
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Property and equipment........................................................... $ 607 $ 345
Less accumulated depreciation.................................................. (280) (188)
----- -----
Property and equipment, net...................................................... 327 157
Equity in officers' life insurance............................................... 232 227
Other............................................................................ 199 296
----- -----
Total..................................................................... $ 758 $ 680
----- -----
----- -----
</TABLE>
F-75
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company discounts reserves related to workers compensation business for
both statutory and GAAP financial reporting purposes. The discount rate at
December 31, 1995 and 1994 is 4%. Included in the reserve for unpaid losses at
December 31, 1995 and 1994 is $100,731,000 and $87,739,000, respectively,
related to workers' compensation coverages which are net of discounts of
$17,139,000 and $14,794,000, respectively.
The following table provides a reconciliation of the beginning and ending
reserve for losses and loss adjustment expenses ('LAE'), net-of-reinsurance, for
1995 and 1994 to the gross amounts reported in the balance sheets.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Reserves for losses and LAE, net of related reinsurance recoverables, at beginning of
year.................................................................................... $106,392 $ 86,290
Add:
Provision for losses and LAE for claims occurring in the current year, net of
reinsurance.......................................................................... 46,653 45,738
Decrease in incurred losses and LAE for claims occurring in prior years, net of
reinsurance.......................................................................... (6,600) (345)
-------- --------
Incurred losses and LAE during the current year, net of reinsurance and gross of
discount............................................................................ 40,053 45,393
Provision for discount on current accident year reserves................................ (4,165) (4,049)
Amortization of discount on prior accident years reserves............................... 1,820 956
-------- --------
Incurred losses and LAE during the current year, net of reinsurance and net of
discount.......................................................................... 37,708 42,300
-------- --------
Deduct:
Losses and LAE payments for claims, net of reinsurance, occurring during:
Current year......................................................................... (6,003) (6,113)
Prior years.......................................................................... (17,163) (16,085)
-------- --------
Total paid......................................................................... (23,166) (22,198)
-------- --------
Reserve for losses and LAE, net of related reinsurance recoverables, at end of year....... 120,934 106,392
Add:
Reinsurance recoverables on unpaid losses and LAE, at end of year....................... 11,320 8,988
-------- --------
Reserve for losses and LAE, gross of reinsurance recoverables on unpaid loses and LAE, at
end of year............................................................................. $132,254 $115,380
-------- --------
-------- --------
</TABLE>
The foregoing reconciliation shows that a $6,600,000 redundancy in the 1994
and prior year reserves emerged in 1995. This redundancy resulted primarily from
settling case-basis reserves established in prior years for amounts that were
less than expected. The Company believes that Pennsylvania Act 44, enacted in
September 1993, has had a favorable effect on the medical cost component of its
workers' compensation losses and contributed to the favorable development.
5. REINSURANCE
The Company remains liable to its policyholders if its reinsurers are
unable to meet their contractual obligations under applicable reinsurance
agreements. To minimize exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurers.
F-76
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REINSURANCE--(CONTINUED)
At December 31, 1995, reinsurance recoverables from five reinsurers
representing approximately 72% of the total balance of reinsurance were as
follows:
<TABLE>
<CAPTION>
REINSURER DECEMBER 31, 1995
<S> <C>
Reliance Insurance Company................................................. $ 2,526,000
Pennsylvania Surface Coal Mining Insurance Exchange........................ 1,604,000
North Star Reinsurance Company............................................. 1,577,000
American Reinsurance Company............................................... 1,291,000
Cologne Reinsurance Company................................................ 1,283,000
</TABLE>
The remaining reinsurance recoverables of $3,039,000 were primarily
associated with ten other reinsurers.
Net written premiums are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Direct premiums................................................................. $ 64,584 $ 59,169
Assumed premiums................................................................ 148 512
Ceded premiums.................................................................. (5,863) (5,801)
-------- --------
Net premiums written....................................................... $ 58,869 $ 53,880
-------- --------
-------- --------
</TABLE>
Net premiums earned are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Direct premiums................................................................. $ 61,479 $ 57,917
Assumed premiums................................................................ 166 545
Ceded premiums.................................................................. (6,316) (5,845)
-------- --------
Net premiums earned........................................................ $ 55,329 $ 52,617
-------- --------
-------- --------
</TABLE>
F-77
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REINSURANCE--(CONTINUED)
Losses and LAE incurred are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Direct losses and LAE........................................................... $ 40,280 $ 42,988
Assumed losses and LAE.......................................................... 336 340
Ceded losses and LAE............................................................ (2,908) (1,028)
-------- --------
Net losses and LAE incurred................................................... $ 37,708 $ 42,300
-------- --------
-------- --------
</TABLE>
6. OTHER LIABILITIES
Other liabilities at December 31, are composed of the following:
<TABLE>
<CAPTION>
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Premium taxes, licenses and fees................................................. $ 1,403 $ 1,103
Contingent commission............................................................ 725 560
Amounts withheld or on deposit for the accounts of others........................ 1,337 641
Other............................................................................ 220 151
------- -------
Total.......................................................................... $ 3,685 $ 2,455
------- -------
------- -------
</TABLE>
F-78
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries. Prior to July 1, 1994, the Company filed a consolidated federal
income tax return with RIC's parent, Rockwood Holding Company. The Company's
effective income tax rate on pre-tax income for 1995 and 1994 differs from the
prevailing corporate federal income tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Income tax expense at 34%......................................................... $2,936 $1,847
Change in valuation allowance on deferred tax assets.............................. (2,089) 885
Tax exempt income, net............................................................ (847) (1,103)
------ ------
Income tax expense................................................................ $ -- $1,629
------ ------
------ ------
</TABLE>
The significant components of the net deferred tax asset at the current
prevailing tax rate of 34% are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserve for losses and loss adjustment expenses................................. $5,756 $5,321
Unearned premiums............................................................... 892 651
Accrued policyholder dividends.................................................. 603 530
Other........................................................................... 127 109
Unrealized loss on available-for-sale securities................................ -- 964
------ ------
Total deferred tax assets before valuation allowance.............................. 7,378 7,575
Less: valuation allowance......................................................... (3,675) (5,764)
------ ------
Total deferred tax assets, net of valuation allowance............................. 3,703 1,811
------ ------
Deferred tax liabilities:
Deferred policy acquisition costs............................................... 984 847
Unrealized gains on available-for-sale securities............................... 362 --
------ ------
Total deferred tax liabilities.................................................... 1,346 847
------ ------
Net deferred tax asset............................................................ $2,357 $ 964
------ ------
------ ------
</TABLE>
The Company is required to establish a 'valuation allowance' for any
portion of the deferred tax asset that management believes may not be realized.
The change in the valuation allowance is attributable to the origination and
reversal of temporary differences and, in 1995 and 1994 an income tax payment of
$2,718,000 and $95,000, respectively.
8. CAPITAL STOCK
The capital stock of the Company was sold effective June 30, 1994 by RIC to
a group of private investors consisting of PIC and Tri-Rock. Effective July 1,
1994, the capital stock was restructured into two classes of common stock,
consisting of (1) 500,000 shares of Class A Voting Stock ('Class A'), owned 50%
by PIC and 50% by Tri-Rock and; (2) 572,961 shares of Class B Non-Voting Stock
('Class B'), owned 100% by PIC. All shares have no par value. The stated values
for Class A and Class B stock are $1,792,000 and $2,053,000, respectively. The
creation of two new classes of common stock resulted in $1,845,000 of paid-in
surplus being reallocated to common stock in 1994. All outstanding shares of
commons stock as of June 30, 1994 were exchanged for Class A and B shares.
F-79
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CAPITAL STOCK--(CONTINUED)
During 1995, the Board of Directors authorized the reclassification of
$1,000,000 from retained earnings to gross paid-in and contributed surplus, to
comply with Pennsylvania Insurance Department capitalization requirements.
9. RELATED PARTIES
The Company paid Rockwood Asset Management, Inc. ('RAM') $636,000 and
$319,000 during 1995 and 1994, respectively, under agreements for office
facilities, computer equipment and software license, and an installment purchase
of office equipment. The minimum future payments to RAM required under the
agreements is $3,593,000 as follows: 1996--$819,000; 1997--$607,000;
1998--$607,000; 1999--$607,000; 2000-- $607,000 and 2001--$346,000.
The Company terminated all contractual agreements and relationships with
RIC, which went into liquidation proceedings in 1991, effective June 30, 1994,
resulting in RIC accepting as full and final payment all funds received as of
that date for the Company's obligations under a Tax Sharing and Expense Sharing
Agreement. The Company recognized a gain in 1994 of $2,652,000 resulting from
the termination of the Tax Sharing Agreement.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined benefit pension plan covering substantially
all full-time employees. Benefits under the plan are based on years of service
and average compensation during the participant's highest three consecutive
calendar years. The funding policy is to make contributions to the plan annually
in amounts at least equal to the minimum funding requirements of the Employee
Retirement Income Security Act of 1974 and deductible for federal income tax
purposes. Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.
F-80
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The plan's total obligations and assets, which are primarily invested in
mutual funds and fixed income securities, along with the components of net
periodic pension costs are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Pension Obligations:
Actuarial present value of accumulated benefit obligation, including vested
benefits of $935 and $945, respectively......................................... $ 938 $ 947
------ ------
------ ------
Actuarial present value of projected benefit obligation for service rendered to
date............................................................................ $1,559 $1,673
Plan assets at fair value......................................................... 1,330 1,220
------ ------
Projected benefit obligations in excess of plan assets............................ 229 453
Unrecognized transition obligation................................................ (144) (154)
Unrecognized experience and effects of changes in assumptions..................... 154 (127)
------ ------
Net pension obligation............................................................ $ 239 $ 172
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1995 1994
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Pension Cost:
Service cost--benefit earned during current year.................................. $ 111 $ 121
Interest cost on projected benefit obligation..................................... 99 116
Return on plan assets............................................................. (86) (111)
Amortization of transition obligation............................................. 10 10
------ ------
Net periodic pension cost......................................................... $ 134 $ 136
------ ------
------ ------
Weighted average discount rate.................................................... 7.0% 7.5%
Rates of increase in compensation levels.......................................... 4.5% 4.5%
Expected long term rate of return on assets....................................... 8.0% 8.0%
</TABLE>
The Company intends to terminate its defined benefit pension plan during
1997.
The 401(k) Profit Sharing Trust, established in 1984, is available to
substantially all full-time employees of Rockwood Casualty. No discretionary
Company contributions were made in 1995 and 1994.
11. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in legal actions arising primarily from
claims made under insurance policies. Those actions have been considered in
establishing the Company's reserve liabilities. Management and its legal counsel
are of the opinion that the settlement of these actions will not have a material
adverse effect on the Company's financial position or the results of its
operations.
Rockwood Insurance Company of Indiana ('RIND'), a company that merged into
Rockwood Casualty Insurance Company on December 31, 1990, issued certain medical
malpractice policies for claims occurring between January 1, 1978 and October 1,
1990. RIND reinsured these policies pursuant to a loss portfolio transfer
agreement with Covenant Mutual Insurance Company ('Covenant'). Covenant
subsequently went into liquidation and was unable to meet its obligation on the
reinsurance agreement. In May 1993, the Company's former parent, RIC,
established and funded a Liquidating Trust ('Trust') in accordance with an
agreement approved by an order of the Commonwealth Court of Pennsylvania to
service the medical malpractice claims related to Covenant's default. The
Pennsylvania Insurance Department currently manages the Trust and administers
the claims.
F-81
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Trust was originally funded with $6,500,000, and on June 30, 1994 an
additional $623,000 was deposited in the Trust by RIC in accordance with the
Trust agreement, as amended. Total assets in the Trust at December 31, 1995 and
1994 available to pay claims and expenses were $3,677,000 and $4,863,000,
respectively. As part of the Trust agreement, a certification of reserve
liabilities is prepared annually by an independent consulting actuary acceptable
to both RIC and the Company. The amount of actuarially determined liabilities
related to Covenant's default as of December 31, 1995 and 1994 were $3,220,000
and $4,567,000, respectively. If the amount of reserve liabilities on a
discounted basis, times 115%, exceeds the amount in the Trust Fund as of the
date of the report, RIC shall pay to the Trustee, monies or investment
securities in the aggregate amount of the deficiency. Further, any excess assets
shall be returned to RIC.
The Trust disbursed $1,324,000 and $1,360,000 in loss and loss adjustment
expenses in 1995 and 1994, respectively, to fund the Company's medical
malpractice claims related to this business and paid $100,000 and $151,000 to
the Pennsylvania Insurance Department, respectively, for administrative
expenses.
The Company remains contingently liable for the medical malpractice claims
in the event that the Trust's assets, which consist primarily of investments in
short term U.S. Treasury obligations and cash equivalents, and future deficiency
funding by the former parent, if necessary, are not sufficient to fund the
ultimate liability. Management believes that there is minimal exposure relating
to this liability.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and short-term
investments approximate those assets and liabilities' fair values. Fair values
for investment securities are based on quoted market prices and are disclosed in
Note 2.
13. CHANGES IN ACCOUNTING PRINCIPLES--ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES
FASB Statement 115, Accounting for Certain Investments in Debt and Equity
Securities, was adopted by the Company as of January 1, 1994. In accordance with
Statement 115, the prior-year financial statements were not restated to reflect
the change in accounting principle.
With the classification of the then existing portfolio as
available-for-sale and held-to-maturity securities, the January 1, 1994 balance
of shareholders' equity was increased by $1,218,000 (i.e., the amount which
would have been recorded if those securities had been sold at their fair value
on January 1, 1994, net of related deferred income taxes) to reflect the net
unrealized gains on fixed maturity securities classified as available-for-sale.
These securities had previously been carried at amortized cost.
14. STATUTORY MATTERS
The Company is required to periodically submit financial statements
prepared in accordance with statutory accounting practices to insurance
regulatory authorities. Statutory accounting practices differ from generally
accepted accounting principles. Net income determined in accordance with
statutory accounting practices reported to regulatory authorities for the years
ended December 31, 1995 and 1994 was $5,144,000 and $3,656,000, respectively.
The net assets of the Company that are transferable to its owners are
limited to the amounts by which statutory capital and surplus exceed minimum
statutory requirements. An analysis of such requirement at December 31, 1995 is
as follows:
<TABLE>
<S> <C>
Statutory Capital and Surplus.............................. $30,974,000
Minimum Statutory Capital Required......................... 3,000,000
-----------
Excess over Minimum Statutory Capital Requirement.......... $27,974,000
-----------
-----------
</TABLE>
Despite such excess over statutory minimums, regulatory approval is
required for any distribution in a twelve month period, other than for dividends
or other distributions which, in the aggregate, do not exceed the
F-82
<PAGE>
ROCKWOOD CASUALTY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. STATUTORY MATTERS--(CONTINUED)
greater of either (i) ten percent of the insurer's surplus to policyholders as
of the immediately preceding December 31 or (ii) net income, excluding realized
gains, as of the immediately preceding year.
In addition, no Pennsylvania stock casualty insurance company shall make
any dividend on its capital, except from profits arising from its business.
Therefore, the maximum shareholders' dividend that may be paid during 1996
without prior written approval of the Insurance Commissioner is $5,144,000, or
1995's statutory net income.
15. SUBSEQUENT EVENTS
The capital stock of the Company was acquired by Front Royal, Inc.
('FRINC'), effective December 31, 1996, from PIC and Tri-Rock. The acquisition
of the Company by FRINC and related transactions were approved on December 30,
1996 by the Pennsylvania Insurance Department.
In conjunction with the acquisition, the following transactions occurred on
December 31, 1996:
The Company sold all of the outstanding stock of its wholly-owned
subsidiary Premier Auto Insurance Company ('Premier'), formed in 1996, to
Fort Washington Holdings, Inc. ('Fort Washington') for a total purchase
price of $3,500,000. The Company received $1,000,000 in cash at closing and
a $2,500,000, 13% note due on December 31, 1997, secured by the stock of
Premier. The note was repaid in full by July 1997. There was no gain or
loss on the sale.
Premier assumed all of the private passenger automobile insurance
previously written by the Company in Pennsylvania and West Virginia via an
assumption reinsurance treaty. On December 31, 1996, Premier transferred
$8,701,000 into an escrow account held by the Company to collaterize
outstanding ceded losses and unearned premiums. The Company remains liable
to the policyholders if Premier is unable to meet its contractual
obligations under the reinsurance agreement.
The Company entered into a fifteen year lease agreement with an
affiliate of the Company's former owners for the property which houses all
of the Company's operations.
Following is a schedule of future minimum rental payments required under
the lease as of December 31, 1996.
<TABLE>
<S> <C>
1997.................................................................. $ 78,000
1998.................................................................. 78,000
1999.................................................................. 78,000
2000.................................................................. 86,000
2001.................................................................. 86,000
Thereafter............................................................ 4,902,688
----------
Total............................................................... $5,308,688
----------
----------
</TABLE>
Also on December 31, 1996, the Company received permission from the state
regulatory authority to transfer $8,500,000 to FRINC as a return of capital.
F-83
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................ 4
Risk Factors.................................. 11
Use of Proceeds............................... 18
Dividend Policy............................... 18
The Recapitalization.......................... 19
Capitalization................................ 20
Dilution...................................... 21
Pro Forma Condensed Combined Financial
Statements.................................. 22
Selected Historical Consolidated Financial
Data........................................ 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 29
Business...................................... 38
Management.................................... 67
Principal and Selling Shareholders............ 75
Certain Transactions.......................... 80
Description of Capital Stock.................. 81
Shares Eligible for Future Sale............... 84
Underwriting.................................. 85
Legal Matters................................. 86
Experts....................................... 87
Glossary of Selected Insurance Terms.......... 88
Index to Financial Statements................. F-1
</TABLE>
---------------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
SHARES
FRONT ROYAL, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
BT ALEX. BROWN
WHEAT FIRST UNION
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting discounts and commissions) payable by the
Registrant in connection with the issuance and distribution of the Common Stock.
<TABLE>
<S> <C>
SEC Registration Fee.................. $ 7,576
Blue Sky Fees and Expenses............ 10,000*
Nasdaq Listing Fee.................... 50,000
NASD Filing Fee....................... 3,000*
Printing and Mailing Fees............. 100,000
Counsel Fees and Expenses............. 200,000
Accountant's Fees and Expenses........ 300,000
Transfer Agent and Registrar Fees..... 3,500*
Miscellaneous......................... 125,924
--------
Total............................ $800,000
--------
--------
</TABLE>
- ------------------
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Articles of Incorporation and Bylaws
include provisions to (i) eliminate the personal liability of its directors for
monetary damages resulting from breaches of their fiduciary duty to the fullest
extent permitted by Section 55-8-30(e) of the North Carolina Business
Corporation Act (the 'Business Corporation Act'), and (ii) require the
Registrant to indemnify its directors and officers to the fullest extent
permitted by Sections 55-8-50 through 55-8-58 of the Business Corporation Act,
including circumstances in which indemnification is otherwise discretionary.
Pursuant to Sections 55-8-51 and 55-8-57 of the Business Corporation Act, a
corporation generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are, or are threatened to be made, a
party by reason of their serving in such positions so long as they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, and with respect to any criminal action, they
had no reasonable cause to believe their conduct was unlawful. The Registrant
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers. These provisions do not eliminate the
directors' duty of care, and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under the Business Corporation Act. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions that the director believes to be contrary to
the best interests of the Registrant or its shareholders, for any transaction
from which the director derived an improper personal benefit, for acts or
omissions involving a reckless disregard for the director's duty to the
Registrant or its shareholders when the director was aware or should have been
aware of a risk of serious injury to the Registrant or its shareholders, for
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Registrant or its
shareholders, for improper transactions between the director and the Registrant
and for improper distributions to shareholders and loans to directors and
officers. These provisions do not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
The Registrant's Bylaws require the Registrant to indemnify its directors
and officers against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the Registrant and,
with respect to any proceeding, had no
II-1
<PAGE>
reasonable cause to believe his or her conduct was unlawful. The Registrant's
Bylaws also set forth certain procedures that will apply in the event of a claim
for indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On June 30, 1997 the Company issued 424,156 shares of Class A Common Stock
upon the exercise of expiring warrants at exercise prices ranging from $0.76 to
$2.00. No Underwriters, brokers or other agents were involved in the
transaction. These securities were issued pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act and the rules and
regulations thereunder.
In connection with the Rockwood Acquisition, on December 31, 1996, the
Company issued 31,750 Units (defined below) to 27 individuals and entities and
on August 25, 1997 the Company issued an additional 733 Units to 11 individuals
and entities in private placements. All such purchasers were 'accredited
investors' as defined in Regulation D. The purchase price for each Unit was
$400, for an aggregate purchase price of $13.0 million. Each 'Unit' consisted of
100 shares of Class C Common Stock, 100 purchase price adjustment rights and one
Warrant to purchase 7.874 shares of Class A Common Stock. Also in connection
with the Rockwood Acquisition, on December 31, 1996, the Company issued $15.5
million of Series A Redeemable Convertible Preferred Stock to Fort Washington in
a private placement. No underwriters, brokers or other agents were involved in
these transactions. These securities were issued pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated thereunder.
In early 1995, the Company issued 51,648 shares of Class A Common Stock at
$2.50 per share in connection with the conversion of $129,122 of principal and
accrued interest on outstanding subordinated debt to certain shareholders. No
underwriters, brokers or other agents were involved in the transaction. These
securities were issued pursuant to an exemption from registration provided by
Section 3(a)(9) of the Securities Act and the rules and regulations thereunder.
As of September 26, 1997, the Company had granted options under its 1992
Stock Option Plan exercisable into 250,000 shares of Common Stock, to three
individuals. These options were granted from December 31, 1995 through May 13,
1997; the exercise prices of such options range from $2.00 to $5.00 per share;
and such options are exercisable through 2007 and expire at various times from
2002 to 2007. As of September 26, 1997, the Company had granted options under
the 1996 Incentive Plan exercisable into 500,000 shares of Common Stock to 47
individuals. These options were granted from December 19, 1996 through May 13,
1997; the exercise prices such options range from $4.00 to $5.00 per share; and
such options are exercisable through 2007 and expire at various times from 2003
to 2007. No underwriters, brokers or other agents were involved in these
transactions. These securities were issued pursuant to the exemption from
registration provided by Rule 701 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Articles of Incorporation of the Registrant.*
3.2 -- Amended and Restated Bylaws of the Registrant.*
4.1 -- Form of Common Stock Certificate.*
4.2 -- Plan of Recapitalization.*
5.1 -- Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP.*
5.2 -- Opinion of Brooks Pierce McLendon Humphry & Leonard.*
10.1 -- Form of Warrant, dated September 23, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.2 -- Form of Stock and Asset Purchase Agreement, dated October 21, 1994, among Figgie International,
Inc., Waite Hill Holdings, Inc., Waite Hill Services, Inc. and the Registrant.
10.3 -- Employment Agreement, dated December 31, 1997, between the Registrant and J. Adam Abram.
10.4 -- Employment Agreement, dated December 31, 1997, between Colony Management Services, Inc. and John
K. Latham.*
10.5 -- Form of Stock Purchase Agreement, dated December 6, 1996, among PIC Insurance Group, Inc.,
Tri-rock Limited Partnership and the Registrant.
10.6 -- Credit Agreement, dated December 18, 1996, among the Registrant and First Union National Bank, as
amended.
10.7 -- Employment Agreement, dated December 31, 1997, between the Registrant and Gregg T. Davis, as
amended.
10.8 -- Form of Subscription Agreement, dated December 27, 1996, between the Registrant and the
signatories thereto.
10.9 -- Agreement of Reinsurance and Assumption, dated December 30, 1996, between Rockwood Casualty
Insurance Company and Premier Auto Insurance Company.
10.10 -- Form of Amended and Restated Registration Rights Agreement, dated December 31, 1996, between the
Registrant and signatories thereto.
10.11 -- Form of Warrant, dated December 31, 1996.
10.12 -- Lease, made December 31, 1996, between Rockwood Asset Management, Inc. and Rockwood Casualty
Insurance Company.
10.13 -- Shareholder and Registration Rights Agreement, dated December 31, 1996, between the Registrant,
Fort Washington Holdings, Inc., PIC Insurance Group, Charles Lederman and Timothy McCartney.
10.14 -- Non-Compete and Non-Solicitation Agreements, dated December 31, 1996, between the Registrant and
(i) Frank Lucchino, (ii) John R. McGinley, Jr., (iii) Pittsburgh Mutual Insurance Company, (iv)
PIC Insurance Group, Inc., (v) Charles M. Lederman, (vi) Timothy I. McCarthy, Sr., (vii) Peter C.
Dozzi, (viii) Premier Auto Insurance Company and (ix) Terrence Jacobs.
10.15 -- Amended and Restated License Agreement, dated December 31, 1996, between Rockwood Casualty
Insurance Company and Rockwood Asset Management, Inc.
10.16 -- Form of Class A Common Stock Purchase Warrant, dated December 31, 1996.
10.17 -- Stock Purchase Agreement, dated December 31, 1996, between Rockwood Casualty Insurance Company and
Fort Washington Holdings, Inc.
10.18 -- Pledge Agreement, dated December 31, 1996, between Rockwood Casualty Insurance Company and Fort
Washington Holdings, Inc.
10.19 -- Non-Compete and Non-Solicitation Agreement, dated December 31, 1996, between Front Royal Insurance
Company, Colony Insurance Company, Rockwood Casualty Insurance Company and Hamilton Insurance
Company.
10.20 -- Option Agreement, dated December 31, 1996, between Colony Insurance Company and Fort Washington
Holdings, Inc.
10.21 -- Non-Compete and Non-Solicitation Agreement, dated December 31, 1996, between Front Royal Insurance
Company, Colony Insurance Company and Rockwood Casualty Insurance Company.
10.22 -- Non-Solicitation Agreement, dated December 31, 1996, between the Registrant and Bruce Eckert.
10.23 -- Employment Agreement, dated December 31, 1996, between the Registrant and John Yediny.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.24 -- Tax allocation Agreement, dated December 31, 1996, between the Registrant and Rockwood Casualty
Insurance Company.
10.25 -- Front Royal, Inc. 1996 Incentive Plan, as amended.
10.26 -- Front Royal, Inc. 1992 Stock Option Plan.
10.27 -- Form of Subscription Agreement, executed in connection with the August 25, 1997 Private Placement,
between the Registrant and signatories thereto.
10.28 -- Form of First Amendment to the Amended and Restated Registration Rights Agreement, executed in
connection with the August 25, 1997 Private Placement, between the Registrant and signatories
thereto.
10.29 -- Form of Warrant, dated August 25, 1997.
10.30 -- Stock and Asset Purchase and Sale Agreement, dated as of March 6, 1998, among Front Royal, Inc.
and PNIC Holdings, Inc., as Buyer and Preferred National Financial Corp., Wycon Corporation,
United American Financial Services Corporation and Ameridian Adjustment Corp., as Seller, and
Stephen Weicholz (for certain limited purposes).
21.1 -- List of Subsidiaries of Registrant.*
23.1 -- Consent of Robinson Silverman Pearce Aronsohn & Berman LLP (included in Exhibit 5.1).*
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Parente, Randolph, Orlando, Carey & Associates.
23.4 -- Consent of Deloitte & Touche LLP.
23.5 -- Consent of Brooks Pierce McLendon Humphry & Leonard (included in Exhibit 5.2).*
24.1 -- Powers of Attorney (included on Signature Page).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by Amendment.
(2) Financial Statement Schedules.
<TABLE>
<CAPTION>
Report of Independent Auditors on Schedules
<S> <C>
Schedule I -- Summary of Investments
Schedule II -- Condensed Financial Information of Registrant (Parent Company)
-- Balance sheets
-- Statements of Income
-- Statements of Cash Flows
-- Notes to Condensed Financial Statements
</TABLE>
All other schedules have been omitted because they are not required or not
material or because the required information is included in the financial
statements included elsewhere herein.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the 'Act') may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the
II-4
<PAGE>
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF MORRISVILLE, STATE OF
NORTH CAROLINA, ON THE 17TH DAY OF JUNE, 1998.
FRONT ROYAL, INC.
By /s/ J. ADAM ABRAM
-----------------------------------
J. Adam Abram
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
J. Adam Abram and Gregg T. Davis, his true and lawful attorneys-in-fact and
agents, with full powers of substitution, for him and in his name, place and
stead, in any and all capacities, to sign and to file any and all amendments,
including post-effective amendments and any registration statements filed
pursuant to Rule 462(b), to this Registration Statement with the Securities and
Exchange Commission, granting to each said attorney-in-fact and agent power and
authority to perform any other act on behalf of the undersigned required to be
done in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD W. WRIGHT Chairman of the Board of Directors June 17, 1998
- ------------------------------------------
Richard W. Wright
/s/ J. ADAM ABRAM President, Chief Executive Officer and June 17, 1998
- ------------------------------------------ Director (Principal Executive Officer)
J. Adam Abram
/s/ GREGG T. DAVIS Chief Financial Officer and Chief Operating June 17, 1998
- ------------------------------------------ Officer (Principal Financial Officer)
Gregg T. Davis
/s/ MATTHEW BRONFMAN Director June 17, 1998
- ------------------------------------------
Matthew Bronfman
/s/ ALAN N. COLNER Director June 17, 1998
- ------------------------------------------
Alan N. Colner
/s/ JOEL L. FLEISHMAN Director June 17, 1998
- ------------------------------------------
Joel L. Fleishman
/s/ ROBERT V. HATCHER, JR. Director June 17, 1998
- ------------------------------------------
Robert V. Hatcher, Jr.
/s/ CHARLES LEDERMAN Director June 17, 1998
- ------------------------------------------
Charles Lederman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ IRA M. LUBERT Director June 17, 1998
- ------------------------------------------
Ira M. Lubert
/s/ LEWIS P. WILKINSON Director June 17, 1998
- ------------------------------------------
Lewis P. Wilkinson
/s/ WILSON WILDE Director June 17, 1998
- ------------------------------------------
Wilson Wilde
/s/ JAMES L. ZECH Director June 17, 1998
- ------------------------------------------
James L. Zech
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Front Royal, Inc. and Subsidiaries
We have audited the consolidated financial statements of Front Royal, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, and have issued our report thereon dated
February 20, 1998 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedules listed in Item 16(b) of
this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Richmond, Virginia
February 20, 1998
S-1
<PAGE>
SCHEDULE I
FRONT ROYAL, INC. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- ------------------------------------------------------------- ------------ ------------ -----------------
<S> <C> <C> <C>
Fixed maturities:
Available-for-Sale:
United States Government and government
agencies and authorities.............................. $ 91,282,474 $ 93,695,393 $ 93,695,393
Foreign governments..................................... 2,074,121 2,103,990 2,103,990
Public utilities........................................ 2,270,804 2,278,890 2,278,890
All other corporate..................................... 26,676,864 27,296,588 27,296,588
------------ ------------ -----------------
Total available-for-sale.............................. 122,304,263 125,374,861 125,374,861
------------ ------------ -----------------
Held-to-Maturity:
United States Government and government
agencies and authorities.............................. 62,166,242 62,660,439 62,166,242
States, municipalities and political subdivisions....... 25,162,968 26,196,929 25,162,968
Public utilities........................................ 5,562,524 5,586,910 5,562,524
All other corporate bonds............................... 16,644,887 16,959,010 16,644,887
------------ ------------ -----------------
Total held-to-maturity................................ 109,536,621 111,403,288 109,536,621
------------ ------------ -----------------
Total fixed maturities................................ 231,840,884 236,778,149 234,911,482
------------ ------------ -----------------
Equity securities:
Common stocks:
Banks, trust and insurance companies.................... 3,641,164 4,172,588 4,172,588
Industrial, miscellaneous and all other................. 12,309,220 13,681,133 13,681,133
Nonredeemable preferred stocks............................. 685,237 747,500 747,500
------------ ------------ -----------------
Total equity securities................................. 16,635,621 18,601,221 18,601,221
------------ ------------ -----------------
Short-term investments....................................... 24,208,843 XXXXXXX 24,208,843
------------ ------------ -----------------
Total investments....................................... $272,685,348 XXXXXXX $ 277,721,546
------------ ------------ -----------------
------------ ------------ -----------------
</TABLE>
S-I-1
<PAGE>
SCHEDULE II
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1997 1996
<S> <C> <C>
ASSETS
Cash.............................................................................. $ 1,391,165 $ 4,167,040
Short-term investments............................................................ 6,281,264 2,025,112
Investments in subsidiaries, at equity............................................ 92,612,374 80,742,269
Other assets...................................................................... 748,001 530,625
Intercompany receivable........................................................... 167,941 174,655
------------ -----------
Total assets................................................................. $101,200,745 $87,639,701
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses.................................................................. $ 2,808,316 $ 985,929
Accrued preferred stock dividend.................................................. 1,085,000 --
Senior bank debt.................................................................. 36,545,430 38,000,000
------------ -----------
Total liabilities............................................................ 40,438,746 38,985,929
Commitments and contingent liabilities
Series A Redeemable Convertible Preferred Stock, no par value, 155,000 shares
authorized and 155,000 shares issued and outstanding in 1997 and 1996........... 15,500,000 15,500,000
Common shareholders' equity:
Common Stock--Class A, no par value, 20,000,000 shares authorized and 5,859,144
and 5,442,030 shares issued and outstanding in 1997 and 1996, respectively... 13,739,979 13,402,208
Common Stock--Class B, no par value, 700,000 shares authorized and 268,482 and
272,895 shares issued and outstanding in 1997 and 1996, respectively......... 557,348 575,000
Common Stock--Class C, no par value, 3,500,000 and 3,200,000 shares authorized
and 3,248,300 and 3,175,000 shares issued and outstanding in 1997 and 1996,
respectively................................................................. 12,993,200 12,700,000
------------ -----------
27,290,527 26,677,208
Notes receivable from officers.................................................. (166,386) (200,000)
Retained earnings............................................................... 14,813,967 4,540,316
Unrealized gains on available-for-sale securities............................... 3,323,891 2,136,248
Total common shareholders' equity............................................ 45,261,999 33,153,772
------------ -----------
60,761,999 48,653,772
------------ -----------
Total liabilities, redeemable preferred stock and common shareholders'
equity...................................................................... $101,200,745 $87,639,701
------------ -----------
------------ -----------
</TABLE>
See Notes to Condensed Financial Statements.
S-II-1
<PAGE>
SCHEDULE II
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Dividends received from consolidated subsidiaries................... $ 4,850,000 $11,100,000 $ --
Net investment income............................................... 405,503 108,147 130,954
----------- ----------- -----------
Total revenues.................................................... 5,255,503 11,208,147 130,954
----------- ----------- -----------
Interest expense.................................................... 3,389,849 1,981,238 1,590,679
Other operating costs and expenses.................................. 1,156,846 251,073 358,703
----------- ----------- -----------
Total expenses.................................................... 4,546,695 2,232,311 1,949,382
----------- ----------- -----------
Income/(loss) before federal income tax benefit and equity in
undistributed income/(loss) of consolidated subsidiaries.......... 708,808 8,975,836 (1,818,428)
Federal income tax benefit.......................................... (1,537,143) (768,340) (671,039)
----------- ----------- -----------
Income/(loss) before equity in undistributed income/(loss) of
consolidated subsidiaries......................................... 2,245,951 9,744,176 (1,147,389)
Equity in undistributed income/(loss) of consolidated subsidiaries.. 9,112,700 (5,233,254) 4,699,583
----------- ----------- -----------
Net income.......................................................... $11,358,651 $ 4,510,922 $ 3,552,194
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Condensed Financial Statements.
S-II-2
<PAGE>
SCHEDULE II
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net income....................................................... $ 11,358,651 $ 4,510,922 $ 3,552,194
Adjustments to reconcile net income to net cash provided by/(used
in) operating activities:
Equity in undistributed net income/(loss) of subsidiaries..... (9,112,700) 5,233,254 (4,699,583)
Amortization.................................................. -- -- 170,876
Change in operating assets and liabilities:
Federal income tax payable.................................. 190,206 58,196 (82,039)
Accrued preferred stock dividend............................ 1,085,000 -- --
Receivables, payables, accrued expenses and other........... (1,199,629) 539,147 (270,344)
------------ ------------ -----------
Net cash provided by/(used in) operating activities................ 2,321,528 10,341,519 (1,328,896)
------------ ------------ -----------
Investing activities:
Acquisitions..................................................... -- (42,332,442) --
Net purchases of short-term investments.......................... (4,256,152) (22,433) (2,132)
------------ ------------ -----------
Net cash used in investing activities.............................. (4,256,152) (42,354,875) (2,132)
------------ ------------ -----------
Financing activities:
Proceeds from bank borrowings and other debt issuances,
net of issuance costs......................................... -- 37,307,050 74,568
Retirement of debt............................................... (1,454,570) (14,067,068) --
Proceeds from issuance of common stock,
net of repurchases............................................ 613,319 12,700,000 (62,500)
------------ ------------ -----------
Net cash provided by/(used in) financing activities................ (841,251) 35,939,982 12,068
------------ ------------ -----------
Increase/(decrease) in cash........................................ (2,775,875) 3,926,626 (1,318,960)
Cash at beginning of year.......................................... 4,167,040 240,414 1,559,374
------------ ------------ -----------
Cash at end of year................................................ $ 1,391,165 $ 4,167,040 $ 240,414
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See Notes to Condensed Financial Statements.
S-II-3
<PAGE>
SCHEDULE II
FRONT ROYAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company-only financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income of
its unconsolidated subsidiaries is included in consolidated income using the
equity method. The parent company-only financial statements should be read in
conjunction with the Company's consolidated financial statements.
Other operating costs and expenses are recorded net of reimbursements from
subsidiaries of $1,705,000, $1,204,000 and $1,148,000 in 1997, 1996 and 1995,
respectively.
S-II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Articles of Incorporation of the Registrant.*
3.2 -- Amended and Restated Bylaws of the Registrant.*
4.1 -- Form of Common Stock Certificate.*
4.2 -- Plan of Recapitalization.*
5.1 -- Opinion of Robinson Silverman Pearce Aronsohn & Berman LLP.*
5.2 -- Opinion of Brooks Pierce McLendon Humphry & Leonard.*
10.1 -- Form of Warrant, dated September 23, 1994.
10.2 -- Form of Stock and Asset Purchase Agreement, dated October 21, 1994, among Figgie
International, Inc., Waite Hill Holdings, Inc., Waite Hill Services, Inc. and the
Registrant.
10.3 -- Employment Agreement, dated December 31, 1997, between the Registrant and J. Adam
Abram.
10.4 -- Employment Agreement, dated December 31, 1997, between Colony Management Services,
Inc. and John K. Latham.*
10.5 -- Form of Stock Purchase Agreement, dated December 6, 1996, among PIC Insurance Group,
Inc., Tri-rock Limited Partnership and the Registrant.
10.6 -- Credit Agreement, dated December 18, 1996, among the Registrant and First Union
National Bank, as amended.
10.7 -- Employment Agreement, dated December 31, 1997, between the Registrant and Gregg T.
Davis, as amended.
10.8 -- Form of Subscription Agreement, dated December 27, 1996, between the Registrant and
the signatories thereto.
10.9 -- Agreement of Reinsurance and Assumption, dated December 30, 1996, between Rockwood
Casualty Insurance Company and Premier Auto Insurance Company.
10.10 -- Form of Amended and Restated Registration Rights Agreement, dated December 31, 1996,
between the Registrant and signatories thereto.
10.11 -- Form of Warrant, dated December 31, 1996.
10.12 -- Lease, made December 31, 1996, between Rockwood Asset Management, Inc. and Rockwood
Casualty Insurance Company.
10.13 -- Shareholder and Registration Rights Agreement, dated December 31, 1996, between the
Registrant, Fort Washington Holdings, Inc., PIC Insurance Group, Charles Lederman and
Timothy McCartney.
10.14 -- Non-Compete and Non-Solicitation Agreements, dated December 31, 1996, between the
Registrant and (i) Frank Lucchino, (ii) John R. McGinley, Jr., (iii) Pittsburgh Mutual
Insurance Company, (iv) PIC Insurance Group, Inc., (v) Charles M. Lederman, (vi)
Timothy I. McCarthy, Sr., (vii) Peter C. Dozzi, (viii) Premier Auto Insurance Company
and (ix) Terrence Jacobs.
10.15 -- Amended and Restated License Agreement, dated December 31, 1996, between Rockwood
Casualty Insurance Company and Rockwood Asset Management, Inc.
10.16 -- Form of Class A Common Stock Purchase Warrant, dated December 31, 1996.
10.17 -- Stock Purchase Agreement, dated December 31, 1996, between Rockwood Casualty Insurance
Company and Fort Washington Holdings, Inc.
10.18 -- Pledge Agreement, dated December 31, 1996, between Rockwood Casualty Insurance Company
and Fort Washington Holdings, Inc.
10.19 -- Non-Compete and Non-Solicitation Agreement, dated December 31, 1996, between Front
Royal Insurance Company, Colony Insurance Company, Rockwood Casualty Insurance Company
and Hamilton Insurance Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------
<S> <C> <C>
10.20 -- Option Agreement, dated December 31, 1996, between Colony Insurance Company and Fort
Washington Holdings, Inc.
10.21 -- Non-Compete and Non-Solicitation Agreement, dated December 31, 1996, between Front
Royal Insurance Company, Colony Insurance Company and Rockwood Casualty Insurance
Company.
10.22 -- Non-Solicitation Agreement, dated December 31, 1996, between the Registrant and Bruce
Eckert.
10.23 -- Employment Agreement, dated December 31, 1996, between the Registrant and John Yediny.
10.24 -- Tax allocation Agreement, dated December 31, 1996, between the Registrant and Rockwood
Casualty Insurance Company.
10.25 -- Front Royal, Inc. 1996 Incentive Plan, as amended.
10.26 -- Front Royal, Inc. 1992 Stock Option Plan.
10.27 -- Form of Subscription Agreement, executed in connection with the August 25, 1997
Private Placement, between the Registrant and signatories thereto.
10.28 -- Form of First Amendment to the Amended and Restated Registration Rights Agreement,
executed in connection with the August 25, 1997 Private Placement, between the
Registrant and signatories thereto.
10.29 -- Form of Warrant, dated August 25, 1997.
10.30 -- Stock and Asset Purchase and Sale Agreement, dated as of March 6, 1998, among Front
Royal, Inc. and PNIC Holdings, Inc., as Buyer and Preferred National Financial Corp.,
Wycon Corporation, United American Financial Services Corporation and Ameridian
Adjustment Corp., as Seller, and Stephen Weicholz (for certain limited purposes).
21.1 -- List of Subsidiaries of Registrant.*
23.1 -- Consent of Robinson Silverman Pearce Aronsohn & Berman LLP (included in Exhibit 5.1).*
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Parente, Randolph, Orlando, Carey & Associates.
23.4 -- Consent of Deloitte & Touche LLP.
23.5 -- Consent of Brooks Pierce McLendon Humphry & Leonard (included in Exhibit 5.2).*
24.1 -- Powers of Attorney (included on Signature Page).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by Amendment.
<PAGE>
STOCK PURCHASE WARRANT
This Warrant is issued this 23rd day of September, 1994, by FRONT ROYAL,
INC., a North Carolina corporation (the "Company"), to J. ADAM ABRAM (J. ADAM
ABRAM and any subsequent assignee or transferee hereof are hereinafter referred
to collectively as "Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term. For and in consideration of J. ADAM ABRAM
making a loan to the Company in an amount of up to SIXTY-FIVE THOUSAND AND
NO/100ths DOLLARS ($65,000) pursuant to the terms of a promissory note of even
date herewith (the "Note") and related loan agreement of even date herewith (the
"Loan Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 7,025 shares of the Company's common stock (the
"Common Stock"), which the Company represents to equal .16% of the shares of
capital stock outstanding on the date hereof, calculated on a fully diluted
basis ("Base Amount"), provided that in the event that any portion of the
indebtedness evidenced by the Note is outstanding on the following dates, the
Base Amount shall be increased to the corresponding number set forth below:
Date Base Amount
---- -----------
September 23, 1997 9,366 shares, which the Company
represents to equal .21% of the shares of
capital stock outstanding on the date hereof
calculated on a fully diluted basis
September 23, 1998 11,708 shares, which the Company
represents to equal .26% of the shares of
capital stock outstanding on the date hereof
calculated on a fully diluted basis
September 23, 1999 14,049 shares, which the Company
represents to equal .31% of the shares of
capital stock outstanding on the date hereof
calculated on a fully diluted basis
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from the date hereof until September 30, 1999.
However, notwithstanding the foregoing, if the Second Disbursement (as defined
in Section 4.2 of the Loan Agreement) is not made, the Base Amount for the
initial period shall be reduced to 5,471, and the Base Amount for each
subsequent year shall be reduced as follows:
<PAGE>
Date Base Amount
---- -----------
September 23, 1997 7,294
September 23, 1998 9,118
September 23, 1999 10,942
2. Exercise Price. The exercise price per share for which all or any of the
Shares may be purchased pursuant to the terms of this Warrant shall be One Cent
($.01).
3. Exercise. This Warrant may be exercised by the Holder hereof (but only
on the conditions hereinafter set forth) as to all or any increment or
increments of One Hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: 2200 Gateway Boulevard, Morrisville, North
Carolina 27560 or such other address as the Company shall designate in a written
notice to the Holder hereof, together with this Warrant and a certified or
cashier's check payable to the Company for the aggregate purchase price of the
Shares so purchased. Upon exercise of this Warrant as aforesaid, the Company
shall as promptly as practicable, and in any event within fifteen (15) days
thereafter, execute and deliver to the Holder of this Warrant a certificate or
certificates for the total number of whole Shares for which this Warrant is
being exercised in such names and denominations as are requested by such Holder.
If this Warrant shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a new Warrant covering the number of
Shares in respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant. The Company
covenants and agrees that it will pay when due any and all state and federal
issue taxes which may be payable in respect of the issuance of this Warrant or
the issuance of any Shares upon exercise of this Warrant.
4. Covenants and Conditions. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be pledged, hypothecated, sold, made subject to a security interest, or
otherwise transferred without (i) an effective registration statement for
such Warrant under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not
required under the Securities Act or under any applicable Blue Sky Laws
(the Company hereby acknowledges that Bass, Berry & Sims is acceptable
counsel). Transfer of the shares issued upon the exercise of this Warrant
shall be restricted in the same manner and to the same extent as the
Warrant and the certificates representing such Shares shall bear
substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
-2-
<PAGE>
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
SECURITIES ACTS OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights,
if any, with respect thereto or to the issuance thereof. The Company shall
at all times reserve and keep available for issuance upon the exercise of
this Warrant such number of authorized but unissued shares of Common Stock
as will be sufficient to permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell any shares
of the Company's capital stock at a price below the fair market value of
such shares, without the prior written consent of the Holder hereof, other
than shares or options issued to the management of the Company pursuant to
an incentive plan approval by the Company's board of directors. The fair
market value of the Company's capital stock shall be determined in good
faith by the Company's board of directors. In the event that the Company
sells shares of the Company's capital stock in violation of this Section
4(c), the number of shares issuable upon exercise of this Warrant shall be
equal to the product obtained by multiplying the number of shares issuable
pursuant to this Warrant prior to such sale by the quotient obtained by
dividing (i) the fair market value of the shares issued in violation of
this Section 4(c) by (ii) the price at which such shares were sold.
5. Transfer of Warrant. Subject to the provisions of Section 4 hereof, this
Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
6. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company
-3-
<PAGE>
should offer to all of the Company's shareholders the right to purchase any
securities of the Company, then all shares of Common Stock that are subject to
this Warrant shall be deemed to be outstanding and owned by the Holder and the
Holder shall be entitled to participate in such rights offering. The Company
shall not grant any preemptive rights with respect to any of its capital stock
without the prior written consent of the Holder.
7. Observation Rights. The Holder of this Warrant shall receive notice of
and be entitled to attend or may send a representative to attend all meetings of
the Company's Board of Directors in a non-voting observation capacity, from the
date hereof until such time as the indebtedness evidenced by the Note has been
paid in full.
8. Adjustment Upon Changes in Stock.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring
after the date hereof, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such Holder would have received if this
Warrant had been exercised immediately prior to such stock split, stock
dividend, recapitalization, combination of shares, or other similar event.
If any adjustment under this Section 8(a) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 8(a), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event,
occurring after the date hereof, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares of the
same or another class or classes of securities of the Company or another
entity, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been
exercised immediately prior to such merger, consolidation, exchange of
shares, separation, reorganization or liquidation, or other similar event.
If any adjustment under this Section 8(b) would create a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject
to this Warrant shall be the next higher number of shares, rounding all
fractions upward. Whenever there shall be an adjustment pursuant to this
Section 8(b), the Company shall forthwith notify the Holder or Holders of
this Warrant of such adjustment, setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated.
-4-
<PAGE>
9. Registration.
(a) The Company and the holders of the Shares agree that if at any
time after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary offering, it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to such
filing, and, at the written request of any such registered holder, made
within ten (10) days after the receipt of such notice, will include therein
at the Company's cost and expense (including the fees and expenses of
counsel to such holder(s), but excluding underwriting discounts,
commissions and filing fees attributable to the Shares included therein)
such of the Shares as such holder(s) shall request; provided, however, that
if the offering being registered by the Company is underwritten and if the
representative of the underwriters certifies in writing that the inclusion
therein of the Shares would materially and adversely affect the sale of the
securities to be sold by the Company thereunder, then the Company shall be
required to include in the offering only that number of securities,
including the Shares, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among all selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder, but in no event shall the total amount
of Shares included in the offering be less than the number of securities
included in the offering by any other single selling shareholder).
(b) Whenever required under this Agreement to use its best efforts to
effect the registration of any of the Shares, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering such Shares and
use its best efforts to cause such registration statement to be
declared effective by the Commission as expeditiously as possible and
to keep such registration effective until the earlier of (A) the date
when all Shares covered by the registration statement have been sold
or (B) two hundred seventy (270) days from the effective date of the
registration statement; provided, that before filing a registration
statement or prospectus or any amendment or supplements thereto, the
Company will furnish to each Holder of Shares covered by such
registration statement and the underwriters, if any, copies of all
such documents proposed to be filed (excluding exhibits, unless any
such person shall specifically request exhibits), which documents will
be subject to the review of such Holders and underwriters, and the
Company will not file such registration statement or any amendment
thereto or any prospectus or any supplement thereto (including any
documents incorporated by reference therein) with the Commission if
(A) the underwriters, if any, shall reasonably object to such filing
or (B) if information in such registration statement or prospectus
concerning a particular selling Holder has changed and such Holder or
the underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such
-5-
<PAGE>
registration statement effective during the period referred to in
Section 9(b)(i) and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement, and cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed
with the Commission pursuant to Rule 424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them.
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdictions as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Shares owned by
such Holder, in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a
condition thereto to qualify to transact business or to file a general
consent to service of process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not
misleading.
(vi) Provide a transfer agent and registrar for all such Shares
not later than the effective date of such registration statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or any
underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent
retained by any such selling Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and independent
accountants of the Company to supply all information reasonably
-6-
<PAGE>
requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the underwriters,
if any, of the following events and (if requested by any such person)
confirm such notification in writing: (A) the filing of the prospectus
or any prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to the
registration statement or any post-effective amendment thereto, the
declaration of the effectiveness of such documents, (B) any requests
by the Commission for amendments or supplements to the registration
statement or the prospectus or for additional information, (C) the
issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose and (D) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threat of initiation of any proceeding for such
purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the underwriters,
if any, to facilitate the timely preparation and delivery of
certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least two
(2) business days prior to any delivery of the Shares to the
underwriters.
(xii) Provide a CUSIP number for all the Shares not later than
the effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement
and any post-effective amendment thereto and at each closing of an
underwritten offering: (A) make such representations and warranties to
the selling Holder(s) and the underwriters, if any, with respect to
the Shares and the registration statement as are customarily made by
issuers in primary underwritten offerings; (B) use its best efforts to
obtain "cold comfort" letters and updates thereof from the Company's
independent certified public accountants addressed to the selling
Holders and the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of a majority of the
Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company; and (D) obtain opinions of counsel to the Company
and updates thereof (which counsel and which opinions shall be
reasonably satisfactory to the underwriters, if any), covering the
matters customarily covered in
-7-
<PAGE>
opinions requested in underwritten offerings and such other matters as
may be reasonably requested by the selling Holders and underwriters or
their counsel. Such counsel shall also state that no facts have come
to the attention of such counsel which cause them to believe that such
registration statement, the prospectus contained therein, or any
amendment or supplement thereto, as of their respective effective or
issue dates, contains any untrue statement of any material fact or
omits to state any material fact necessary to make the statements
therein not misleading (except that no statement need be made with
respect to any financial statements, notes thereto or other financial
data or other expertized material contained therein). If for any
reason the Company's counsel is unable to give such opinion, the
Company shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the rendering
of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve-month period (or
ninety (90) days, if such period is a fiscal year) (A) commencing at
the end of any fiscal quarter in which the Shares are sold to
underwriters in a firm or best efforts underwritten offering, or (B)
if not sold to underwriters in such an offering, beginning with the
first month of the first fiscal quarter of the Company commencing
after the effective date of the registration statement, which
statements shall cover such twelve-month periods.
(c) After the date hereof, the Company shall not grant to any holder
of securities of the Company any registration rights which have a priority
greater than or equal to those granted to Holders pursuant to this Warrant
without the prior written consent of the Holder(s).
(d) The Company's obligations under Section 9(a) above with respect to
each Holder of Shares are expressly conditioned upon such Holder's
furnishing to the Company in writing such information concerning such
Holder and the terms of such holder's proposed offering as the Company
shall reasonably request for inclusion in the Registration Statement. If
any Registration Statement including any of the Shares is filed, then the
Company shall indemnify each Holder thereof (and each underwriter for such
Holder and each person, if any, who controls such underwriter within the
meaning of the Securities Act from any loss, claim, damage or liability
arising out of, based upon or in any way relating to any untrue statement
of a material fact contained in such Registration Statement or any omission
to state therein a material fact required to be stated herein or necessary
to make the statements therein not misleading, except for any such
statement or omission based on information furnished in writing by such
Holder expressly for use in connection with such Registration Statement;
and such Holder shall indemnify the Company (and each of its officers and
directors and each person, if any, who controls the Company within the
meaning of the Securities Act, each underwriter for the Company and each
person, if any, who controls such underwriter within the meaning of the
Securities Act) and each other such Holder against any loss, claim, damage
or liability arising from any such statement or omission which was made
-8-
<PAGE>
in reliance upon information furnished in writing to the Company by such
Holder of the Shares expressly for use in connection with such Registration
Statement.
(e) For purposes of this Section 9, all of the Registrable Securities
shall be deemed to be issued and outstanding.
10. Certain Notices. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or
make any special dividend or other distribution to the holders of its
Common Stock;
(c) offer for subscription to the holders of any of Common Stock any
additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell of all or
substantially all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date on which the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (ii) in the case of such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least
twenty (20) days' prior written notice of the date when the same shall take
place. Any notice required by clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and any notice required by
clause (ii) shall specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
FRONT ROYAL, INC.,
a North Carolina corporation
By:__________________________________
Title:_____________________________
-------------------------------------
J. ADAM ABRAM
-10-
<PAGE>
STOCK AND ASSET PURCHASE AGREEMENT
by and among
FIGGIE INTERNATIONAL INC.,
WAITE HILL HOLDINGS, INC.,
WAITE HILL SERVICES, INC.
and
FRONT ROYAL, INC.
Dated: October 21, 1994
<PAGE>
Table of Contents
Page
----
ARTICLE I
DEFINITIONS
1.1 Affiliate ............................................... 2
1.2 Agreement ............................................... 2
1.3 Annual Statutory Statements ............................. 2
1.4 Assignment Agreement .................................... 2
1.5 Bill of Sale ............................................ 3
1.6 Bond Salvage and Indemnification Agreement .............. 3
1.7 Bond Escrow Agreement ................................... 3
1.8 Bond Indemnification Fund ............................... 3
1.9 Bond Litigation ......................................... 3
1.10 Bond Recoverable ........................................ 3
1.11 Business Day ............................................ 4
1.12 Buyer ................................................... 4
1.13 Buyer's Closing Certificate ............................. 4
1.14 Buyer's Employees ....................................... 4
1.15 Cardinal ................................................ 4
1.16 Closing ................................................. 4
1.17 Closing Date ............................................ 4
1.18 Code .................................................... 5
1.19 Colony .................................................. 5
1.20 Colony Shares ........................................... 5
1.21 Companies ............................................... 5
1.22 Contracts ............................................... 5
1.23 Deposit ................................................. 5
1.24 Employee Plans .......................................... 5
1.25 Employees ............................................... 5
1.26 Equipment ............................................... 5
1.27 Equipment Leases ........................................ 6
1.28 ERISA ................................................... 6
1.29 ERISA Affiliate ......................................... 6
1.30 Escrow Agent ............................................ 6
1.31 Figgie .................................................. 6
1.32 Figgie's Closing Certificate ............................ 6
1.33 Hamilton ................................................ 6
1.34 Hamilton Shares ......................................... 6
1.35 Hamilton Surplus Note ................................... 7
1.36 Holdback Payment ........................................ 7
1.37 Holdings ................................................ 7
1.38 HSR Act ................................................. 7
1.39 INA ..................................................... 7
1.40 Indemnity Claim ......................................... 7
1.41 Intellectual Property ................................... 7
1.42 Knowledge ............................................... 7
1.43 Law ..................................................... 7
1.44 Lease ................................................... 8
1.45 Lien .................................................... 8
-i-
<PAGE>
1.46 LLG&M.................................................... 8
1.47 Material Adverse Effect.................................. 8
1.48 Ohio Code................................................ 8
1.49 Ohio Department.......................................... 8
1.50 Opinion of Buyer's Counsel............................... 8
1.51 Opinions of Figgie's Counsel............................. 9
1.52 Pension Plan............................................. 9
1.53 Permits.................................................. 9
1.54 Permitted Liens.......................................... 9
1.55 Purchased Assets......................................... 9
1.56 Purchased Stock.......................................... 9
1.57 Purchase Price........................................... 9
1.58 Quarterly Statutory Statements .......................... 9
1.59 SAP...................................................... 10
1.60 Services................................................. 10
1.61 Services Agreements...................................... 10
1.62 Software Licenses........................................ 10
1.63 Statutory Statements..................................... 10
1.64 Sublease................................................. 10
1.65 Subsidiary............................................... 10
1.66 Tax Indemnity Agreement.................................. 11
1.67 Tillinghast Report....................................... 11
1.68 Virginia Code............................................ 11
1.69 Virginia Commission...................................... 11
ARTICLE II
PURCHASE AND SALE OF STOCK AND ASSETS
2.1 Transfer of Stock and Assets............................. 11
2.2 Sublease................................................. 12
2.3 Assumption of Liabilities................................ 12
2.2 Purchase Price........................................... 12
2.5 Allocation of Purchase Price............................. 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIGGIE, HOLDINGS AND SERVICES
3.1 Organization and Good Standing........................... 13
3.2 Licenses and Permits..................................... 13
3.3 Capitalization........................................... 14
3.4 Authority, Validity and Enforceability................... 15
3.5 No Violation or Breach................................... 16
3.6 Title to Shares and Purchased Assets..................... 17
3.7 Subsidiaries............................................. 17
3.8 Consents................................................. 17
3.9 Statutory Statements..................................... 18
3.10 Insurance Regulatory Filings............................. 18
3.11 Policy Forms............................................. 19
3.12 Transactions with Interested Persons..................... 19
3.13 Reinsurance Policies..................................... 20
3.14 Litigation............................................... 21
3.15 No Brokers............................................... 22
-ii-
<PAGE>
3.16 Absence of Certain Changes............................... 22
3.17 Taxes.................................................... 24
3.18 Contracts................................................ 27
3.19 Compliance with Other Instruments and Laws............... 28
3.20 Employees................................................ 28
3.21 Employee Benefit Matters................................. 28
3.22 Intellectual Property.................................... 30
3.23 Disclosure............................................... 31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization and Good Standing........................... 31
4.2 Authority, Validity and Enforceability................... 32
4.3 No Violation or Breach................................... 32
4.4 Consents................................................. 33
4.5 Purchase for Investment.................................. 33
4.6 Litigation............................................... 33
4.7 No Brokers............................................... 34
ARTICLE V
CERTAIN HATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course............................... 34
5.2 Indebtedness............................................. 35
5.3 Issuance of Stock........................................ 35
5.4 Compensation............................................. 35
5.5 Compliance with Law...................................... 36
5.6 Access to Information.................................... 36
5.7 Cooperation; Best Efforts................................ 37
5.8 Consents................................................. 37
5.9 Publicity................................................ 38
5.10 No Solicitation.......................................... 38
5.11 Articles and Bylaws...................................... 38
5.12 Services Agreements...................................... 39
5.13 Telephone System......................................... 39
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
6.1 Compliance with Agreement................................ 40
6.2 Proceedings and Instruments Satisfactory................. 40
6.3 No Litigation............................................ 41
6.4 Representations and Warranties........................... 41
6.5 Ratings.................................................. 42
6.6 Tax Recoverable.......................................... 42
6.7 Deliveries at Closing.................................... 42
6.8 Regulatory Approvals..................................... 42
6.9 Consents................................................. 42
6.10 Resignation of Directors and Officers.................... 43
6.11 Employee Plans........................................... 43
6.12 Waiting Periods.......................................... 43
-iii-
<PAGE>
6.13 Policyholders' Surplus................................... 43
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF FIGGIE, HOLDINGS AND SERVICES
7.1 Compliance with Agreement................................ 44
7.2 Proceedings and Instruments Satisfactory ................ 44
7.3 No Litigation............................................ 45
7.4 Representations and Warranties........................... 45
7.5 Deliveries at Closing.................................... 45
7.6 Regulatory Approvals..................................... 45
7.7 Consents................................................. 46
7.8 Waiting Periods.......................................... 46
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Employees................................................ 46
8.2 Employee Benefit Plan Matters............................ 48
8.3 Transfer Taxes and Fees.................................. 48
8.4 Records.................................................. 48
8.5 Access................................................... 49
8.6 Cooperation.............................................. 50
8.7 Confidentiality.......................................... 50
8.8 Review of Reserves....................................... 50
8.9 Holdback Payment......................................... 51
8.10 Use of Name.............................................. 51
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties............... 52
9.2 Indemnification by Figgie, Holdings and
Services................................................. 53
9.3 Indemnification by Buyer................................. 54
9.4 Limitation of Liability.................................. 55
9.5 Notice of Indemnity Claims............................... 56
9.6 Indemnity Amounts to be Computed on After-Tax
Basis.................................................... 57
9.7 Reduction in Holdback Payment............................ 58
9.8 Arbitration.............................................. 59
9.9 Remedies Cumulative...................................... 60
ARTICLE X
TERMINATION
10.1 Termination.............................................. 61
10.2 Effect of Termination.................................... 61
10.3 Amendment................................................ 62
10.4 Extension; Waiver........................................ 62
-iv-
<PAGE>
ARTICLE XI
DEPOSIT; PAYMENTS ON TERMINATION
11.1 Deposit.................................................. 62
11.2 LLG&M.................................................... 63
11.3 Distribution............................................. 64
11.4 Payment to Figgie........................................ 64
11.5 Payment to Buyer......................................... 64
11.6 Instructions to LLG&M.................................... 65
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement......................................... 65
12.2 Expenses................................................. 66
12.3 Governing Law............................................ 66
12.4 Assignment............................................... 66
12.5 Further Assurances....................................... 66
12.6 Notices.................................................. 67
12.7 Counterparts; Headings................................... 68
12.8 Interpretation........................................... 68
12.9 Severability............................................. 68
12.10 No Reliance.............................................. 68
Exhibits
Exhibit 1.4 Assignment Agreement
Exhibit 1.5 Bill of Sale
Exhibit 1.6 Bond Salvage and Indemnification Agreement
Exhibit 1.7 Bond Escrow Agreement
Exhibit 1.13 Buyer's Closing Certificate
Exhibit 1.32 Figgie's Closing Certificate
Exhibit 1.50 Opinion of Buyer's Counsel
Exhibit 1.51 Opinions of Figgie's Counsel
Exhibit 1.64 Sublease
Exhibit 1.66 Tax Indemnity Agreement
-v-
<PAGE>
Schedules
Schedule 1.9 Bond Litigation
Schedule 1.26A Equipment
Schedule 1.26B Excluded Equipment
Schedule 1.27 Equipment Leases
Schedule 1.42 Knowledge
Schedule 1.54 Permitted Liens
Schedule 1.62A Software Licenses
Schedule 1.62B Excluded Software Licenses
Schedule 2.5 Allocation of Purchase Price
Schedule 3.2 Licensed Jurisdictions
Schedule 3.8 Consents
Schedule 3.10 Deficiencies in Regulatory Filings
Schedule 3.11 Policy Forms
Schedule 3.12 Related Party Transactions
Schedule 3.13 Reinsurance Contracts and Treaties
Schedule 3.14 Litigation
Schedule 3.15 Brokers
Schedule 3.16 Certain Changes
Schedule 3.17 Taxes
Schedule 3.18 Contracts
Schedule 3.20 Employees
Schedule 3.22 Intellectual Property
Schedule 4.4 Consents
Schedule 6.6 Tax Recoverable
-vi-
<PAGE>
STOCK AND ASSET PURCHASE AGREEMENT
THIS STOCK AND ASSET PURCHASE AGREEMENT is made as of the 21st day of
October, 1994, by and among FIGGIE INTERNATIONAL INC., a Delaware corporation
("Figgie"), WAITE HILL HOLDINGS, INC., a Delaware corporation ("Holdings"),
WAITE HILL SERVICES, INC., a Delaware corporation ("Services"), and FRONT ROYAL,
INC. a North Carolina corporation ("Buyer").
RECITALS
WHEREAS, Figgie owns, directly or indirectly, all of the outstanding
capital stock of Holdings, Services, Colony Insurance Com?any, a Virginia
corporation ("Colony"), and Hamilton Insurance Company, a Virginia corporation
("Hamilton"); and
WHEREAS, Figgie, Holdings and Services desire to sell, and Buyer desires to
purchase, all of the outstanding capital stock of Colony and Hamilton and
certain of Services' assets;
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is agreed that:
-1-
<PAGE>
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1 Affiliate. "Affiliate" shall mean, with respect to a specified person,
another person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the person
specified. "Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
1.2 Agreement. "Agreement" shall mean this Stock and Asset Purchase
Agreement, together with the Exhibits and Schedules attached hereto as the same
may be amended from time to time in accordance with the terms hereof.
1.3 Annual Statutory Statements. "Annual Statutory Statements" shall mean
the annual statutory convention statements of the Companies as at December 31,
1993, filed with the Virginia Commission pursuant to the Virginia Code or with
the Ohio Department pursuant to the Ohio Code, as applicable.
1.4 Assignment Agreement. "Assignment Agreement" shall mean the Assignment
Agreement in the form of Exhibit 1.4 to be delivered by Buyer to Figgie,
Holdings and Services at the Closing pursuant to Section 7.5 hereof.
-2-
<PAGE>
1.5 Bill of Sale. "Bill of Sale" shall mean a bill of sale in the form of
Exhibit 1.5 to be delivered by Figgie, Holdings and Services to Buyer at the
Closing pursuant to Section 6.7 hereof.
1.6 Bond Salvage and Indemnification Agreement. "Bond Salvage and
Indemnification Agreement" shall mean the agreement among Buyer, the Companies,
Figgie, Holdings and Services with respect to the Bond Recoverable and the Bond
Litigation in the form of Exhibit 1.6.
1.7 Bond Escrow Agreement. "Bond Escrow Agreement" shall mean the escrow
agreement in the form of Exhibit 1.7.
1.8 Bond Indemnification Fund. "Bond Indemnification Fund" shall mean the
fund established pursuant to the Bond Salvage and Indemnification Agreement and
the Bond Escrow Agreement.
1.9 Bond Litigation. "Bond Litigation" shall mean any and all actions,
proceedings, investigations, claims or counterclaims pending or threatened at
any time against or affecting the Companies, Services, Holdings, Figgie, any
Affiliate of the foregoing, or INA with respect to the Bond Recoverable,
including but not limited to the matters set forth on Schedule 1.9.
1.10 Bond Recoverable. "Bond Recoverable" shall mean all rights and
obligations of the Companies and their Affiliates in connection with their
participation prior to the Closing Date in any investor bond program through
which any of the Companies or their Affiliates have or had any liability,
including, but not
-3-
<PAGE>
limited to, the investor bond program in which INA acted as primary underwriter.
For purposes of this definition of Bond Recoverable, Affiliates of the Companies
shall mean all Affiliates of the Companies prior to the Closing Date.
1.11 Business Day. "Business Day" shall mean any day except a Saturday,
Sunday or any day on which United States chartered banking institutions are
required by Law to close.
1.12 Buyer. "Buyer" shall mean Front Royal, Inc., a North Carolina
corporation.
1.13 Buyer's Closing Certificate. "Buyer's Closing Certificate" shall mean
the certificate of Buyer in the form of Exhibit 1.13.
1.14 Buyer's Employees. "Buyer's Employees" shall have the meaning set
forth in Section 8.1 hereof.
1.15 Cardinal. "Cardinal" shall mean Cardinal Casualty Company, an Ohio
corporation.
1.16 Closing. "Closing" shall mean the conference held at 10:00 a.m., local
time, on the Closing Date, at the offices of Hunton & Williams, 951 East Byrd
Street, Richmond, Virginia. All transactions occurring at the Closing shall be
deemed to have occurred simultaneously, and no one transaction shall be deemed
to be complete until all transactions are completed.
1.17 Closing Date. "Closing Date" shall mean a date which is three Business
Days after satisfaction or waiver of the conditions set forth in Sections 6.8
and 7.6 [regulatory approvals], 6.9 and 7.7 [Consents], and 6.12 and 7.8 [HSR]
or
-4-
<PAGE>
such other date as Figgie and Buyer may mutually agree upon, but in no event
later than December 30, 1994.
1.18 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.19 Colony. "Colony" shall mean Colony Insurance Company, a Virginia
corporation.
1.20 Colony Shares. "Colony Shares" shall mean 200,000 shares of the Common
Stock, $10.00 par value per share, of Colony.
1.21 Companies. "Companies" shall mean, collectively, Cardinal, Colony and
Hamilton.
1.22 Contracts. "Contracts" shall have the meaning set forth in Section
3.18 hereof.
1.23 Deposit. "Deposit" shall have the meaning set forth in Section 11.1
hereof.
1.24 Employee Plans. "Employee Plans" shall mean the employee benefit plans
of the Companies and the ERISA Affiliates, which shall include without
limitation any contract, agreement, loan or arrangement which is an "employee
benefit plan," as defined in Section 3(3) of ERISA.
1.25 Employees. "Employees" shall have the meaning set forth in Section
3.20 hereof.
1.26 Equipment. "Equipment" shall mean all equipment, furniture, fixtures,
furnishings, software, parts and other items of tangible and intangible personal
property owned or leased by Figgie, Holdings, Services, the Companies or their
Affiliates and
-5-
<PAGE>
located at the Companies' offices at 1063 Technology Park Drive, Glen Allen,
Virginia, including but not limited to those items listed on Schedule 1.26A, and
other than such equipment, furniture, fixtures, etc., listed on Schedule 1.26B.
1.27 Equipment Leases. "Equipment Leases" shall mean the equipment lease
obligations of Services listed on Schedule 1.27.
1.28 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.29 ERISA Affiliate. "ERISA Affiliate" shall mean each trade or business,
whether or not incorporated, which with any of the Companies or Services is
treated as a single employer under Code Section 414(b), (c), (m) or (o).
1.30 Escrow Agent. "Escrow Agent" shall mean Wilmington Trust Company, who
shall hold the Bond Indemnification Fund in accordance with the provisions of
the Bond Escrow Agreement.
1.31 Figgie. "Figgie" shall mean Figgie International Inc., a Delaware
corporation.
1.32 Figgie's Closing Certificate. "Figgie's Closing Certificate" shall
mean the certificate of Figgie, Holdings and Services in the form of Exhibit
1.32.
1.33 Hamilton. "Hamilton" shall mean Hamilton Insurance Company, a Virginia
corporation.
1.34 Hamilton Shares. "Hamilton Shares" shall mean 1,500 shares of the
Common Stock, $1,000.00 par value per share, of Hamilton.
-6-
<PAGE>
1.35 Hamilton Surplus Note. "Hamilton Surplus Note" shall mean the surplus
note issued by Hamilton to Figgie on August 1, 1994, in the original principal
amount of $1,000,000.00.
1.36 Holdback Payment. "Holdback Payment" shall mean an amount equal to
$750,000.00, less the indemnification payments satisfied pursuant to Section 9.7
hereof, which amount shall be paid by Buyer to Figgie pursuant to Section 8.9
hereof.
1.37 Holdings. "Holdings" shall mean Waite Hill Holdings, Inc., a Delaware
corporation.
1.38 HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (15 U.S.C. ss. 18(a), as amended).
1.39 INA. "INA" shall mean the Insurance Company of North America and
meaning set shall have its successors and assigns.
1.40 Indemnity Claim. "Indemnity Claim" shall have the meaning set forth in
Section 9.5 hereof.
1.41 Intellectual Property. "Intellectual Property" shall have the meaning
set forth in Section 3.22 hereof.
1.42 Knowledge. "Knowledge", as to each of the parties, shall mean the
actual knowledge of the persons listed on Schedule 1.42 after due inquiry of
such party.
1.43 Law. "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations, permits,
licenses and orders promulgated thereunder.
-7-
<PAGE>
1.44 Lease. "Lease" shall mean the lease between Holdings and Virginia
Center, Inc., with respect to the property located at 1063 Technology Park
Drive, Glen Allen, Virginia.
1.45 Lien. "Lien" shall mean any lien, pledge, charge, security interest,
encumbrance, title retention agreement, restriction, advance, claim or option.
1.46 LLG&M. "LLG&M" shall mean LeBoeuf, Lamb, Greene & MacRae, New York,
New York, who shall hold the Deposit in accordance with the provisions of
Article XI hereof.
1.47 Material Adverse Effect. "Material Adverse Effect" shall mean
reasonably likely to have an effect on the properties, business, results of
operations, condition (financial or otherwise) or affairs of one of the
Companies, any combination of the Companies or all of the Companies in the
aggregate, resulting in (a) claims, losses or liabilities of 525,000.00 or more
or (b) a diminution in operating income or profits in the two-year period
following the Closing of $100,000.00 or more.
1.48 Ohio Code. "Ohio Code" shall mean the Ohio Insurance Code and the
regulations thereto.
1.49 Ohio Department. "Ohio Department" shall mean the Ohio Department of
Insurance.
1.50 Opinion of Buyer's Counsel. "Opinion of Buyer's Counsel" shall mean
the opinion of Hunton & Williams, counsel to Buyer, and the opinion of Vorys,
Sater, Seymour & Pease, special Ohio insurance regulatory counsel to Buyer, in
the form of Exhibit 1.50.
-8-
<PAGE>
1.51 Opinions of Figgie's Counsel. "Opinions of Figgie's Counsel" shall
mean the opinion of LLG&M, special counsel to Figgie, and the opinion of Robert
Vilsack, inside corporate counsel to Figgie, in the form of Exhibit 1.51.
1.52 Pension Plan. "Pension Plan" shall have the meaning set forth in
Section 3.21 hereof.
1.53 Permits. "Permits" shall mean all licenses, permits and other
governmental authorizations, registrations and approvals required to conduct the
business of the Companies.
1.54 Permitted Liens. "Permitted Liens" shall mean the liens described on
Schedule 1.54.
1.55 Purchased Assets. "Purchased Assets" shall mean the Hamilton Surplus
Note, all of the Equipment and any Intellectual Property not owned by the
Companies.
1.56 Purchased Stock. "Purchased Stock" shall mean all of the outstanding
capital stock of Colony and all of the outstanding capital stock of Hamilton.
1.57 Purchase Price. "Purchase Price" shall mean $15.0 million plus the
Holdback Payment.
1.58 Quarterly Statutory Statements. "Quarterly Statutory Statements" shall
mean the quarterly statutory convention statements of the Companies as at March
31, 1994 and June 30, 1994 filed with the Virginia Commission pursuant to the
Virginia Code or with the Ohio Department pursuant to the Ohio Code, as
applicable.
-9-
<PAGE>
1.59 SAP. "SAP" shall mean statutory accounting practices prescribed or
permitted by the Virginia Commission, with respect to Colony and Hamilton, and
the Ohio Department, with respect to Cardinal.
1.60 Services. "Services" shall mean Waite Hill Services, Inc., a Delaware
corporation.
1.61 Services Agreements. "Services Agreements" shall mean (a) the three
Services Agreements, each dated as of January 1, 1993, between, in each case,
one of the Companies and Services and (b) the oral services agreements among
each of the Companies, Services and Figgie, each of which are listed on Schedule
3.12.
1.62 Software Licenses. "Software Licenses" shall mean all licenses related
to software used by the Companies or Services, including but not limited to
those items listed on Schedule 1.62A, and other than such software licenses
listed on Schedule 1.62B.
1.63 Statutory Statements. "Statutory Statements" shall mean, collectively,
the Annual Statutory Statements and the Quarterly Statutory Statements.
1.64 Sublease. "Sublease" shall mean the Sublease between Holdings and
Buyer, substantially in the form of Exhibit 1.64.
1.65 Subsidiary. "Subsidiary" of any person shall mean any corporation or
other business entity a majority of the voting stock (or other beneficial
interests) of which, entitled to vote for the election of directors (or their
counterparts), is owned by such person or a Subsidiary of such person.
-10-
<PAGE>
1.66 Tax Indemnity Agreement. "Tax Indemnity Agreement" shall mean the tax
indemnity agreement by and among Buyer, Figgie, Holdings and the Companies in
the form of Exhibit 1.66.
1.67 Tillinghast Report. "Tillinghast Report" shall mean the actuarial
report dated as of June 30, 1994 prepared by Tillinghast regarding the reserves
of the Companies.
1.68 Virginia Code. "Virginia Code" shall mean the Virginia Insurance Code,
and the regulations thereto.
1.69 Virginia Commission. "Virginia Commission" shall mean the Virginia
State Corporation Commission.
ARTICLE II
PURCHASE AND SALE OF STOCK AND ASSETS
2.1 Transfer of Stock; and Assets. On the Closing Date, Figgie, Holdings
and Services, as the case may be, shall sell, convey, transfer, assign, and
deliver to Buyer, and Buyer shall acquire, the Purchased Stock and the Purchased
Assets. At the Closing, subject to the terms and conditions of this Agreement,
Holdings agrees to transfer and deliver to Buyer one or more certificates
evidencing all of the issued and outstanding capital stock of Colony and
Hamilton, and Services agrees to transfer and deliver title to the Equipment, in
each case free and clear of all Liens except, in the case of title to the
Equipment, for Permitted Liens. In full payment for the Purchased Stock and the
Purchased Assets, Buyer shall assume the Equipment Leases and the
-11-
<PAGE>
Software Licenses and shall pay the Purchase Price, as provided in Sections 2.4
and 8.9 hereof.
2.2 Sublease. At the Closing, Holdings and Buyer will enter into the
Sublease.
2.3 Assumption of Liabilities. At the Closing, Buyer will assume all of
Services' obligations under the Equipment Leases and the Software Licenses that
accrue on or after the Closing Date. Figgie and Buyer shall cooperate with each
other to facilitate the payment of each party's pro rata portion of such
obligations during the payment period in which the Closing occurs.
2.4 Purchase Price. At the Closing, Buyer will pay the Purchase Price (less
the Holdback Payment, which amount shall be payable as provided in Section 8.9
hereof) as follows:
(a) Buyer shall pay by wire transfer to the Escrow Agent the amount of
the Bond Indemnification Fund as required by the Bond Salvage and
Indemnification Agreement;
(b) Buyer shall direct LLG&M to distribute to Figgie the Deposit and
shall provide Figgie with written confirmation, in a form reasonably
satisfactory to Figgie, that LLG&M has received such directive; and
(c) Buyer shall pay by wire transfer to an account designated by
Figgie the difference between (i) $15.0 million and (ii) the sum of the
amounts specified in clauses (a) and (b) of this Section 2.4.
-12-
<PAGE>
2.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Purchased Stock and the Purchased Assets in accordance with Schedule
2.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIGGIE, HOLDINGS AND SERVICES
Each of Figgie, Holdings and Services represents and warrants, jointly and
severally, to Buyer as follows:
3.1 Organization and Good Standing. Each of Figgie, Holdings and Services
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Colony and Hamilton is a corporation duly
organized, validly existing and in good standing under the laws or the
Commonwealth of Virginia. Cardinal is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio. Each of the
Companies has all requisite corporate power and authority to conduct its
business as currently conducted and to own or lease and to operate its
properties.
3.2 Licenses and Permits. Each of the Companies has all Permits required in
each of the jurisdictions listed on Schedule 3.2 to engage in the business of
writing insurance policies of the type specified on Schedule 3.2. Each of the
Companies is duly licensed and qualified to transact those lines of insurance
business in those states and jurisdictions listed on Schedule 3.2. Except as set
forth on Schedule 3.2, all such Permits are
-13-
<PAGE>
owned by the Companies, are in full force and effect and none of the Companies,
Services, Holdings or Figgie has received any notice of any event, inquiry,
investigation or proceeding that could result in a penalty or fine in excess of
$5,000.00, singly or in the aggregate, or in the suspension, revocation or
limitation on any such Permit, and to the Knowledge of Figgie, Holdings, the
Companies or Services, there is no basis for any such fine, penalty, suspension,
revocation or limitation. Each of the Companies possesses the minimum statutory
capital and surplus as required by each such jurisdiction for the type of
insurance written by the Companies in each jurisdiction set forth on Schedule
3.2.
3.3 Capitalization.
(a) Colony. The authorized capital stock of Colony consists of 200,000
shares of Common Stock, $10.00 par value per share, 200,000 of which are
issued and outstanding and owned of record and beneficially by Holdings,
free and clear of any Liens. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable.
(b) Hamilton. The authorized capital stock of Hamilton consists of
1,500 shares of Common Stock, $1,000.00 par value per share, 1,500 of which
are issued and outstanding, and owned of record and beneficially by
Holdings free and clear of any Liens. All such outstanding
-14-
<PAGE>
shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Cardinal. The authorized capital stock of Cardinal consists of
1,000 shares of Common Stock, 51,500.00 par value per share, 1,000 of which
are issued and outstanding, 995 shares of which are owned of record and
beneficially by Colony free and clear of any Liens and one share of which
is owned of record and beneficially by each of Edward Desch, Paul Antal,
John K. Latham, L. A. Harthun and V. A. Chiarucci. All such outstanding
shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(d) Services. All of the issued and outstanding shares of capital
stock of Services are owned of record and beneficially by Holdings.
(e) No Rights. No subscriptions, options, warrants, calls or rights of
any kind, to purchase or otherwise acquire, and no securities convertible
into capital stock of Colony, Hamilton or Cardinal, are outstanding or
claimed by any person.
3.4 Authority, Validity and Enforceability. Each of Figgie, Holdings and
Services has full corporate power and authority to execute, deliver and perform
its obligations under this Agreement and to consummate the transactions required
of it contemplated hereby. The execution, delivery and performance by Figgie,
Holdings and Services of this Agreement and the consumma-
-15-
<PAGE>
tion of the transactions contemplated hereby, as the case may be, have been duly
and validly authorized by each of Figgie's, Holdings' and Services' Board of
Directors and by the shareholders of Services. No other action or proceeding on
the part of Figgie, Holdings and Services is necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each of Figgie,
Holdings and Services and constitutes a valid, legal and binding obligation of
Figgie, Holdings and Services, as the case may be, enforceable in accordance
with its terms.
3.5 No Violation or Breach. The execution, delivery and performance by
Figgie, Holdings and Services of this Agreement does not, and the consummation
of the transactions required by each contemplated hereby will not (with or
without the giving of notice or the lapse of time or both):
(a) violate or require any consent or approval under any provision of
the respective Articles of Incorporation or bylaws of Figgie, Holdings,
Services, or any of the Companies; or
(b) except as set forth in Section 3.8 hereof, violate or result in a
default of, or require any consent or approval under, or result in the
termination of or loss of any right (including any right of acceleration,
termination or cancellation) in or with respect to, any Contract, Permit,
Equipment Lease or Software License; or
-16-
<PAGE>
(c) violate or result in a default of, or require any consent or
approval under any judgment, settlement, consent, injunction, decree, order
or ruling of any court or governmental authority, to which Figgie,
Holdings, Services, or any of the Companies is a party or is otherwise
subject; or
(d) result in any Lien upon any properties, assets, business or
agreements of the Companies howsoever arising.
3.5 Title to Shares and Purchased Assets. Upon delivery to Buyer of
certificates representing the Colony Shares and the Hamilton Shares, Buyer will
acquire good and valid title to the Colony Shares and the Hamilton Shares free
of any Liens other than (a) Liens that arise solely as a result of Buyer's
actions and (b) restrictions on transferability generally imposed on transfers
of securities by federal and state securities laws and state insurance laws.
Upon execution and delivery of the Bill of Sale and the Assignment Agreement,
Buyer will acquire the Purchased Assets free of any Liens, other than the
Permitted Liens.
3.7 Subsidiaries. Colony has no Subsidiaries other than Cardinal. Neither
Cardinal nor Hamilton has any Subsidiaries.
3.8 Consents. Except as set forth in Schedule 3.8, no consent, license,
approval, order or authorization of, or registration, filing or declaration
with, any governmental authority, is required to be obtained or made, and no
consent of any third party is required to be obtained, by Figgie, Holdings,
-17-
<PAGE>
the Companies or Services in connection with the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
3.9 Statutory Statements. Figgie, Holdings, the Companies and Services have
delivered to Buyer the Statutory Statements. The Statutory Statements were
prepared in accordance with SAP as it existed at the time they were submitted to
the Virginia Commission or the Ohio Department, as applicable, and such
accounting practices were applied on a consistent basis throughout the periods
indicated, except as disclosed thereon or in the notes thereto. No material
deficiency has been asserted with respect to the Statutory Statements by either
the Virginia Commission or the Ohio Department.
3.10 Insurance Regulatory Filings. Since January 1, 1992, each of the
Companies has filed or otherwise provided all reports, data, other information
and applications required to be filed or otherwise provided to the Virginia
Commission, the Ohio Department and all other federal, state or local
governmental authorities with jurisdiction over any of the Companies except
where the failure to file would not have a Material Adverse Effect. Figgie has
furnished to Buyer copies of all reports or examinations (whether financial,
market conduct or other) issued by the Virginia Commission, the Ohio Department
and all other state insurance regulatory authorities in respect of any of the
Companies received since January 1, 1992. Except as listed on Schedule 3.10, no
deficiencies material to the financial
-18-
<PAGE>
condition, operations or prospects of any of the Companies have been asserted by
the Virginia Commission, the Ohio Department or any other state insurance
regulatory authority with respect to any reports or filings made on behalf of
any of the Companies since January 1, 1992. Figgie has supplied Buyer with
copies of all written responses submitted on behalf of any of the Companies
since January l, 1992, in respect of any report or examination (whether
financial, market conduct or other) of any of the Companies by the Virginia
Commission, the Ohio Department or any other state regulatory authority. Figgie
has made available to Buyer all files of the Companies relating to
correspondence with the Virginia Commission, the Ohio Department or any other
insurance regulatory authority.
3.11 Policy Forms. All forms of insurance policies which have been issued
by the Companies since January 1, 1992 are listed on Schedule 3.11. Such forms
are in compliance in all material respects with all applicable Law and, to the
extent required under applicable Law, are on forms approved by the insurance
regulatory authority of the jurisdiction where issued or have been filed with
and not objected to by such authority within the period provided for objection.
3.12 Transactions with Interested Persons. No officer or director of any of
the Companies, Holdings, Figgie or Services owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of any of the Companies,
-19-
<PAGE>
Holdings or Services or any person or entity which has a material contract or
arrangement with any of the Companies, except for transactions on terms no less
favorable to such Company than those prevailing in comparable arm's-length
transactions. Schedule 3.12 lists or describes all contracts between Services,
Holdings or Figgie and any of the Companies and all services provided by
Services, Holdings or Figgie to any of the Companies other than contracts
relating to the Bond Recoverable.
3.13 Reinsurance Policies. Set forth in Schedule 3.13 is a complete and
accurate list of all in-force reinsurance contracts and treaties under which any
of the Companies has ceded or assumed reinsurance obligations. Each contract and
treaty set forth on Schedule 3.13 (or required to be set forth on Schedule 3.13)
is in full force and effect and will not be terminated or otherwise adversely
affected as a result of the transactions contemplated hereby. Except as set
forth on Schedule 3.13, such contract or treaty under which any of the Companies
cedes reinsurance obligations is qualified under all Laws applicable to
reinsurance policies and treaties to receive the statutory credit assigned to
such contract or treaty in the Statutory Statements at the time such Statutory
Statements were prepared. None of the Companies has violated any of the terms
and conditions of any such policies and treaties and, to the Knowledge of
Figgie, Services, Holdings and the Companies, all of the covenants to be
performed by any other party under any such policy and treaties were negotiated
with independent third parties in good faith at
-20-
<PAGE>
arm's length, other than any such policies or treaties among the Companies and
their Affiliates as listed on Schedule 3.13. Schedule 3.13 separately sets forth
all contracts or treaties of reinsurance no longer in force to which any of the
Companies was a party, under which, to the Knowledge of Figgie, Holdings,
Services or the Companies, benefits or liabilities remain outstanding, except
for contracts or treaties which would not have a Material Adverse Effect.
3.14 Litigation. Except as set forth on Schedule 3.14, there is no action,
proceeding, investigation or claim pending or, to the Knowledge of Figgie,
Holdings, Services or any of the Companies, threatened against or affecting the
Companies or Services or their respective assets before any court or
governmental or regulatory authority or body that, if adversely determined,
would have a Material Adverse Effect or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto or in connection
with the purchase and sale of the Purchased Stock or the Purchased Assets other
than (a) litigation arising out of insurance policies written by any of the
Companies in the ordinary course and (b) the Bond Litigation. There is no state
of facts, and to the Knowledge of Figgie, Holdings, Services or any of the
Companies, there has occurred no event or group of related events that would
form the basis of any claim against any of the Companies or Services for
liability on account of breach of Contract, violation of statute or regulation,
or otherwise in connection with the performance of
-21-
<PAGE>
the Contracts or the conduct of their respective businesses that, if adversely
determined, would have a Material Adverse Effect or which questions the validity
of this Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock or the Purchased
Assets other than (a) litigation arising out of insurance policies written by
any of the Companies in the ordinary course and (b) the Bond Litigation.
3.15 No Brokers. None of Figgie, Holdings, Services or any of the Companies
has employed any finder, broker, agent or other intermediary in connection with
the negotiation of this Agreement or the consummation of any of the transactions
contemplated hereby, other than those persons listed on Schedule 3.15 all of
whose fees shall be paid by Figgie.
3.16 Absence of Certain Changes. Except as set forth on Schedule 3.16,
since June 30, 1994:
(a) none of the Companies has incurred any obligation or liability
other than in the ordinary course of business; and
(b) none of the Companies or Services has:
(i) issued, sold or delivered or agreed to issue, sell or deliver
any shares of its capital stock; or any options, warrants or rights to
acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock except for the transactions
contemplated by this Agreement;
-22-
<PAGE>
(ii) incurred any obligations or liabilities, whether absolute,
accrued, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of
others), other than obligations and liabilities incurred in the
ordinary course of business and obligations and liabilities under the
Contracts;
(iii) mortgaged, pledged or subjected to any Lien any of its
assets, tangible or intangible, other than Permitted Liens;
(iv) acquired or disposed of any assets or properties, or entered
into any agreement or other arrangement for any such acquisition or
disposition, except in the ordinary course of business;
(v) declared, made, paid or set apart any sum for any dividend or
other distribution to its shareholders or purchased or redeemed any
shares of its capital stock or any option, warrant or right to
purchase any such capital stock, or reclassified its capital stock;
(vi) entered into any employment agreement with any officer or
salaried employee that is not terminable at any time by the employer,
without cause and without penalty;
(vii) forgiven or cancelled any debts or claims or waived any
rights of material value;
-23-
<PAGE>
(viii) conducted its business or entered into any transaction
other than in the ordinary course of business, except the Contracts;
(ix) granted any rights or licenses under any of its trade names
or entered into general agency arrangements;
(x) formed any Subsidiaries;
(xi) changed any method of accounting or accounting practice or
policy other than as required by GAAP or applicable Law (and except
with respect to changes in the accounting treatment of collection
costs associated with the Bond Recoverable);
(xii) been sued or, to the Knowledge of Figgie, Holdings,
Services or the Companies, threatened with any suit by any employee or
former employee;
(xiii) suffered or experienced any change in relations with or
material loss of any employees or customers; or (xiv) agreed to take
any action described in clauses (i) through (xiii).
3.17 Taxes. The Companies, Services, Holdings and Figgie are members of the
affiliated group, within the meaning of Section 1504(a) of the Code, of which
Figgie is the common parent, such affiliated group files a consolidated federal
income tax return, and except as disclosed on Schedule 3.17, none of the
Companies has ever filed a consolidated federal income tax return
-24-
<PAGE>
with (or been included in a consolidated return of) a different affiliated
group. Each of the Companies and Services has filed or caused to be filed or (in
the case of returns or reports not yet due) will file all tax returns and
reports required to have been filed by or for it on or before the Closing Date,
and all material information set forth in such returns or reports is or (in the
case of returns or reports not yet filed) will be accurate and complete. Each of
the Companies and Services has paid or made adequate provision for or (with
respect to returns or reports not yet filed) will make adequate provision for
all taxes, additions to tax, penalties, and interest for periods covered by
those returns or reports. Each of the Companies is in compliance with, and its
records contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply with, all applicable tax
information reporting and tax withholding requirements under federal, state,
local, and foreign laws, rules, and regulations, and such records identify with
specificity all accounts subject to backup withholding under Section 3406 of the
Code. Each of the Companies has collected or withheld all amounts required to be
collected or withheld by it for any taxes, and all such amounts have been paid
to the appropriate governmental agencies or set aside in appropriate accounts
for future payment when due. The balance sheets contained in the Statutory
Statements fully and properly reflect, as of their dates, the liabilities of
each of the Companies for all accrued taxes, additions to tax,
-25-
<PAGE>
penalties, and interest. Except as disclosed on Schedule 3.17, there are no
unpaid taxes, additions to tax, penalties, or interest payable by any of the
Companies, Services or any other person that (a) are or could become a lien on
any asset, or otherwise adversely affect the business, properties, or financial
condition, of any of the Companies or (b) are or could become a lien on or
adversely affect Buyer's use of any of the Purchased Assets or could cause Buyer
to incur any liability. Schedule 3.17 describes all tax elections, consents, and
agreements made by or affecting any of the Companies, lists all types of taxes
paid and returns filed by or on behalf of any of the Companies, and expressly
indicates each tax with respect to which any of the Companies is or has been
included in a consolidated, unitary, or combined return. Except as disclosed on
Schedule 3.17, none of the Companies has granted (or is subject to) any waiver
of the period of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted against or with
respect to any of the Companies by any taxing authority. None of the Companies
has made or entered into, or holds any asset subject to, a consent filed
pursuant to Section 341(f) of the Code and the regulations thereunder or a "safe
harbor lease" subject to former Section 168(f)(8) of the Internal Revenue Code
of 1954, as amended, and the regulations thereunder, nor is any of the Equipment
subject to such a safe harbor lease. Except as disclosed on Schedule 3.17, none
of the Companies is required to include in income any amount for an
-26-
<PAGE>
adjustment pursuant to Section 481 of the Code or the regulations
thereunder.
3.18 Contracts. Schedule 3.18 contains a complete and correct list of all
agreements, contracts and commitments, written or oral, to which any of the
Companies is a party or by which any of the Companies is bound (collectively,
the "Contracts") excluding: (a) any of the foregoing listed on Schedule 3.13
[Reinsurance]; (b) insurance policies written by the Companies; and (c)
agreements, contracts and commitments in the ordinary course with obligations to
pay or perform services totalling less than $10,000.00 that are terminable
without cost or liability on notice of 30 days or less.
Figgie, Holdings or the Companies has delivered or made available to Buyer
complete and correct copies of all Contracts, Equipment Leases and Software
Licenses together with all amendments thereto and waivers and consents with
respect thereto and accurate descriptions of all oral agreements. Each of the
Contracts, Equipment Leases and Software Licenses is in full force and effect.
The Companies, and to the Knowledge of Figgie, Holdings, Services and the
Companies, the other parties to such agreements, contracts and commitments, have
in all material respects performed all obligations required to be performed by
them to date and are not in default in any material respect. None of the
Companies has outstanding any power of attorney, except routine powers of
attorney relating to representation before governmental agencies or given in
connection with being
-27-
<PAGE>
licensed to conduct business in another jurisdiction and except for routine
authorizations given to managing general agents.
3.19 Compliance with Other Instruments and Laws. None of the Companies is
in violation of any term of its charter or by- laws or any Contract or of any
judgment, decree or order and none of the Companies is in violation of any Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except for
such violations that would not, individually or in the aggregate, have a
Material Adverse Effect. 3.20 Employees. Schedule 3.20 lists all persons (the
"Employees") employed by Services on August 22, 1994. None of the Companies has
any employees.
3.21 Employee Benefit Matters.
(a) None of the Companies, Services, any ERISA Affiliate or any
employee pension benefit plan (as defined in Section 3(2) of ERISA)
maintained or previously maintained by any of them (a "Pension Plan"), has
incurred any material liability, other than premiums, to the Pension
Benefit Guaranty Corporation ("PBGC") or to the Internal Revenue Service
with respect to any Pension Plan. There is not currently pending with the
PBGC with respect to any Pension Plan any filing with respect to any
reportable event under Section 4043 of ERISA nor has any reportable event
occurred as to which a filing is required and has not been made.
-28-
<PAGE>
(b) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to
the Closing Date under the terms of each Employee Plan, ERISA, or a
collective bargaining agreement, no accumulated funding deficiency (as
defined in Section 302 of ERISA or Section 412 of the Code) whether or not
waived, exists with respect to any Pension Plan (including any Pension Plan
previously maintained by the Companies, Services or any ERISA Affiliate),
and there is no "unfunded current liability" (as defined in Section 412 of
the Code) with respect to any Pension Plan.
(c) Neither the Companies, Services nor any ERISA Affiliate has
incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multiemployer plan (as defined in Section 3(37)
of ERISA) which has not been satisfied in full.
(d) All Employee Plans that are "employee benefit plans," as defined
in Section 3(3) of ERISA, that are maintained by the Companies or Services
or previously maintained by the Companies or Services comply and have been
administered in compliance in all material respects with ERISA and all
other applicable legal requirements, including the terms of such plans,
collective bargaining agreements and securities laws. None of the Companies
has any material liability under any such plan.
-29-
<PAGE>
(e) No prohibited transaction has occurred with respect to any
Employee Plan that is an "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by the Companies or Services or previously
maintained by the Companies or Services that would result, directly or
indirectly, in material liability under ERISA or in the imposition of a
material excise tax under Section 4975 of the Code.
(f) The funding under each Employee Plan that is an "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA) does not exceed the
limitations under Section 419A(b) or 419A(c) of the Code. Neither the
Companies nor Services is subject to taxation on the income of any such
plan or any such plan previously maintained by the Companies, Services or
an ERISA Affiliate.
3.22 Intellectual Property. Schedule 3.22 contains an accurate and complete
list of all domestic and foreign letters patent, patents, patent applications,
patent licenses, software licenses and know-how licenses, trade names,
trademarks, copyrights, unpatented inventions, service marks, trademark
registrations and applications, service mark registrations and applications, and
copyright registrations and applications, software owned by the Companies,
Figgie or its Affiliates and used by any of the Companies in connection with the
operation of their respective businesses (collectively the "Intellectual
Property"). Unless otherwise indicated in Schedule 3.22, one or
-30-
<PAGE>
more of the Companies owns the entire right, title and interest in and to the
Intellectual Property, (including, without limitation, the exclusive right to
use and license the same), and, to the Knowledge of Figgie, Holdings, Services
and the Companies, no person is infringing on the Companies' ownership or use of
the Intellectual Property.
3.23 Disclosure. None of this Agreement, the Statutory Statements or any
Schedule, Exhibit, certificate or agreement delivered in accordance with the
terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact, the disclosure of which is necessary in order for
the statements contained herein or therein not to be misleading in any material
respect. The parties hereto acknowledge that Figgie, Holdings and Services have
adequately disclosed the five counterclaims shown on Schedule 1.9 hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Figgie as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of North Carolina. Buyer
has all requisite corporate power and authority to conduct its business as
currently conducted and to own or lease and to operate its properties.
-31-
<PAGE>
4.2 Authority, Validity and Enforceability. Buyer has full corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions required of it contemplated hereby.
The execution, delivery and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by Buyer's Board of Directors. No other action or proceeding on the
part of Buyer is necessary to authorize the Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer, and constitutes a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms.
4.3 No Violation or Breach. The execution, delivery and performance of this
Agreement by Buyer does not, and the consummation of the transactions required
by Buyer contemplated hereby, will not (with or without the giving of notice or
lapse of time or both):
(a) violate or require any consent or approval under, any provision of
the Articles of Incorporation or bylaws of Buyer;
(b) except as set forth in Section 4.4 hereof, violate or result in a
default of, or require any consent or approval under any agreement, policy,
instrument, contract, commitment, license, franchise, permit or trust to
which Buyer is a party or is otherwise subject; or
-32-
<PAGE>
(c) violate or result in a default of, or require any consent or
approval under, any judgment, settlement, consent, injunction, decree,
order or ruling of any court or governmental authority to which Buyer is a
party or otherwise subject.
4.4 Consents. Except as set forth on Schedule 4.4, no consent, license,
approval, order or authorization of, or registration, filing or declaration
with, any governmental authority is required to be obtained or made, and no
consent of any third party is required to be obtained, by Buyer, in connection
with its execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
4.5 Purchase for Investment. Buyer is purchasing the Colony Stock and
Hamilton Stock for its own account for investment and not with a view to any
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). Buyer acknowledges that the offer and sale of
the Purchased Stock pursuant hereto are intended to be exempt from the
Securities Act pursuant to Section 4(2) thereof, and the Purchased Stock may not
be resold except pursuant to an effective registration statement or an exemption
from registration thereunder, and pursuant to registration or qualification (or
exemption therefrom) under applicable state securities laws.
4.6 Litigation. There is no action, proceeding, investigation or inquiry
pending or, to the Knowledge of Buyer, threatened against Buyer which questions
the validity of this
-33-
<PAGE>
Agreement or any action taken or to be taken pursuant hereto or thereto or in
connection with the purchase and sale of the Purchased Stock or the Purchased
Assets.
4.7 No Brokers. Buyer has not employed any finder, broker, agent or other
intermediary in connection with the negotiation of this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course. Except as provided in this Agreement,
between the date hereof and the Closing Date each of the Companies and Services
shall:
(a) carry on its respective business in the ordinary course and
substantially in the same manner as heretofore carried on;
(b) use its reasonable best efforts to preserve its respective
properties, business, and relationships with its respective clients and
customers;
(c) not dispose of any material asset of any of the Companies or of
the Equipment; and
(d) not make, declare or pay any dividend or distribution on any
shares of any of the Companies' capital stock.
-34-
<PAGE>
Figgie will advise Buyer promptly in writing of any material adverse change
in the financial condition or business of any of the Companies.
5.2 Indebtedness. Without the prior written consent of Buyer, which shall
not be unreasonably withheld, none of the Companies nor Services shall:
(a) create, incur or assume any indebtedness for borrowed money;
(b) mortgage, pledge or otherwise encumber or subject to any Lien any
of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts payable
and other liabilities incurred in the ordinary course of business.
5.3 Issuance of Stock. None of the Companies shall issue any shares of
capital stock of any class or grant any warrants, options or rights to subscribe
for any shares of capital stock of any class or securities convertible into or
exchangeable for, or which otherwise confer on the holder any right to acquire,
any shares of capital stock of any class.
5.4 Compensation. Figgie or its Affiliates have delivered to Buyer a
complete list of the salaries and wages and commission schedules of all
Employees whose annualized total compensation exceeds $35,000.00. There have
been no changes in Employee Plans since December 31, 1993, except for changes
required by Law. Except as disclosed to Buyer prior to the date hereof, Services
-35-
<PAGE>
shall not grant any increases in the salaries and wages or increases in
commission schedules of any Employee, institute any new employee benefits with
respect to such Employees or amend any Employee Plans to increase benefits
without the written consent of Buyer.
5.5 Compliance with Law. Each of the Companies and Services shall use its
best efforts to comply in all material respects with all applicable Law and with
all orders of any court or of any federal, state, municipal or other
governmental department, non-compliance with which could cause a material
adverse change in the assets or a material impairment to the business of any of
the Companies or Services.
5.6 Access to Information. At Buyer's expense, Buyer and its authorized
agents, officers and representatives, for the purpose of confirming the
representations and warranties contained in Article III, shall have reasonable
access to the properties, books, records, contracts, information and documents
of Holdings, Services and the Companies; provided, however, that such
examinations and investigations:
(a) shall be conducted during normal business hours;
and
(b) shall not unreasonably interfere with the operations and
activities of Holdings, Services or the Companies.
Figgie, Holdings, Services and the Companies shall cooperate in
all reasonable respects with Buyer's examinations and
-36-
<PAGE>
investigations. Buyer shall maintain all information regarding Figgie, Holdings
and Services in complete confidence and shall not disclose such information to
any person except as required by Law; provided, however, Buyer shall not be
required to keep confidential information that by (a) is or becomes generally
available to the public other than as a result of disclosure by Buyer or (b) is
or becomes available to Buyer on a non-confidential basis from a source other
than Figgie, Holdings, Services or the Companies.
5.7 Cooperation; Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper and advisable under applicable Law (including, without
limitation, the Virginia Code and Ohio Code), to consummate and make effective
the transactions contemplated by this Agreement. Holdings, Figgie, Services, the
Companies and Buyer agree to make their respective filing promptly pursuant to
the HSR Act and to use their reasonable best efforts and to cooperate with each
other to effect compliance with the HSR Act. Each of the parties hereto agrees
to make all required regulatory filings promptly after the date hereof and to
diligently pursue compliance with the Virginia Act and the Ohio Act.
5.8 Consents. Each of Figgie, Holdings, Services, the Companies and Buyer
shall diligently pursue obtaining consents of
-37-
<PAGE>
all third parties and governmental authorities necessary to the consummation of
the transactions contemplated by this Agreement.
5.9 Publicity. All general notices, releases, statements and communications
to employees, suppliers, distributors and customers of the Companies, Holdings
and Services and to the general public and the press relating to the
transactions covered by this Agreement shall be made only at such times and in
such manner as may be mutually agreed upon by Figgie and Buyer.
5.10 No Solicitation. None of Figgie, Holdings, Services or the Companies
shall, after the date hereof until the earlier of the Closing or the termination
of this Agreement pursuant to Section 10.1 hereof, directly or indirectly,
through any officer, director, employee, agent or otherwise, solicit, initiate
or encourage submission of proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) a substantial portion of the assets of, or any equity interest in, any
of the Companies or any business combination with any of the Companies or,
participate any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing.
5.11 Articles and Bylaws. None of the Companies shall amend its Articles of
Incorporation or Bylaws or merge or consolidate with or into any other
corporation.
-38-
<PAGE>
5.12 Services Agreements. The Companies, Figgie and Services shall
terminate each of the Services Agreements effective immediately prior to the
Closing. Upon termination of such agreements, the Companies shall pay to
Services the pro rata portion of the estimated fees and expenses, as determined
herein, owed by the Companies to Services and Figgie under the Services
Agreements for the month in which the Closing occurs. The pro rata apportionment
shall be based upon the number of days of that month during which the Services
Agreements have been in effect, not including the Closing Date, as a portion of
the total number of days in such month. The parties hereby agree that if the
Closing occurs in November, the monthly fees and expenses to be pro rated are
$522,000.00, and if the Closing occurs in December, the monthly fees and
expenses to be pro rated are $540,000.00. If for any reason the Closing occurs
in any month other than November or December, the parties agree to use the
monthly fee designated for November. Upon payment of the amounts provided by
this Section 5.12, all obligations of all of the parties under the Services
Agreements shall be deemed satisfied in full.
5.13 Telephone System. At the option of Figgie, Figgie or one of its
Affiliates will enter into a lease arrangement with Colony for all of the
telephonic equipment currently used by the Companies (i) at a monthly rate of
$2,200.00, (ii) for a term of 4 years from the Closing Date, (iii) providing for
a transfer of all such equipment to Colony at the termination of the lease for
-39-
<PAGE>
$1.00 and (iv) containing such other terms as may be agreeable to Buyer.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 6.S [Regulatory Approvals]
and 6.12 [HSR], may be waived by Buyer):
6.1 Compliance with Agreement. Figgie, Holdings, the Companies and Services
shall have performed and complied in all material respects with all of their
respective obligations under this Agreement that are to be performed or complied
with by them prior to or on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken by Figgie, Holdings, the Companies and Services in connection
with the transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Buyer and
Buyer's counsel, and Figgie shall have made available to Buyer for examination
the originals or true and correct copies of all documents that Buyer may
reasonably request in connection with the transactions contemplated by this
Agreement.
-40-
<PAGE>
6.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations and warranties made
by Figgie, Holdings and Services in this Agreement shall be true and correct as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except (a) as
such representations and warranties may be affected by the transactions
contemplated hereby and (b) for the exceptions to representations and warranties
described in Exhibit A to Figgie's Closing Certificate, which exceptions in the
aggregate shall not be reasonably expected to have an effect on the properties,
business, results of operations, condition (financial or otherwise) or affairs
of one of the Companies, any combination of the Companies or all of the
Companies in the aggregate, resulting in claims, losses, liabilities or
diminution in operating income or profits in the two year period following the
Closing of $500,000.00 or more. For purposes of determining the dollar amount of
the exceptions to such representations and warranties only amounts in excess of
the dollar thresholds set forth in the definition of Material Adverse Effect in
Section 1.47 shall be considered with respect to such representations and
warranties, that are qualified by Material Adverse Effect.
-41-
<PAGE>
6.5 Ratings. The rating assigned to any of the Companies by A. M. Best
shall not be lower than B+.
6.6 Tax Recoverable. Figgie, Holdings and Services shall have paid an
aggregate of $406,000.00 to the Companies, allocated among the Companies in
accordance with Schedule 6.6, as payment in full of all net tax refunds owed to
the Companies for taxes paid by or for any of the Companies through the Closing
Date.
6.7 Deliveries at Closing. Figgie, Holdings and Services shall have, or
shall cause to have, delivered to Buyer the following documents, each properly
executed and dated as of the Closing Date: (a) the Opinions of Figgie's Counsel;
(b) Figgie's Closing Certificate; (c) the Bill of Sale; (d) the Sublease; (e)
the Bond Salvage and Indemnification Agreement; (f) the Tax Indemnity Agreement;
(g) the Bond Escrow Agreement; and (h) certificates, duly endorsed to Buyer or
accompanied by stock powers, evidencing the Colony Shares and the Hamilton
Shares.
6.8 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies with jurisdiction over
Holdings, Services, the Companies or Buyer to permit the sale of the Purchased
Assets and the Purchased Stock and the other transactions contemplated hereby
shall have been obtained and shall remain in full force and effect (without any
material term, condition or restriction that is reasonably unacceptable to
Buyer).
6.9 Consents. There shall have been obtained written consent with respect
to any Contract which requires any third
-42-
<PAGE>
party consent due to the consummation of the transactions contemplated by this
Agreement.
6.10 Resignation of Directors and Officers. Each member of the Board of
Directors and each officer of the Companies shall have resigned from such
positions effective on the Closing Date. Cardinal shall have redeemed for $1.00
per share the one share of Common Stock of Cardinal formed by each of Edward
Desch, Paul Antal, John K. Latham, L. A. Harthun and V. A. Chiarucci.
6.11 Employee Plans. Figgie shall have adopted and assumed any Employee
Plans (as defined in Section 3.3 of ERISA) maintained by any of the Companies or
Services.
6.12 Waiting Periods. All applicable waiting periods under Section 7A of
the Clayton Act and the HSR Act and the rules and regulations thereunder shall
have expired without indication from the Federal Trade Commission or the United
States Justice Department that the transactions contemplated hereby may be
consummated only upon terms which differ adversely from the description of the
transaction set forth in any filing made on behalf of Buyer for any governmental
approval.
6.13 Policyholders' Surplus. During the period from July 1, 1994 and the
last day of the month prior to the Closing Date for which statements are
available (but in no event more than 45 days prior to the Closing Date), the
policyholders' surplus of any one of the Companies, or any combination of the
Companies in the aggregate, shall not have decreased by $500,000.00 or more
-43-
<PAGE>
from the amount reflected in the June 30, 1994 Quarterly Statutory Statements.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF FIGGIE, HOLDINGS AND SERVICES
Each and every obligation of Figgie, Holdings and Services to be performed
on the Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following express conditions precedent (it being the
understanding of the parties that any of such conditions, except as set forth in
Sections 7.6 [Regulatory Approvals] and 7.8 [HSR], may be waived by Figgie,
Holdings and Services):
7.1 Compliance with Agreement. Buyer shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
7.2 Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken by Buyer in connection with the transactions contemplated by
this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Figgie and Figgie's counsel, and Buyer
shall have made available to Figgie for examination the originals or true and
correct copies of all documents that Figgie may reasonably request in connection
with the transactions contemplated by this Agreement.
-44-
<PAGE>
7.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations and warranties made
by Buyer in this Agreement shall be true and correct in all material respects as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except as such
representations and warranties may be affected by the transactions contemplated
hereby.
7.5 Deliveries at Closing. Buyer shall have, or shall cause to have,
delivered to Figgie the Purchase Price as provided in Section 2.4 hereof and the
following documents, each properly executed and dated as of the Closing Date:
(a) the Opinion of Buyer's Counsel; (b) Buyer's Closing Certificate; (c) the
Sublease; (d)the Assignment Agreement; (e) the Bond Salvage and Indemnification
Agreement; (f) the Tax Indemnity Agreement; (g) the Bond Escrow Agreement; and
(h) instructions to LLG&M to release the Deposit.
7.6 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over Holdings, Services,
the Companies or Buyer to permit the sale of the Purchased Assets and the
Purchased
-45-
<PAGE>
Stock and the other transactions contemplated hereby shall have been obtained
and shall remain in full force and effect (without any material term, condition
or restriction that is reasonably unacceptable to Figgie).
7.7 Consents. There shall have been obtained written consent with respect
to any Contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement.
7.8 Waiting Periods. All applicable waiting periods under Section 7A of the
Clayton Act and the HSR Act and the rules and regulations thereunder shall have
expired without indication from the Federal Trade Commission or the United
States Justice Department that the transactions contemplated hereby may be
consummated only upon terms which differ adversely from the description of the
transaction set forth in any filing made on behalf of Buyer for any governmental
approval.
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Employees. Immediately following the Closing, Buyer agrees to offer
employment to at least 80% of the Employees (the "Buyer's Employees") in
comparable positions (other than a position as an officer of Buyer) and at
comparable salary levels to those held and received by each of Buyer's Employees
immediately prior to the Closing Date. At least 21 days prior to the Closing
Date, Buyer will provide Services with a list of the
-46-
<PAGE>
Buyer's Employees. Buyer shall have sole responsibility for the selection of the
Buyer's Employees. Immediately prior to the Closing, Services shall terminate
the employment of all of Buyer's Employees contingent upon the Closing.
Effective as of the Closing Date, Buyer shall have sole responsibility and
liability for: (a) making all hiring and other employment decisions with respect
to the Companies; (b) salary, wages, benefits and compensation, including any
entitlement to vacation or vacation pay with respect to periods after the
Closing Date which may be payable to any of Buyer's Employees on account of
Buyer's Employees' employment by Buyer or any of the Companies; (c) compliance
with all laws and regulations relating to safety and health, equal employment
opportunity and any other employment or labor relations matters with respect to
the employment of the Buyer's Employees and the operation of the Companies after
the Closing Date; (d) any and all notices required, or claims made by Buyer's
Employees, pursuant to the Worker Adjustment and Retraining Notification Act;
and (e) any and all claims, actions, suits, proceedings, expenses, liabilities
or other payments relating to Buyer's (or after the Closing Date, a Company's)
employment of any of Buyer's Employees or relating to any other action taken by
Buyer (or after the Closing Date, any Company) concerning any of Buyer's
Employees. The preceding sentence to the contrary notwithstanding, Figgie,
Services and their employee welfare benefit plans shall be responsible for
satisfying any continuation coverage requirements under the Consolidated Omnibus
-47-
<PAGE>
Budget Reconciliation Act of 1985 and subsequent amendments for "qualifying
events" occurring on or before the Closing Date.
8.2 Employee Benefit Plan Matters. Holdings, Figgie, Services and the
Employee Plans shall remain responsible for any employee benefits earned or
accrued on or before the Closing Date. Buyer and the Companies shall have no
responsibility or obligation under or to the Employee Plans or to any
participant or beneficiary thereunder.
8.3 Transfer Taxes and Fees. Figgie and Buyer shall each pay 50% of all
fees, taxes or assessments charged to grantors, transferors or assignors and
grantees, transferees and assignees under applicable Law in connection with the
transactions contemplated hereunder, together with all other transfer, sales,
recording and filing fees resulting from the transfer of the Colony Shares, the
Hamilton Shares and the Purchased Assets to Buyer.
8.4 Records. Buyer shall preserve and keep, free of charge, all books,
papers and records included in the assets of the Companies relating to their
respective businesses for periods prior to the Closing Date for a period of not
less than ten years following the Closing Date; provided, however, prior to the
tenth year following the Closing Date, Buyer may destroy such materials if Buyer
provides Figgie thirty Business Days prior notice that Buyer intends to destroy
any or all of such books, papers and records and Figgie shall have the right to
review and remove any books, papers and records to be destroyed at Figgie's
expense.
-48-
<PAGE>
Buyer agrees to permit Figgie and its attorneys, accountants, agents and
designees access to such books, papers and records from and after the Closing
Date for all reasonable purposes. Any such examination shall be at the expense
of Figgie, shall be performed at the place where such books, papers and records
are regularly maintained and shall not unreasonably interfere with Buyer's or
the Companies' normal business activities.
8.5 Access. Buyer and Figgie and each of their authorized agents, officers
and representatives shall have reasonable access to the properties, books,
records, contracts, information and documents of Holdings, Services, the
Companies and each other to conduct such examinations and investigations of its
or their business as it deems necessary, provided that such examinations and
investigations: (a) shall be germane to rights or obligations arising out of
this Agreement, the operations of the Companies prior to the Closing Date or to
the transactions occurring between the Companies and their affiliates prior to
the Closing Date; (b) shall be conducted only in the presence of a designated
representative of Buyer or Figgie, as appropriate; (c) shall be during normal
business hours; (d) shall not unreasonably interfere with operations and
activities; and (e) shall be subject to prior approval if the information or
documents requested are, in the reasonable opinion of an officer, of a nature
that may compromise the competitive position of Buyer or Figgie. Buyer and
Figgie shall cooperate in all reasonable respects with each other's examinations
and investigations.
-49-
<PAGE>
8.6 Cooperation. Buyer and Figgie will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated
under this Agreement. Buyer promptly will furnish to Figgie copies of the Forms
A filed with the Virginia Commission and the Ohio Department and all
correspondence with the Virginia Commission or the Ohio Department with respect
thereto.
8.7 Confidentiality. Following the Closing, Figgie, Holdings and Services
shall keep confidential all information concerning the business, operations,
properties, assets and financial affairs of the Companies and may disclose such
information only upon receipt of prior written consent from Buyer or if such
disclosure is required (a) in connection with Figgie's or Holdings' filing of
any state or federal income tax returns, (b) in connection with filings made
with the Securities and Exchange Commission or any national securities exchange,
or (c) by order of any judicial or administrative authority.
8.8 Review of Reserves. The parties hereby acknowledge that the Tillinghast
Report sets forth fairly the adequacy of the Companies' reserves as of June 30,
1994. Immediately following December 31, 1995 and December 31, 1996, Buyer shall
direct Tillinghast, or another actuarial firm reasonably acceptable to both
Buyer and Figgie, to review the development of the
-50-
<PAGE>
Companies' reserves for claims with loss dates arising on or prior to June 30,
1994. Such review shall cover the same matters set forth in the Tillinghast
Report and shall be conducted using actuarial techniques and assumptions that
are consistent with the techniques and assumptions used in the Tillinghast
Report. Buyer shall diligently pursue delivery of such reports by Tillinghast or
such other actuarial firm to Buyer and Figgie by no later than April 1, 1996 and
April 1, 1997, respectively. In the event either report indicates that the
reserves of the Companies, taken together, stated in the Tillinghast Report were
inadequate as of June 30, 1994, then Figgie, Holdings and Services shall
reimburse Buyer the amount of such inadequacy (the "Reserve Inadequacy") in
accordance with, and subject to the limits set forth in, Article IX hereof.
8.9 Holdback Payment. On the sixth anniversary of the Closing Date, Buyer
shall pay to Figgie the Holdback Payment.
8.10 Use of Name. From and after the Closing Date, none of Figgie,
Holdings, Services or their respective Affiliates shall use the name "Waite
Hill" or any names similar thereto or variants thereof except for Holdings,
Services and Waite Hill Assurance. Following the Closing, Figgie, Holding and
Services agree to promptly investigate and consider changing the name of
Holdings, Services and Waite Hill Assurance to a name which is not similar to or
a variant of "Waite Hill".
-51-
<PAGE>
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. The right to enforce claims
for breaches of representations, warranties, covenants and agreements of Figgie,
Holdings, Services and Buyer contained in this Agreement and the respective
obligations of the parties with respect thereto, shall survive the making of
this Agreement, any investigations made by or on behalf of the parties hereto,
and the Closing Date, and shall continue in full force and effect until the
expiration of two years from the Closing Date (except (a) with respect to the
representations and warranties contained in Sections 3.17 [Taxes] and 3.21
[Employee Benefit Matters] of the Agreement the remedy for breach of which shall
continue in full force and effect until any claims or liabilities with respect
thereto shall be barred by the expiration of the applicable statute of
limitations or any extensions thereof, and (b) with respect to Section 3.3
[Capitalization] and the indemnification provided pursuant to Sections 9.2(c),
(e), (f) and (g) and 9.3(c), as to which there shall be no expiration), at which
respective times all such representations and warranties and liabilities shall
expire and terminate, except for any claims relating to any specific breaches of
any representations or warranties which are asserted in writing on or before the
applicable termination date. Each of the parties agrees to give notice to the
breaching party of any breach of any such representation, warranty, covenant, or
-52-
<PAGE>
agreement, describing such breach in reasonable detail, as soon as practicable
after the discovery thereof; provided, however, that the failure to receive such
notice shall not relieve the breaching party from any liability in respect to
such breach unless and to the extent that the breaching party shall be prevented
from curing such breach as a direct result of its failure to receive a timely
notice. Any claim for indemnification for which notice has been given within the
prescribed period may be prosecuted to conclusion notwithstanding the subsequent
expiration of such period.
9.2 Indemnification by Figgie, Holdings and Services. After the Closing
Date and subject to the limitations set forth below, including without
limitation the limitations described in Section 9.4, Figgie, Holdings and
Services jointly and severally agree to and do hereby indemnify and hold Buyer
and each of the Companies and their respective Affiliates, officers, directors
and employees harmless against any claims, suits, losses, expenses, damages,
obligations, liabilities (including costs and reasonable attorneys' fees)
(hereinafter referred to collectively as "Losses") which result from or are
related to any of the following:
(a) any breach or failure of any of Figgie, Holdings and Services to
perform any of its covenants or agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by
Figgie, Holdings or Services (it being
-53-
<PAGE>
understood and agreed to by all the parties hereto that Buyer may recover,
subject to Section 9.4 hereof, all Losses incurred by it with respect to
the matters set forth on Exhibit A to Figgie's Closing Certificate);
(c) any liabilities of Figgie, Holdings, or Services or their
respective Affiliates (including but not limited to Waite Hill Assurance),
except for those liabilities (i) incurred pursuant to this Article IX or
(ii) assumed by Buyer under the Assignment Agreement;
(d) any liabilities of the Companies arising prior to the Closing
other than those liabilities specifically set forth on the Statutory
Statements, this Agreement or the schedules to this Agreement;
(e) any Employee Plan or Pension Plan maintained prior to the Closing
Date by any of the Companies or maintained at any time by Figgie, Holdings
or Services;
(f) any actions of the Companies or Services prior to the Closing Date
relating to the Employees or any other persons employed by the Companies or
Services;
(g) claims under the Tax Indemnity Agreement; or
(h) any Reserve Inadequacy.
9.3 Indemnification by Buyer. After the Closing Date, and subject to the
limitations set forth below, including, without limitation, the limitations
described in Section 9.4, Buyer agrees to and does hereby indemnify and hold
Figgie, Holdings and Services and their respective Affiliates, officers,
directors and
-54-
<PAGE>
employees harmless against any Losses resulting to any of Figgie, Holdings and
Services from any of the following:
(a) any breach or failure of Buyer to perform any of its covenants or
agreements set forth herein:
(b) the inaccuracy of any representations or warranties made by Buyer
herein; or
(c) the conduct of the Companies' business after the Closing Date.
9.4 Limitation of Liability. Buyer shall not have any liability to
indemnify Figgie, Holdings or Services in respect of Losses incurred by Figgie,
Holdings or Services pursuant to Sections 9.3(a) and (b), and Figgie, Holdings
and Services shall not have any liability to indemnify Buyer in respect of
Losses incurred by Buyer or the Companies pursuant to Sections 9.2(a), (b), (d)
or (h), in either case unless and until the aggregate amount of such Losses
exceeds $10,000.00, in which event the party seeking indemnity may recover the
full amount of such Losses, other than the initial $10,000.000, provided that
recovery by either Buyer or Figgie (on its own behalf, or on behalf of Holdings
and Services) in respect of such Losses shall be limited to $750,000.00.
Notwithstanding the foregoing, Buyer may recover all Losses whenever incurred by
the Companies or Buyer pursuant to Sections 9.2(c), (e), (f) or (g) hereof
(without regard to the two-year limitation set forth in Section 9.1 or the
$750,000.00 limit referenced above), and each of Figgie, Holdings and Services
may recover all Losses whenever
-55-
<PAGE>
incurred pursuant to Section 9.3(c) (without regard to the two-year limitation
set forth in Section 9.1 or the $750,000.00 limit referenced above).
Any Losses incurred with respect to the Bond Litigation, the Bond
Recoverable and the Bond Salvage and Indemnification Agreement shall be
satisfied in accordance with the terms of the Bond Salvage and Indemnification
Agreement and the Bond Escrow Agreement.
Any Losses of the type covered by, or incurred pursuant to, the Tax
Indemnity Agreement shall be satisfied in accordance with the Tax Indemnity
Agreement.
9.5 Notice of Indemnity Claims. If a party intends to assert a claim for
indemnification (an "Indemnified Party") under this Article IX (an "Indemnity
Claim"), the Indemnified Party shall provide notice of such Indemnity Claim to
the party from whom indemnification is sought (the "Indemnifying Party") within
sixty days after becoming aware of such Indemnity Claim. The failure to receive
such notice shall not relieve the Indemnifying Party from any liability in
respect of such claim unless and to the extent that the Indemnifying Party shall
be prevented from curing such situation as a direct result of its failure to
receive timely notice. At the time the Indemnity Claim is made and thereafter,
the Indemnified Party shall provide the Indemnifying Party with copies of any
materials in its possession describing the facts or containing information
providing the basis for the Indemnity Claim. If the Indemnity Claim involves a
-56-
<PAGE>
claim by a third party (a "Third Party Indemnity Claim"), the Indemnifying Party
may assume and control at its expense the defense of the claim by the third
party, provided that the Indemnifying Party agrees in writing with respect to
such Third Party Indemnity Claim that it is obligated hereunder to indemnify and
hold the Indemnified Party harmless in accordance with the terms of this Article
IX; and provided, further, that the Indemnified Party shall be entitled to
participate in the defense of such claim at its own expense. The failure of the
Indemnifying Party to assume the defense of any such claim shall not affect any
indemnification obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party, which
shall not unreasonably be withheld. A party shall not be liable under this
Article IX for any such settlement effected without its consent. In the event an
Indemnified Party fails to consent to a settlement of a Third Party Claim
recommended by the Indemnifying Party, then the amount of indemnification
payable with respect to such Third Party Claim shall not exceed the amount of
such settlement offer plus all Losses incurred with respect to such claim prior
to the date the Indemnified Party rejected the settlement offer.
9.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount of any
indemnification payable under any of the provisions of this Article IX shall be
(a) net of any federal or state income tax benefit realized or the then-present
value
-57-
<PAGE>
(based on a discount rate of 5%) of any such income tax benefit to be realized
by the Indemnified Party (or, where Buyer is the Indemnified Party, any of the
Companies) by reason of the facts and circumstances giving rise to the
indemnification, and (b) increased by the amount of any federal or state income
tax required to be paid by the Indemnified Party on the accrual or receipt of
the indemnification payment. For purposes of the preceding sentence, the amount
of any state income tax benefit or cost shall take into account the federal
income tax effect of such benefit or cost.
9.7 Reduction in Holdback Payment. Until the amount of the Holdback Payment
is zero and prior to the later of (a) April 30, 1997, and (b) 15 Business Days
after receipt by Figgie and Buyer of the report for the year ended December 31,
1996 prepared pursuant to Section 8.8 hereof (the "Holdback Payment Period"),
any indemnification claims pursuant to Section 9.2 hereof shall be satisfied by
reducing the amount of the Holdback Payment by the amount of such
indemnification payable to Buyer, the Companies and their respective Affiliates
pursuant to this Article IX. Buyer shall deliver to Figgie a notice setting
forth the aggregate amount of all indemnification claims satisfied pursuant to
this Section 9.7 through the date of such notice (a) on each August 15 and
February 15 during the Holdback Payment Period and (b) within 30 days after the
termination of the Holdback Payment Period.
-58-
<PAGE>
9.8 Arbitration. Any dispute arising between the parties hereto as to any
matter covered by this Agreement, including any claim for indemnification
pursuant to Section 9.2 or 9.3, shall be submitted to arbitration in the
following manner:
(a) The party desiring to submit such controversy to arbitration shall
give to the other party notice in writing, stating with specificity the
matter upon which arbitration is sought. The written notice shall also name
the arbitrator selected by such party, which arbitrator shall be a present
or retired insurance company executive unaffiliated with such party.
(b) Within ten Business Days following the receipt of such notice, the
other party shall give written notice to the party desiring arbitration of
the arbitrator selected by it, which second arbitrator shall likewise be a
present or retired insurance company executive unaffiliated with such
party.
(c) Upon the appointment of the second arbitrator, the two arbitrators
so chosen shall select a third arbitrator, which third arbitrator shall
likewise be a present or retired insurance company executive unaffiliated
with such party.
(d) The three arbitrators thus chosen shall give to each of the
parties hereto written notice of the time and place of hearing, which
hearing shall be held not less than
-59-
<PAGE>
ten Business Days, nor more than twenty Business Days, after the selection
of the third arbitrator.
(e) At the time and place appointed, the three arbitrators shall
proceed with the hearing unless for some good cause, of which a majority of
the arbitrators shall be the judge, it shall be postponed until some other
day within a reasonable time. The parties hereto shall have full
opportunity to be heard on any question thus submitted.
(f) The arbitrators shall be relieved of following judicial
formalities and the rules of evidence shall not apply to such hearing. The
determination by a majority of the arbitrators shall be made in writing and
a copy thereof delivered to each of the parties hereto. The arbitrators
shall in every case deliver their decision within sixty days after the
hearing, unless the parties shall otherwise agree to extend the time. The
arbitrators, as a part of their decision and award, shall decide the amount
of the costs of arbitration and by whom they shall be borne and paid.
9.9 Remedies Cumulative. Each indemnified party shall be entitled to the
indemnification provided in this Article IX from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
-60-
<PAGE>
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Buyer and Figgie;
(b) by Figgie or Buyer, if the Closing Date shall not have occurred on
or before December 30, 1994 (provided that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or has resulted in the failure of the Closing Date to occur on or
before such date);
(c) by Buyer or Figgie, if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the sale of the Purchased Stock or the Purchased
Assets and such order, decree, ruling or other action shall have become
final and nonappealable.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the
other, other than the provisions of Article XI of this Agreement, which shall
survive any such termination.
-61-
<PAGE>
10.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties.
10.4 Extension; Waiver. At any time prior to the Closing, the parties may
(a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, any party that knowingly waives any representation, warranty, agreement
or condition with respect to another party under subsections (b) and (c) shall
thereafter be barred from seeking indemnification from such other party for such
waived breach of any representation, warranty, agreement or condition. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE XI
DEPOSIT: PAYMENTS ON TERMINATION
11.1 Deposit. On the date of the execution of this Agreement, Buyer will
deposit with LLG&M $1 million to be held in accordance with the provisions of
this Article XI (the "Deposit").
-62-
<PAGE>
11.2 LLG&M. LLG&M shall hold the Deposit in accordance with the following
terms:
(a) LLG&M's obligations are to be determined solely by the provisions
of this Article XI and any subsequent amendments (subject to consent by
LLG&M) hereto.
(b) Figgie and Buyer acknowledge that LLG&M will invest the Deposit
with Citibank, N.A., in a cash reserve account under the account title,
"LeBocuf, Lamb, Greene and MacRae as Escrow Agent under Stock and Asset
Purchase Agreement dated as of October 21, 1994 by Figgie International
Inc., Waite Hill Holdings, Inc., Waite Hill Services, Inc. and Front Royal,
Inc." Principal and interest earned on the Deposit shall be disbursed
according to Sections 11.3, 11.4 and 11.5 below.
(c) LLG&M shall not be responsible in any manner whatsoever for any
failure or inability of any party hereto to deliver monies or documents or
otherwise to honor any of the provisions of this Article XI.
(d) Figgie and Buyer will jointly and severally reimburse, indemnify
and hold harmless LLG&M against any loss, liability or expense, including
but not limited to counsel fees, incurred without bad faith or willful
misconduct on LLG&M's part arising out of or in conjunction with its
acceptance of, or the performance of, its duties and obligations under this
Article XI.
-63-
<PAGE>
(e) LLG&M shall not be liable for any error of judgment, or for any
act done or step taken or omitted by it in good faith or for any mistake in
fact or law, or for anything which it may do or refrain from doing in
connection with these instructions, except for its own willful misconduct.
11.3 Distribution. At the Closing, Buyer shall instruct LLG&M to
distribute, by wire transfer to an account designated by Figgie at least five
Business Days prior to the Closing Date, $1 million as part of the Purchase
Price as provided in Section 2.4. Any interest accrued on the Deposit during the
time it is held by LLG&M shall be distributed by LLG&M to Buyer. If the Closing
does not occur the Deposit will be distributed to Buyer or Figgie, as the case
may be, as provided in Sections 11.4, 11.5 and 11.6 below.
11.4 Payment to Figgie. If all the conditions to Buyer's obligations under
this Agreement set forth in Article VI have been satisfied on or before December
30, 1994, or any mutual extension thereof, and Buyer fails materially to perform
its obligations hereunder, Figgie may elect to terminate this Agreement pursuant
to Section 10.1(b) hereof and upon such termination LLG&M shall pay Figgie the
Deposit plus all interest earned thereon.
11.5 Payment to Buyer. In the event of any termination of this Agreement,
except as provided in Section 11.4 hereof, the Deposit plus all interest earned
thereon shall be paid to Buyer
-64-
<PAGE>
upon such termination. In addition, if all the conditions to Figgie's
obligations under this Agreement set forth in Article VII have been satisfied on
or before December 30, 1994, or any mutual extension thereof, and any of Figgie,
Holdings or Services fails materially to perform its obligations hereunder
because Figgie has failed to obtain all approvals required from Figgie's lending
institutions for the consummation of the transactions contemplated hereby, Buyer
may elect to terminate this Agreement pursuant to Section 10.1(b) hereof and
upon such termination LLG&M shall pay Buyer the Deposit plus all interest earned
thereon and Figgie shall pay Buyer an additional $500,000.00 in immediately
available funds.
11.6 Instructions to LLG&M. LLG&M shall release the Deposit to Buyer or
Figgie upon receipt of written instructions relating thereto signed by the
appropriate party according to the terms of this Agreement. If a dispute arises
as to the Deposit either Buyer or Figgie may submit such dispute to arbitration
as provided in Section 9.8 hereof and LLG&M shall dispose of the Deposit in
accordance with any written determination made pursuant to such arbitration.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the
-65-
<PAGE>
subject matter hereof, and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions of the parties, whether oral or
written, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof, except as
specifically set forth herein or therein.
12.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, subject to the provisions of Article XI, each of the
parties hereto shall pay the fees and expenses of their respective counsel,
investment bankers, financial advisors, accountants and other experts and the
other expenses incident to the negotiation and preparation of this Agreement and
consummation of the transactions contemplated hereby.
12.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Virginia, without regard to the
conflicts of law rules thereof.
12.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
12.5 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action. Figgie, Holdings, Services, the Companies and Buyer will
-66-
<PAGE>
execute any additional instruments necessary to consummate the transactions
contemplated hereby.
12.6 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given when delivered personally or by messenger or by overnight delivery
service, or when mailed by registered or certified United States mail, postage
prepaid, return receipt requested, or when received via telecopy, telex or other
electronic transmission, in all cases addressed to the person for whom it is
intended at his address set forth below or to such other address as a party
shall have designated by notice in writing to the other party in the manner
provided by this Section 12.6:
If to Buyer: Front Royal, Inc.
2200 Gateway Blvd.
Suite 205
Morrisville, North Carolina 27560
Attention: J. Adam Abram
Chief Executive Officer
and
Gregg T. Davis
Chief Financial Officer
With a copy to: Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: T. Justin Moore, III, Esq.
If to Figgie, Services
or Holdings: Figgie International Inc.
4420 Sherwin Road
Willoughby, Ohio 44094
Attention: Steven Siemborski
Chief Financial Officer
-67-
<PAGE>
With a copy to: LeBoeaf, Lamb, Greene & MacRae
125 West 55th Street
New York, New York 10019-5389
Attention: Michael Groll, Esq.
12.7 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
12.8 Interpretation. Unless the context requires otherwise, all words used
in this Agreement in the singular number shall extend to and include the plural,
all words in the plural number shall extend to and include the singular and all
words in any gender shall extend to and include all genders. All references to
contracts, agreements, leases, Employee Benefit Plans or other understandings or
arrangements shall refer to oral as well as written matters.
12.9 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
12.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement and
Figgie, Holdings, Services, Buyer and the Companies assume no liability to any
third party because of any
-68-
<PAGE>
reliance on the representations, warranties and agreements of Figgie, Holdings,
Services, Buyer and the Companies contained in this Agreement, other than
Sections 8.1 and 8.2 (which are intended to be for the benefit of the persons
covered thereby and may be enforced by such persons).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FIGGIE INTERNATIONAL INC.
By:_______________________________
Its:______________________________
WAITE HILL HOLDINGS, INC.
By:_______________________________
Its: President
WAITE HILL SERVICES, INC.
By:_______________________________
Its: President
FRONT ROYAL, INC.
By:_______________________________
Its:______________________________
-69-
<PAGE>
EMPLOYMENT AGREEMENT
---------------------
EMPLOYMENT AGREEMENT dated the 31st day of December, 1997,
between Front Royal, Inc., a North Carolina corporation with offices at
2200 Gateway Boulevard, Suite 205, Morrisville, North Carolina 27560 (the
"Company"), and J. Adam Abram ("Employee").
W I T N E S S E T H:
1. Employment and Term.
The Company hereby employs Employee as President and Chief
Executive Officer of the Company, and Employee hereby accepts such
employment, on the terms and conditions set forth herein, for a term of
three (3) years, commencing on the date hereof, unless sooner terminated
or extended as herein provided. The term of this Agreement and Employee's
employment hereunder shall be automatically renewed for additional
periods of three (3) years unless written notice to the contrary shall be
given by either party to the other, not less than ninety (90) days before
the end of the initial or any renewal term (the initial term plus any
renewals thereof shall be referred to herein as the "Term"), in which
case this Agreement shall terminate at the end of such term, and neither
party hereto shall thereafter have any further rights or obligations
hereunder except the obligations of Employee under Section 3(b), (c) and
(d) hereof and any obligations of the Company under Sections 5, 6 and 7
hereof. The date upon which this Agreement and Employee's employment
hereunder shall terminate, whether pursuant to the terms of this Section
1, or pursuant to any other provision of this Agreement, shall
hereinafter be referred to as the "Termination Date."
2. Compensation.
(a) For the performance by Employee of his duties in
accordance with this Agreement after the date hereof, including services
as an officer, director and/or member of committees of the Company or any
subsidiaries or affiliates of the Company ("Affiliates"), the Company
shall pay Employee a salary at the rate of Two Hundred Seventy Five
Thousand Dollars ($275,000.00) per annum ("Base Salary"), payable in
periodic installments in accordance with the Company's regular payroll
practices, as in effect from time to time. Within one hundred eighty
(180) days after the end of each fiscal year of the Company, Employee's
salary shall be reviewed and may be increased at the discretion of the
Board of Directors of the Company ("Board of Directors"). Employee's Base
Salary or such other salary as may be payable to Employee by action of
the Board of Directors, is hereinafter called "Salary".
(b) Within one hundred eighty (180) days after the end
of each fiscal year of the Company, Employee may, in the absolute
discretion of the Board of Directors, receive from the Company a bonus
based on the performance of the Company during the preceding fiscal year.
<PAGE>
3. Duties and Restrictions.
(a) During the term of this Agreement, Employee shall
perform all duties and services incident to his position as President and
Chief Executive Officer of the Company, and such other reasonable duties
and services as may from time to time be assigned to him by the Board of
Directors of Front Royal, Inc. All of the duties and services to be
performed by Employee are at all times to be subject to the authority of
the Board of Directors. Employee shall devote his full and exclusive
time, attention and best efforts to the business of the Company and its
Affiliates. Employee hereby accepts such employment and agrees he shall
devote his full skill, abilities and productive time to the performance
of his duties under this Agreement, and he shall not, without the prior
consent of the Board of Directors, render to any third party any services
for compensation or which would interfere with the performance of his
duties hereunder.
(b) Employee will not at any time during the term of
this Agreement or thereafter:
(i) reveal, divulge or make known to any person, firm or
corporation or use for his personal benefit, directly or
indirectly, any confidential or proprietary information received
by him during the course of his employment or prior to the
commencement thereof. For purposes of this paragraph 3(b)(i)
confidential and proprietary information shall be defined to
mean (i) all historical and pro forma projections of loss ratios
incurred by the Company and any of the Affiliates, (ii) all
historical and pro forma actuarial data relating to the Company
and any of the Affiliates, (iii) historical and pro forma
financial results and projections for the Company and its
Affiliates, (iv) all information relating to the Company's or
the Affiliates' systems and software (other than the portion
thereof provided by the vendor to all purchasers of such systems
and software) and (v) all other information relating to the
financial, business or other affairs of the Company and its
Affiliates, including their customers, that is not available to
the general public or generally known or available within the
industry; or
(ii) reveal, divulge or make known to any person, firm or
corporation, or use for his personal benefit, directly or
indirectly, the name or names of any of the customers of the
Company or of any of its Affiliates, nor will he reveal, divulge
or make known, to any person, firm or corporation, or use for
his personal benefit, directly or indirectly, any trade secrets
or any knowledge or information, or any fact concerning any
business methods or operational procedures engaged in by the
Company or its Affiliates (collectively, "Privileged
Information"); provided, however, the restrictions set forth in
this paragraph 3(b)(ii) shall not apply to Employee following
the termination of his employment with the Company or its
Affiliates with respect to any Privileged Information known or
made generally available to the general public or within the
industry.
(c) Employee will not at any time during the term of
this Agreement, and for a period of one (1) year thereafter in the event
Employee's employment is terminated pursuant to Section 4, 5, 6 or 7(a)
hereof or upon the expiration of the term of this Agreement in accordance
with Section 1 hereof, engage in or have any interest in, directly or
indirectly, any Competitive Business, whether as principal, director,
officer, employee, consultant, partner, stockholder,
-2-
<PAGE>
director, trustee or manager of any competing corporation, association,
firm or business or otherwise, or directly or indirectly solicit,
interfere with, or endeavor to entice away from the Company or any of its
Affiliates any of their customers or employees. The restrictions
contained in this subsection 3(c) shall not prevent the purchase or
ownership by Employee of not more than three percent (3%) of the
securities of any class of any corporation, whether or not such
corporation is engaged in any Competitive Business, which are publicly
traded on any securities exchange or any "over the counter" market.
Employee will not, for a period of one (1) year following the Termination
Date, employ or associate in any manner in a business relationship with,
any person who was an employee of the Company or any Affiliate at any
time during the term of Employee's employment hereunder. For purposes of
this Agreement, the term "Competitive Business" shall mean the business
of acquiring, holding and operating property and casualty specialty
insurance companies.
The restrictions of this Section 3(c) shall not apply
if the Employee's employment is terminated following a Change of Control.
A "Change of Control" shall be deemed to have occurred (i) upon the sale,
in one or a series of related transactions, of all or substantially all
of the assets of the Company, (ii) if, as a result of one or a series of
related transactions, the holders of the issued and outstanding shares of
Class A Common Stock, Class B Common Stock and Class C Common Stock,
determined on a fully diluted basis as if all outstanding warrants,
options and convertible securities had been exercised or converted,
immediately prior to the effective date for such transaction or last of
such transactions beneficially own (as such term is defined under Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended),
in the aggregate, less than 55% of the issued and outstanding voting
securities of the Company, determined on a fully diluted basis as if all
outstanding warrants, options and convertible securities had been
exercised or converted, or the successor to the Company if such
transaction was a merger or consolidation in which the Company was not
the surviving entity, or (iii) if members comprising the Board of
Directors on the date hereof cease for any reason to comprise at least a
majority of the Board of Directors, provided, that, any Person who
becomes a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the directors comprising the Board of
Directors on the date hereof (either by a specific vote or by approval of
the proxy statement of the Company in which such Person is named as a
nominee for director, without objection to such nomination) shall be, for
all purposes of this definition, considered as though such Person were a
member of the Board of Directors on the date hereof.
(d) Any and all writings, inventions, improvements,
processes, procedures and/or techniques which Employee may make,
conceive, discover or develop, either solely or jointly with any other
person or persons, at any time during the term of this Agreement or
during the term of his employment or association with the Company or any
Affiliate, whether during working hours or at any other time, and whether
upon the request or suggestion of the Company or otherwise, which relate
to or may be useful in connection with any business now or hereafter
during the term of this Agreement carried on or actively developed by the
Company or any Affiliate, including developments or expansions of its
present fields of operations, shall be the sole and exclusive property of
the Company. Employee shall make full and prompt disclosure to the Board
of Directors of all such writings, inventions, improvements, processes,
procedures and techniques and shall take all actions and shall execute
all documents requested by the Board of Directors to vest the absolute
title thereto in the Company. Employee shall not be entitled to
-3-
<PAGE>
receive any additional compensation or reimbursement with respect to such
writings, inventions, improvements, processes, procedures and techniques.
(e) Employee acknowledges that the restrictions
contained in paragraphs (b) and (c) of this Section 3 are reasonable and
necessary in order to protect the legitimate interests of the Company, in
view of the nature of the business in which the Company and its
Affiliates are engaged and the substantial equity interest of Employee in
the Company. If any provision contained in paragraph (b) or (c) of this
Section 3 is adjudged unreasonable in any proceeding, then such provision
shall be deemed modified by reducing the period of time during which such
provision is applicable and/or, if applicable, the geographic area to
which such provision applies, to the extent necessary for such provision
to be adjudged reasonable and enforceable.
4. Termination For Cause. This Agreement may be terminated by
the Company "for cause" at any time, by written notice to Employee, for
any of the following reasons:
(a) If Employee shall willfully violate the provisions
of Section 3 of this Agreement, or shall willfully fail to comply with
any other term or condition of this Agreement or shall grossly neglect
his duties hereunder;
(b) If Employee shall (i) be convicted of a felony or a
crime involving moral turpitude (meaning a crime that includes the
commission of an act of gross depravity, dishonesty or bad morals), or
(ii) commit an act of dishonesty, fraud or embezzlement against the
Company;
(c) If the Company's operating results are substantially
below budget which shall mean 50% or less of the amount set forth on Attachment
1 hereto; or
(d) If Employee fails to comply for any reason with a
reasonable directive of the Board of Directors determined to be in the
best interest of the Company and its shareholders.
In the event of termination pursuant to paragraph (a),
(b) or (d) of this Section 4, then Employee's Salary and right to receive
any fringe benefits pursuant to Section 8 hereof shall terminate on the
Termination Date fixed in a written notice from the Company, which shall
be no earlier than the date of such notice.
In the event of termination pursuant to paragraph (c)
of this Section 4, then Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a
period of twelve (12) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof;
(ii) the continuation at the Company's expense of
coverage under all plans, insurance policies and other fringe benefits
described in Section 8 hereof, for a period of twelve (12) months
after the Termination Date; and
(iii) any amounts payable to Employee through the
Termination Date pursuant to Sections 9 and 10 hereof.
-4-
<PAGE>
Thereafter, notwithstanding anything to the contrary contained in this
Agreement, the Company shall have no further obligations to Employee,
except as provided in any stock option or other bonus or incentive plan
to which Employer is entitled, and Employee shall have no further rights
hereunder.
5. Termination by Employee.
Employee shall have no right to terminate his employment
hereunder without the prior written consent of the Board of Directors,
other than by expiration of the term hereof in accordance with Section 1
hereof. In the event Employee elects to have the term of this Agreement
expire, upon the Termination Date the Company shall have no further
obligations to Employee and Employee shall have no further rights
hereunder.
6. Expiration or Termination Without Cause. The Company may
terminate this Agreement at any time without cause or may elect to have
the term of this Agreement expire.
In the event that the Company terminates this Agreement
without cause or elects to have the term of this Agreement expire,
Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a
period of eighteen (18) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof; provided,
however, that if the Employee continues to comply with the
covenants contained in Section 3(c) hereof beyond the one year
period set forth therein, then the Employee shall be entitled to
continue to receive Employee's Base Salary for so long as
Employee continues to comply with such covenants, up to an
additional eighteen (18) month period (it being understood that
the maximum time period during which Base Salary will continue
to be paid under this Section 6(i) shall be three (3) years;
(ii) the continuation at the Company's expense of
coverage under all plans, insurance policies and other fringe benefits
described in Section 8 hereof, for a period of twelve (12) months
after the Termination Date; and
(iii) any amounts payable to Employee through the
Termination Date pursuant to Sections 9 and 10 hereof.
7. Termination by Reason of Disability or Death.
(a) If, on account of physical or mental disability,
Employee shall fail or be unable to perform his assigned duties in any
material respect for a period of (i) sixty (60) consecutive days, or (ii)
an aggregate of ninety (90) days during any twelve (12) month period, the
Company may, at its option, thereafter terminate this Agreement and
Employee's employment hereunder upon giving at least thirty (30) days
written notice to Employee.
(b) If Employee dies during the term hereof, this
Agreement shall automatically terminate on the date of his death.
-5-
<PAGE>
(c) In the event that this Agreement and Employee's
employment are terminated in accordance with this Section 7, then after
the Termination Date the Company shall have no further obligations
hereunder, except that, in the event of a termination pursuant to
paragraph (a) above, Employee shall be entitled to the benefits described
in Section 6 hereof (without regard to the proviso of Section 6(i)), net
of any payments or benefits to Employee under disability insurance or
similar plans maintained by the Company.
8. Fringe Benefits.
The Company shall provide at the Company's expense to Employee
during the term of the Agreement:
(a) a medical insurance plan covering Employee, his spouse and his
minor children and a disability income insurance policy, which insurance plans
and policies shall be at least comparable to such plans and policies provided
to the Company's other senior executive personnel.
(b) full participation in all other fringe benefits
provided to the Company's senior executive personnel, which fringe
benefits may include, in the sole discretion of the Board of Directors, a
pension plan, a profit sharing plan, a stock option plan and/or a stock
participation plan.
9. Vacation.
Employee shall be entitled, for each year during the term
hereof, to vacation time to be taken at such time or times as shall be
mutually convenient to the Company and Employee.
10. Other Expenses.
During the term of this Agreement, Employee shall be entitled to
be reimbursed for all reasonable business expenses incurred by him in
connection with the performance of his duties hereunder upon the timely
submission and approval of appropriate vouchers therefor, to the Chief
Financial Officer of the Company.
11. Representation by Employee.
Employee represents and warrants that he is not under any
obligation, contractual or otherwise, to any person, firm or corporation
that is inconsistent with this Agreement and his employment hereunder and
that he is free to enter into and perform the terms of this Agreement.
12. Uniqueness of Services.
Employee acknowledges that the services to be rendered under the
provisions of this Agreement are of a special, unique and extraordinary
character and that it would be difficult or impossible to replace such
services and that, by reason thereof, Employee agrees and consents that
if he violates any of the provisions of this Agreement, the Company, in
addition to any other rights and remedies available under this Agreement
or otherwise, shall be entitled to an
-6-
<PAGE>
injunction to be issued by a tribunal of competent jurisdiction
restricting Employee from committing or continuing any violation of this
Agreement.
13. Notices.
Any notices provided for or permitted by this Agreement shall be
in writing and shall be deemed to have been duly given when delivered in
person or three (3) days after it is deposited in a United States Postal
Depositary, postage prepaid, registered or certified mail, return receipt
requested, addressed to the party for whom intended at such party's
address set forth below or to such other address as such party may
designate by notice in writing given in the manner provided by this
Section 13, or when actually received by the party for whom such notice
was intended if sent by any other means:
To Employee: J. Adam Abram
Front Royal, Inc.
2200 Gateway Boulevard
Suite 205
Morrisville, North Carolina 27560
To The Company: Front Royal, Inc.
2200 Gateway Boulevard
Suite 205
Morrisville, North Carolina 27560
Attention: Chairman of the Board of Directors
14. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement and
understanding between Employee and the Company with respect to the
subject matter hereof and shall supersede any and all other prior
agreements and understandings, whether oral or written, relating thereto
or to the employment of Employee by the Company. This Agreement may not
be rescinded, modified or amended except by an instrument in writing
signed by the parties hereto and any provision hereof may not be waived
except by an instrument in writing signed by the party hereto against
whom any such waiver is sought to be enforced. The waiver by the Company
of a breach by Employee of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by Employee.
15. Partial Invalidity.
The invalidity or unenforceability, by statute, court decision
or otherwise, of any term or condition of this Agreement shall not affect
the validity or enforceability of any other term or condition hereof.
-7-
<PAGE>
16. Governing Law.
This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of North Carolina.
17. Assignability.
This Agreement may not be assigned by Employee, and all of its
terms and conditions shall be binding upon and inure to the benefit of
Employee and his heirs and legal representatives and the Company and its
successors. Successors of the Company shall include, without limitation,
any corporation or corporations acquiring, directly or indirectly, all or
substantially all of the assets of the Company whether by merger,
consolidation, purchase or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.
18. Captions.
The caption headings in this Agreement are for convenience of
reference only and are not intended and shall not be construed as having
any substantive effect.
19. Survival.
The obligations imposed upon Employee and the rights granted to
the Company in subsections 3(b), (c) and (d) hereof and the rights
granted to Employee in Sections 5, 6 and 7 hereof shall survive the
termination or expiration of this Agreement for any reason whatsoever
and, at the election of the Company, may be specifically enforced by it.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duly executed as of the day and year first
above written.
FRONT ROYAL, INC.
By: /s/ Richard M. Wright
---------------------
Richard M. Wright
Chairman of the Board of Directors
/s/ J. Adam Abram
---------------------
J. Adam Abram
-8-
<PAGE>
Attachment 1
Front Royal, Inc.
Fiscal Year Pre-tax Net Income
----------- ------------------
1998 $11,020,779
1999 $15,411,601
2000 $17,217,930
-9-
<PAGE>
STOCK PURCHASE AGREEMENT
among
PIC INSURANCE GROUP, INC.
and
TRIROCK LIMITED PARTNERSHIP,
as Sellers
and
FRONT ROYAL, INC.,
as Buyer
Dated: December 6, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.....................................................1
ARTICLE II PURCHASE AND SALE OF STOCK.....................................11
2.1 Transfer of Stock..............................................11
2.2 Purchase Price.................................................11
2.3 Closing........................................................14
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF PIC..........................16
3A.1 Organization and Good Standing.................................16
3A.2 Authority, Validity and Enforceability.........................16
3A.3 No Violation or Breach.........................................16
3A.4 PIC Shares; Title to Shares....................................16
3A.5 Acquisition for Investment.....................................17
3A.6 Net Worth......................................................17
3A.7 No Brokers.....................................................17
3A.8 Foreign Person.................................................17
3A.9 Affiliations with Insurance Companies..........................17
3A.10 Consent........................................................18
3A.11 Transactions with Interested Persons...........................18
ARTICLE IIIB REPRESENTATIONS AND WARRANTIES OF TRIROCK......................18
3B.1 Organization and Good Standing.................................18
3B.2 Authority, Validity and Enforceability.........................18
3B.3 No Violation or Breach.........................................18
3B.4 Trirock Shares; Title to Shares................................19
3B.5 Net Worth......................................................19
3B.6 No Brokers.....................................................19
3B.7 Foreign Person.................................................19
3B.8 Consents.......................................................20
3B.9 Transactions with Interested Persons...........................20
ARTICLE IIIC REPRESENTATIONS AND WARRANTIES OF SELLERS......................20
3C.1 Organization and Good Standing.................................20
3C.2 Licenses and Permits...........................................20
3C.3 Capitalization.................................................21
(a) The Company................................................21
(b) Coal.......................................................21
(c) Comprehensive..............................................21
(d) Mid State..................................................21
(e) Premier....................................................21
(f) No Rights..................................................22
3C.4 No Violation or Breach.........................................22
3C.5 Subsidiaries...................................................23
-i-
<PAGE>
Page
----
3C.6 Consents.......................................................23
3C.7 Statutory Statements...........................................23
3C.8 Insurance Regulatory Filings...................................23
3C.9 Insurance Issued...............................................24
3C.10 Transactions with Interested Persons...........................25
3C.11 Reinsurance Policies. ........................................25
3C.12 Litigation.....................................................26
3C.13 No Brokers.....................................................27
3C.14 Absence of Certain Changes.....................................27
3C.15 Taxes..........................................................28
3C.16 Contracts......................................................30
3C.17 Compliance with Other Instruments and Laws.....................30
3C.18 Employees......................................................30
3C.19 Employee Benefit Matters.......................................30
3C.20 Assets and Properties..........................................32
3C.21 Reserves.......................................................33
3C.22 Operating Insurance............................................33
3C.23 Bank Accounts..................................................33
3C.24 Charter Documents and By-laws..................................33
3C.25 Minute Books...................................................33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER........................34
4.1 Organization and Good Standing.................................34
4.2 Capitalization.................................................34
4.3 Authority, Validity and Enforceability.........................36
4.4 No Violation or Breach.........................................36
4.5 Consents.......................................................37
4.6 Purchase for Investment........................................37
4.7 Licenses and Permits...........................................37
4.8 Litigation.....................................................38
4.9 No Brokers.....................................................38
4.10 Charter Documents and By-laws..................................38
4.11 Minute Books...................................................38
4.12 Statutory Statements...........................................39
4.13 Insurance Regulatory Filings...................................39
4.14 Reserves.......................................................40
4.15 Net Worth......................................................40
ARTICLE V CERTAIN MATTERS PENDING THE CLOSING............................40
5.1 Carry on in Regular Course.....................................40
5.2 Indebtedness...................................................41
5.3 Issuance of Stock..............................................41
5.4 Compensation...................................................41
5.5 Compliance with Law............................................42
5.6 Access to Information..........................................42
5.7 Cooperative; Best Efforts......................................42
5.8 Consents.......................................................43
5.9 Publicity......................................................43
-ii-
<PAGE>
Page
----
5.10 No Solicitation................................................43
5.11 Articles and By-laws...........................................43
5.12 Breaches of Representations and Warranties.....................44
ARTICLE VI CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF BUYER...........................................44
6.1 Compliance with Agreement......................................44
6.2 Proceedings and Instruments Satisfactory.......................44
6.3 No Litigation..................................................44
6.4 Representations and Warranties.................................44
6.5 Agreements.....................................................45
6.6 Additional Deliveries at Closing...............................45
6.7 Regulatory Approvals...........................................45
6.8 Consents.......................................................45
6.9 Resignation of Directors and Officers..........................46
6.10 Waiting Periods................................................46
6.11 Preferred Stock Sale Agreement.................................46
6.12 Premier Stock Purchase Agreement...............................46
6.13 Policyholders' Surplus.........................................46
6.14 Books and Records..............................................46
6.15 Disclaimers of Affiliation.....................................46
6.16 Certificate of Breaches........................................47
6.17 Phase II Environmental Report..................................47
ARTICLE VII CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS.....................................47
7.1 Compliance with Agreement......................................47
7.2 Proceedings and Instruments Satisfactory.......................47
7.3 No Litigation..................................................47
7.4 Representations and Warranties.................................47
7.5 Agreements.....................................................48
7.6 Additional Deliveries at Closing...............................48
7.7 Regulatory Approvals...........................................48
7.8 Consents.......................................................48
7.9 Waiting Periods................................................48
7.10 Preferred Stock Sale Agreement.................................49
7.11 Premier Stock Purchase Agreement...............................49
7.12 Certificate of Breaches........................................49
ARTICLE VIII CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS....................49
8.1 Records........................................................49
8.2 Access.........................................................49
8.3 Cooperation....................................................50
8.4 Confidentiality................................................50
8.5 Use of Name....................................................50
8.6 Non-Solicitation of Employees..................................51
8.7 President of the Company.......................................51
-iii-
<PAGE>
Page
----
8.8 Relocation of Business; Access.................................51
8.9 Trirock Not to Dissolve........................................51
8.10 Pittsburgh Mutual Insurance Company............................51
ARTICLE IX TAX............................................................52
9.1 Tax Losses.....................................................52
9.2 Contests.......................................................52
ARTICLE X INDEMNIFICATION................................................52
10.1 Survival of Representations and Warranties.....................52
10.2A Indemnification by PIC.........................................53
10.2B Indemnification by Trirock.....................................54
10.3 Indemnification by Buyer.......................................54
10.4 Limitation of Liability........................................55
10.5 Notice of Indemnity Claims.....................................56
10.6 Indemnity Amounts to be Computed on
After-Tax Basis................................................57
10.7 Arbitration....................................................57
10.8 Remedies Cumulative............................................58
ARTICLE XI TERMINATION....................................................59
11.1 Termination....................................................59
11.2 Effect of Termination..........................................59
11.3 Extension; Waiver..............................................59
ARTICLE XII DEPOSIT; PAYMENTS ON TERMINATION...............................60
12.1 Deposit........................................................60
12.2 Distribution...................................................60
12.3 Payment to Sellers.............................................60
12.4 Payment to Buyer...............................................61
ARTICLE XIII MISCELLANEOUS..................................................61
13.1 Entire Agreement...............................................61
13.2 Expenses.......................................................61
13.3 Governing Law..................................................62
13.4 Assignment.....................................................62
13.5 Further Assurances.............................................62
13.6 Notices........................................................62
13.7 Counterparts; Headings.........................................63
13.8 Interpretation.................................................63
13.9 Severability...................................................63
13.10 No Reliance....................................................63
13.11 Amendment......................................................64
-iv-
<PAGE>
Page
----
EXHIBITS
A - Amended and Restated License Agreement
B - Form of Charter Amendment
C - Form of Escrow Agreement (Deposit)
D - Form of Lease
E(1) - Form of Non-Competition and Non-Solicitation
Agreement with Charles A. Lederman
E(2) - Form of Non-Competition and Non-Solicitation
Agreement with Timothy I. McCarthy, Sr.
E(3) - Form of Non-Competition and Non-Solicitation
Agreement with PIC
E(4) - Form of Non-Competition and Non-Solicitation
Agreement with Pittsburgh Mutual Insurance
Company
E(5) - Form of Non-Competition and Non-Solicitation
Agreement with Premier Auto Insurance Company
E(6) - Form of Non-Competition and Non-Solicitation
Agreement with John R. McGinley, Jr.
E(7) - Form of Non-Competition and Non-Solicitation
Agreement with Frank J. Lucchino
E(8) - Form of Non-Competition and Non-Solicitation
Agreement with Terrence S. Jacobs
E(9) - Form of Non-Competition and Non-Solicitation
Agreement with Peter C. Dozzi
F - Form of Option Agreement
G - Form of Preferred Stock Sale Agreement
H - Form of Premier Stock Purchase Agreement
I - Form of Shareholders Agreement
J - Form of Trirock Note
8.8 - RIC Matters
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 6, 1996, among PIC INSURANCE
GROUP, INC., a Pennsylvania stock insurance company ("PIC"), and TRIROCK LIMITED
PARTNERSHIP, a Pennsylvania limited partnership ("Trirock"; Trirock and PIC
together, "Sellers" and individually, a "Seller"), and FRONT ROYAL, INC., a
North Carolina corporation ("Front Royal" or "Buyer").
RECITALS
WHEREAS, PIC owns, beneficially and of record, 250,000 shares of Class A
Common Stock, no par value (the "Class A Common Stock"), of Rockwood Casualty
Insurance Company, a Pennsylvania stock insurance company (the "Company"),
constituting 50% of all of the issued and outstanding shares of Class A Common
Stock, and Trirock owns, beneficially and of record, 250,000 shares of Class A
Common Stock, no par value, constituting 50% of all of the issued and
outstanding shares of Class A Common Stock;
WHEREAS, PIC owns, beneficially and of record, 571,961 shares of Class B
Common Stock, no par value (the "Class B Common Stock"), of the Company,
constituting all of the issued and outstanding shares of Class B Common Stock;
and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the
outstanding capital stock of the Company.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, it is agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
"Affiliate" shall mean, with respect to a specified person or entity,
another person or entity that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person or entity specified.
"Agreement" shall mean this Stock Purchase Agreement, together with the
Exhibits and Schedules attached hereto, the Disclosure Schedule of Sellers and
the Disclosure Schedule of
<PAGE>
Buyer, as the same may be amended from time to time in accordance with the terms
hereof.
"Amended and Restated License Agreement" shall mean the agreement between
the Company and Rockwood Asset Management, Inc., in the form of Exhibit A.
"best knowledge of Buyer" shall mean the actual knowledge of any officer of
Buyer, after reasonable inquiry.
"best knowledge of Sellers" shall mean the actual knowledge of any general
partner of Trirock or any officer of PIC, after reasonable inquiry, provided
that the knowledge of any limited partner of Trirock shall not in and of itself
be deemed to be the actual knowledge of any general partner of Trirock.
"Business Day" shall mean any day except a Saturday, Sunday or any day on
which United States chartered banking institutions are required by Law to close.
"Buyer" shall mean Front Royal, Inc., a North Carolina corporation.
"Buyer Basket" shall have the meaning set forth in Section 10.4.
"Buyer Cap" shall have the meaning set forth in Section 10.4.
"Buyer Closing Certificate" shall mean the certificate of an officer of
Buyer, dated as of the Closing Date, with respect to Section 7.1, Section 7.4
and the authorizing resolutions of the Board of Directors of Buyer.
"Charter Amendment" shall mean the Articles of Amendment of Front Royal,
Inc. Authorizing Series A Convertible Preferred Stock, substantially in the form
of Exhibit B.
"Class A Common Stock" shall mean the Class A Common Stock, no par value,
of the Company.
"Class B Common Stock" shall mean the Class B Common Stock, no par value,
of the Company.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as provided in Section 2.3.
"Closing Date" shall mean a date not later than December 31, 1996 which is
three Business Days after satisfaction or waiver of the conditions set forth in
Sections 6.8 and 7.7 [regulatory approvals], 6.9 and 7.8 [consents], and 6.11
and 7.9 [HSR] or such other date as the Sellers and Buyer may mutually agree
upon.
-2-
<PAGE>
"Coal" shall mean Coal Operators Indemnity Company, a Pennsylvania
corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Colony Insurance" shall mean Colony Insurance Company, a Virginia
corporation.
"Colony Management" shall mean Colony Management Services, Inc., a Virginia
corporation.
"Commissioner" shall mean the Pennsylvania Insurance Commissioner, her
predecessors and successors.
"Companies" shall mean, collectively, the Company and the Company
Subsidiaries.
"Company" shall mean Rockwood Casualty Insurance Company, a Pennsylvania
stock insurance company.
"Company Annual Statements" shall mean the annual statements filed by the
Company on the NAIC prescribed convention blank for each of the years ended
December 31, 1994 and 1995, filed with the Department pursuant to the
Pennsylvania Insurance Law (including management's discussion and analysis and
the supporting memorandum to the actuarial opinions given in connection with
such Company Annual Statements).
"Company Quarterly Statements" shall mean the quarterly statements of the
Companies for the three-month periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, filed with the Department pursuant to the Pennsylvania
Insurance Law.
"Company Statutory Statements" shall mean, collectively, the Company Annual
Statements and the Company Quarterly Statements.
"Company Subsidiaries" shall mean Coal, Comprehensive, Mid State and
Premier.
"Comprehensive" shall mean Comprehensive Casualty Services, Inc., a
Pennsylvania corporation.
"Contracts" shall have the meaning set forth in Section 3C.16.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
-3-
<PAGE>
"Cut-Off Date" shall have the meaning set forth in Section 2.2(b).
"December 31, 1996 Annual Statement" shall have the meaning set forth in
Section 2.2(b).
"Deficiency" shall have the meaning set forth in Section 2.2(b).
"Department" shall mean the Pennsylvania Insurance Department.
"Deposit" shall have the meaning set forth in Section 12.1.
"Disclosure Schedule of Buyer" shall mean the disclosure schedule, dated
the date hereof, furnished by Buyer to Sellers and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
"Disclosure Schedule of Sellers" shall mean the disclosure schedule, dated
the date hereof, furnished by Sellers to Buyer and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
"Employee Plans" shall mean the employee benefit plans of the Companies and
the ERISA Affiliates, which shall include without limitation any contract,
agreement, loan or arrangement which is an "employee benefit plan," as defined
in Section 3(3) of ERISA.
"Employees" shall have the meaning set forth in Section 3C.18 hereof.
"Equipment Leases" shall mean the equipment lease obligations of any of the
Companies listed in the Disclosure Schedule of Sellers.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean each trade or business, whether or not
incorporated, which with any of the Companies is treated as a single employer
under Code Section 414(b), (c), (m) or (o).
"Escrow Agent (Deposit)" shall mean Robinson Silverman Pearce Aronsohn &
Berman LLP.
-4-
<PAGE>
"Escrow Agent (Holdback)" shall mean such third party mutually acceptable
to Buyer, on the one hand, and Sellers, on the other hand.
"Escrow Agreement (Deposit)" shall mean the Escrow Agreement, dated as of
the date hereof, among Sellers, Buyer and the Escrow Agent (Deposit),
substantially in the form of Exhibit C.
"Escrow Agreement (Holdback)" shall mean the Escrow Agreement, dated as of
the Closing Date, among Sellers, Buyer and Escrow Agent (Holdback), mutually
acceptable to such parties, provided that the terms thereof shall be consistent
with Section 2.2(b).
"Fort Washington" shall mean Fort Washington Holdings, Inc., a Pennsylvania
corporation, all of the outstanding capital stock of which is owned by Charles
M. Lederman and Timothy I. McCarthy, Sr.
"FREIM" shall mean Front Royal Environmental Insurance Management, Inc., a
Virginia corporation.
"FRESI" shall mean Front Royal Environmental Services, Inc., North Carolina
corporation.
"FRETS" shall mean Front Royal ETS, Inc., a Virginia corporation.
"Front Royal" shall mean Front Royal, Inc., a North Carolina corporation.
"Front Royal Annual Statements" shall mean, collectively, the annual
statements filed by each of Front Royal Insurance, Hamilton Insurance and Colony
Insurance on the NAIC prescribed convention blank for each of the years ended
December 31, 1994 and 1995, filed with the Virginia Department of Insurance or
the Ohio Department of Insurance, as the case may be, pursuant to the Virginia
Insurance Law and the Ohio Insurance Law, respectively (including management's
discussion and analysis and the supporting memorandum to the actuarial opinions
given in connection with each such Front Royal Annual Statement).
"Front Royal Class A Stock" shall have the meaning set forth in Section
4.2.
"Front Royal Class B Stock" shall have the meaning set forth in Section
4.2.
"Front Royal Insurance" shall mean Front Royal Insurance Company, a
Virginia corporation.
-5-
<PAGE>
"Front Royal Preferred Stock" shall mean the Series A Convertible Preferred
Stock, par value $100 per share, of Buyer.
"Front Royal Quarterly Statements" shall mean, collectively, the quarterly
statements of each of Front Royal Insurance, Hamilton Insurance and Colony
Insurance for the three-month periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, filed with the Virginia Department of Insurance or the Ohio
Department of Insurance, as the case may be, pursuant to the Virginia Insurance
Law and the Ohio Insurance Law, respectively.
"Front Royal Statements" shall mean, collectively, the Front Royal Annual
Statements and the Front Royal Quarterly Statements.
"Front Royal Subsidiaries" shall mean Colony Management, Colony Insurance,
FREIM, FRESI, Hamilton Insurance, Front Royal Insurance and FRETS.
"Hamilton Insurance" shall mean Hamilton Insurance Company, a Virginia
corporation.
"HSR Act" shall mean Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended, and the rules
and regulations promulgated thereunder.
"Indemnity Claim" shall have the meaning set forth in Section 9.5.
"Intellectual Property" shall have the meaning set forth in Section 3C.20
hereof.
"Law" shall mean any federal, state, local or other law or governmental
requirement of any kind, and the rules, regulations, permits, licenses and
orders promulgated thereunder.
"Lease" shall mean the lease between the Company and Rockwood Asset
Management, Inc., with respect to the properties located at (i) 654 Main Street,
Rockwood, Pennsylvania 15557, and (ii) 641 Main Street, Rockwood, Pennsylvania
15557, in the form of Exhibit D.
"Lien" shall mean any lien, pledge, charge, security interest, encumbrance,
title retention agreement, restriction, advance, claim or option.
"Material Adverse Effect" shall mean (i) with respect to the Companies,
reasonably likely to have an adverse effect greater than $150,000 on the
properties, business, results of operations, condition (financial or otherwise)
or affairs of the Companies, taken as a whole, (ii) with respect to a Seller,
reasonably likely to have an adverse effect greater than $150,000 on the
properties, business, results of operations, condition (financial
-6-
<PAGE>
or otherwise) or affairs of such Seller and its Subsidiaries, taken as a whole,
and (iii) with respect to Buyer reasonably likely to have an adverse effect
greater than $150,000 on the properties, business, results of operations,
condition (financial or otherwise) or affairs of Front Royal and the Front Royal
Subsidiaries, taken as a whole.
"Mid State" shall mean Mid State Insurance Underwriters, Inc., a
Pennsylvania corporation.
"Non-Compete and Non-Solicitation Agreements" shall mean, collectively, the
agreements between Buyer and each of (1) Charles M. Lederman, (2) Timothy I.
McCarthy, Sr. (3) PIC, (4) Pittsburgh Mutual Insurance Company, (5) Premier, (6)
John R. McGinley, Jr., (7) Frank J. Lucchino, (8) Terrence S. Jacobs and (9)
Peter C. Dozzi, each dated as of the Closing Date, in the form of Exhibits E(1),
E(2), E(3), E(4), E(5), E(6), E(7), E(8) and E(9), respectively.
"Ohio Insurance Law" shall mean all of the statutes and regulations of the
State of Ohio applicable to insurance companies, as in effect on the Closing
Date.
"Operational Representations of Buyer" shall mean the representations and
warranties of Buyer set forth in Sections 4.2(b), (c), (d), (e), (f), (g), (h)
and (i), 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16.
"Operational Representations of Sellers" shall mean the representations and
warranties of either or both Sellers set forth in Sections 3A.6, 3A.7, 3A.8,
3A.9, 3A.10, 3A.11, 3B.5, 3B.6, 3B.7, 3B.8, 3B,9, 3C.2, 3C.3(b), (c), (d) and
(e), 3C.5, 3C.6, 3C.7, 3C.8, 3C.9, 3C.10, 3C.11, 3C.12, 3C.13, 3C.14, 3C.15,
3C.16, 3C.17, 3C.18, 3C.19, 3C.20, 3C.21, 3C.22, 3C.23, 3C.25 and 3C.26.
"Opinion of Buyer's Counsel" shall mean, collectively, (a) the opinion of
Robinson Silverman Pearce Aronsohn & Berman LLP, counsel to Buyer, with respect
to New York law and Federal law, (b) the opinion of local counsel to Buyer, with
respect to applicable laws other than the State of New York (including North
Carolina), and (c) the opinion of Saul, Ewing, Remick & Saul, special
Pennsylvania insurance regulatory counsel to Buyer, each in form and substance
reasonably acceptable to Sellers.
"Opinion of Trirock's Counsel" shall mean the opinion of Kirkpatrick &
Lockhart LLP, counsel to Trirock, in form and substance reasonably acceptable to
Buyer.
"Opinion of PIC's Counsel" shall mean the opinion of Dilworth, Paxson,
Kalish & Kauffman LLP, counsel to PIC, in form and substance reasonably
acceptable to Buyer.
-7-
<PAGE>
"Option Agreement" shall mean the Option Agreement, dated as of the Closing
Date, between Buyer and Fort Washington, in the form of Exhibit F.
"Ownership Period" shall have the meaning set forth in Section 3C.9.
"Pennsylvania Insurance Law" shall mean all of the statutes and regulations
of the Commonwealth of Pennsylvania applicable to insurance companies, as in
effect on the Closing Date.
"Pension Plan" shall have the meaning set forth in Section 3C.19.
"Permits" shall mean all licenses, permits and other governmental
authorizations, registrations and approvals required to conduct the business of
(i) with respect to any of the Companies, the Companies, and (ii) with respect
to Buyer, Buyer and the Front Royal Subsidiaries.
"Permitted Lien" shall mean any lien described in the Disclosure Schedule
of Sellers.
"PIC" shall mean PIC Insurance Group, Inc., a Pennsylvania stock insurance
company.
"PIC Basket" shall have the meaning set forth in Section 2.2(b).
"PIC Cap" shall have the meaning set forth in Section 10.4.
"PIC Shares" shall have the meaning set forth in Section 2.1.
"PIC Closing Certificate" shall mean the certificate of an officer of PIC,
dated as of the Closing Date, with respect to Section 6.1, Section 6.4 and the
authorizing resolutions of the Board of Directors of the Buyer.
"Preferred Stock Sale Agreement" shall mean the Purchase and Sale
Agreement, dated as of the Closing Date, between PIC, as seller, and Fort
Washington, as buyer, in the form of Exhibit G.
"Premier" shall mean Premier Auto Insurance Company, a Pennsylvania stock
insurance company f/k/a Somerset Casualty Insurance Company.
"Premier Stock Purchase Agreement" shall mean the Stock Purchase Agreement,
dated as of the Closing Date, between the Company, as seller, and Fort
Washington, as buyer, in the form of Exhibit H.
-8-
<PAGE>
"Pre-Ownership Period" shall have the meaning set forth in Section 3C.9.
"Purchased Stock" shall have the meaning set forth in Section 2.1.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Required Final Surplus Amount" shall have the meaning set forth in Section
2.2(b).
"Reserves" as at any date with respect to any of the Companies shall mean
the loss, loss adjustment and unearned premium reserves and other similar
amounts with respect to losses, claims, discounts and expenses in connection
with such Company's insurance business.
"SAP" shall mean statutory accounting practices required, prescribed or
permitted by the Commissioner, consistently applied throughout the specified
period and in the comparable period in the immediately preceding year.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Sellers" shall mean PIC and Trirock.
"Sellers' Objection" shall have the meaning set forth in Section 2.2(b).
"Shareholders Agreement" shall mean the Shareholders and Registration
Rights Agreement, dated as of the Closing Date, among Buyer, Charles M.
Lederman, Timothy I. McCarthy, Sr. and Fort Washington, substantially in the
form of Exhibit I.
"Software Licenses" shall mean all licenses related to software used by any
of the Companies, including, without limitation, those listed in the Disclosure
Schedule of Sellers.
"Subsidiary" of any person or entity shall mean any corporation or other
business entity a majority of the voting stock (or other beneficial interests)
of which, entitled to vote for the election of directors (or their
counterparts), is owned by such person or entity or a Subsidiary of such person
or entity.
"Surplus" shall have the meaning set forth in Section 2.2(b).
"Surplus Certificate" shall mean, collectively, (i) the certificate from
PIC, (ii) the certificate from Trirock and (iii)
-9-
<PAGE>
the certificate from the chief financial officer of the Company, in each case
certifying that as of the Closing Date, the Surplus of the Company is equal to
or greater than $50,000,000.
"Surplus Deficiency Notice" shall have the meaning set forth in Section
2.2(b).
"Tax Losses" shall mean any taxes, interest, penalties and other amounts
required to be paid to any federal, state or local taxing authority by any of
the Companies on account of or arising out of any periods ending on or prior to
the Closing Date, net of any federal or state income tax benefit realized or the
then-present value (based on a discount rate of 5%) of any such income tax
benefit to be realized by the Companies by reason of the facts and circumstances
giving rise to the indemnification pursuant to Article IX (e.g. deductions
disallowed for a period ending on or prior to the Closing Date that are allowed
after the Closing Date), except (i) to the extent the same have been reserved
for in the Company Annual Statements, in the Company Quarterly Statements or,
with respect to the quarter ending December 31, 1996, the internal financial
statements of the Companies as disclosed to Buyer, (ii) with respect to interest
payments, only the after tax costs of such interest shall be included in
computing Tax Losses and (iii) Tax Losses shall not include taxes or interest
thereon arising out of any future adjustment that may be made to the Reserves
set forth in any tax return of the Companies.
"Triangle Engineering" shall mean Triangle Engineering, Inc., a North
Carolina corporation.
"Trirock" shall mean Trirock Limited Partnership, a Pennsylvania limited
partnership.
"Trirock Basket" shall have the meaning set forth in Section 10.4.
"Trirock Cap" shall have the meaning set forth in Section 10.4.
"Trirock Closing Certificate" shall mean the certificate of a general
partner of Trirock, dated as of the Closing Date, with respect to Section 6.1,
Section 6.4 and the authorizing resolutions of the general partners of Trirock.
"Trirock Note" shall have the meaning set forth in Section 2.2(a)(iii).
"Trirock Shares" shall have the meaning set forth in Section 2.1.
-10-
<PAGE>
"Virginia Insurance Law" shall mean all of the statutes and regulations of
the State of Virginia applicable to insurance companies, as in effect on the
Closing Date.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include the other gender, (b) words using the singular or
plural number also include the plural or singular number, respectively, (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement, (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement, (e) the phrase "in the
ordinary course of business and consistent with past practice" refers to the
business, operations, affairs, and practice of the Company consistent with past
practices of such business, operations and affairs, (f) the term "including" and
other forms of such term, with respect to any matter or thing, means "including
but not limited to" such matter or thing, (g) all reference to "dollars" or "$"
refer to currency of the United States of America and (h) any undefined term in
this Agreement shall have the meaning customarily ascribed to it by the casualty
insurance industry.
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 Transfer of Stock. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties contained herein, on the
Closing Date, (a) PIC shall sell, convey, transfer, assign and deliver to Buyer,
and Buyer shall acquire from PIC, 250,000 shares of Class A Common Stock,
constituting 50% of the issued and outstanding shares of Class A Common Stock,
and 571,961 shares of Class B Common Stock, constituting all of the issued and
outstanding shares of Class B Common Stock (together, the "PIC Shares"), and (b)
Trirock shall sell, convey, transfer, assign and deliver to Buyer, and Buyer
shall acquire from Trirock, 250,000 shares of Class A Common Stock, constituting
50% of the issued and outstanding shares of Class A Common Stock (the "Trirock
Shares"; together with the PIC Shares, the "Purchased Stock"). In full payment
for the Purchased Stock, Buyer shall pay the Purchase Price, as provided in
Section 2.2.
2.2 Purchase Price. (a) The consideration for the Purchased Stock (the
"Purchase Price") shall be as follows:
(i) subject to clause (b) below, Section 2.3(b) and Article XII
[Deposit; Payments on Termination], Buyer shall pay in cash the total sum
of $28,320,000 (the "Cash Payment") as follows:
-11-
<PAGE>
(1) to PIC, for the shares of Class A Common Stock included in
the PIC Shares $13,180,000; and
(2) to PIC, for the shares of Class B Common Stock included in
the PIC Shares $15,140,000.
(ii) Buyer shall issue to PIC, in further consideration for the Class
B Common Stock included in the PIC Shares, Front Royal Preferred Stock
having an aggregate stated value of $15,500,000.
(iii) subject to clause (b) below, Section 2.3(b) and Article XII
[Deposit; Payment on Termination], Buyer shall issue and deliver to Trirock
in consideration for the Trirock Shares, a promissory note, dated the
Closing Date, in the principal amount of $13,180,000, in the form of
Exhibit J (the "Trirock Note").
(b) (i) On the Closing Date, Buyer shall deliver $766,667 of the Cash
Payment and on the date of payment under the Trirock Note, Buyer shall deliver
$233,333 of such monies then due under the Trirock Note (such $1,000,000 in the
aggregate, the "Holdback") to the Escrow Agent (Holdback) which shall hold the
Holdback in escrow pursuant to the terms of the Escrow Agreement (Holdback). The
fees and expenses of the Escrow Agent (Holdback) shall be borne equally by
Buyer, on the one hand, and Sellers on the other hand.
(ii) On or before the earlier of (1) August 1, 1997 and (2) 30 days after
the receipt by Buyer of the December 31, 1996 Annual Statement in form for
filing with the Department (including receipt of audit certification from
Parente, Randolph, Orlando, Carey & Associates) (the "Cut-Off Date"), Buyer may
deliver to Sellers a Surplus Deficiency Notice (as hereinafter defined) setting
forth the amount, if any (such amount, the "Deficiency"), by which the amount
shown on the line entitled "Surplus As Regards Policyholders" plus the amount
shown on the line entitled "Excess of Statutory Reserves Over Statement
Reserves, Schedule P Interrogatories" (the "Surplus"), as set forth in the
Company's annual statement on the NAIC prescribed convention blank for the year
ended December 31, 1996 (the "December 31, 1996 Annual Statement") filed with
the Department pursuant to the Pennsylvania Insurance Law, is less than an
amount (the "Required Final Surplus Amount") equal to (A) $50,000,000 or (B) if
at Closing Sellers failed to deliver a Surplus Certificate and certified to
Buyer a lesser amount of Surplus which would be shown on the December 31, 1996
Annual Statement, and Buyer elected to consummate the Closing hereunder, the
lesser amount as to which Sellers so certified. Such Surplus shall be determined
as follows: Buyer will cause the Company to close its books as of December 31,
1996 and prepare the December 31, 1996 Annual Statement on a basis consistent
(including
-12-
<PAGE>
actuarial assumptions and estimation methods) with that of the prior years and
in accordance with the statutory accounting principles prescribed or permitted
by the Department. The December 31, 1996 Annual Statement will be audited by
Parente, Randolph, Orlando, Carey & Associates, which firm shall deliver an
unqualified opinion, and the adequacy of loss reserves will be certified by
Maher Associates, Inc. The "Surplus Deficiency Notice" shall mean, for purposes
hereof, such notice delivered to Sellers which (w) is in writing, (x) sets forth
the Deficiency, (y) sets forth in reasonable detail the basis for Buyer's claim
that the Surplus was less than the Required Final Surplus Amount as of December
31, 1996 and (z) includes a copy of the December 31, 1996 Annual Statement.
(iii) In the event that on or before the Cut-Off Date, Buyer delivers to
Sellers, with a copy to the Escrow Agent (Holdback), the Surplus Deficiency
Notice, then the Escrow Agent (Holdback) shall continue to hold the Holdback
pursuant to the terms of the Escrow Agreement (Holdback). In the event that
within 30 days of delivery of the Surplus Deficiency Notice, Sellers deliver to
Buyer written notice of its objection thereto, with a copy to the Escrow Agent
(Holdback), which objection shall set forth in reasonable detail the basis for
the Sellers' objection to the Surplus Deficiency Notice (the "Sellers
Objection"), then (A) the Escrow Agent (Holdback) shall continue to hold the
Holdback pursuant to the terms of the Escrow Agreement (Holdback) and (B)
Sellers and Buyer shall commence negotiations and use their best efforts to
resolve such dispute and if they are unable to so resolve such dispute within 30
days of the delivery of the Sellers Objection, (1) such dispute shall be
submitted to arbitration in accordance with Section 10.7 and (2) during the
pendency of such arbitration proceedings as provided therein, the Escrow Agent
(Holdback) shall continue to hold the Holdback pursuant to the terms of the
Escrow Agreement (Holdback). Following delivery of the Sellers Objection, Buyer
shall cooperate with Sellers to enable Sellers to prepare an alternative
calculation of Surplus and shall allow Sellers access in accordance with Section
8.2 for that purpose; provided, however, that Buyer shall not be required to
incur any out-of-pocket expenses in so cooperating.
(iv) If Sellers do not deliver to Buyer the Sellers Objection within 30
days of the delivery of the Surplus Deficiency Notice, then upon the written
direction of Buyer to Escrow Agent (Holdback), with a copy to Sellers, the
Escrow Agent (Holdback) shall deliver to an account or accounts designated by
Buyer in immediately available funds an amount equal to the Deficiency plus any
interest earned thereon, and (a) 23.3% of the balance thereof, if any, and any
interest earned thereon, shall be delivered to an account or accounts designated
by Trirock and (B) 76.7% of the balance thereof, if any, and any interest earned
thereon, shall be delivered to an account or accounts designated
-13-
<PAGE>
by PIC. In the event that the amount of the Deficiency exceeds the amount of the
Holdback, plus interest thereon, Trirock shall be liable for such excess up to
an amount equal to 23.3% thereof without regard to the Trirock Basket and PIC
shall be liable for such excess up to an amount equal to 76.7% thereof without
regard to the PIC Basket.
(v) In the event that Buyer does not deliver a Surplus Deficiency Notice on
or before the Cut-Off Date, then upon the written direction of Sellers to Escrow
Agent (Holdback), with a copy to Buyer, the Escrow Agent (Holdback) shall
deliver in immediately available funds (A) to an account or accounts designated
by Trirock an amount equal to 23.3% of the Holdback, plus any interest earned
thereon, and (B) to an account or accounts designated by PIC an amount equal to
76.7% of the Holdback, plus any interest earned thereon.
(vi) Delivery of a Surplus Deficiency Notice, or the failure to deliver the
same, on or before the Cut-Off Date shall not be deemed a waiver by Buyer of any
rights it may have pursuant to this Agreement (including, without limitation,
Article X [Indemnification]) or otherwise and shall not be deemed a release of
Sellers obligations or liabilities under this Agreement. Notwithstanding the
foregoing, in the event that the Surplus as set forth in the December 31, 1996
Annual Statement and calculated in accordance with Section 2.2(b)(ii) is equal
to or greater than the Final Surplus Amount and the Holdback is released to
Sellers pursuant to the terms hereof and the Escrow Agreement (Holdback), then
Buyer shall not thereafter be entitled to recover from either Seller any
Deficiency or alleged Deficiency.
(vii) Deliveries of a Surplus Deficiency Notice and the Sellers Objection
shall be by hand, overnight courier or telecopy pursuant to Section 13.6 and
shall be deemed delivered as provided therein.
2.3 Closing. (a) The Closing will take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York,
New York 10104, at 10:00 a.m., local time, on the Closing Date.
(b) Concurrently with the Closing, Buyer shall cause the Company to
distribute to PIC $6,519,500 and concurrently with the payment of monies due
under the Trirock Note, Buyer shall cause the Company to distribute to Trirock
$1,980,500, which distributions shall be deemed a return of capital to Buyer. Of
such $8,500,000 distribution, (1) $6,519,500 shall be credited against the Cash
Payment otherwise payable to PIC at Closing and (2) $1,980,500 shall be credited
against the monies otherwise due and payable to Trirock under the terms of the
Trirock Note.
-14-
<PAGE>
(c) At the Closing, Buyer shall deliver the following:
(i) $27,553,000 of the Cash Payment (subject to clause (d) below) by
wire transfer of immediately available funds to an account or accounts
designated by PIC;
(ii) $766,667 of the Holdback by wire transfer of immediately
available funds to an account designated by the Escrow Agent (Holdback);
(iii) one or more certificates issued to PIC representing 155,000
shares of Front Royal Preferred Stock having an aggregate stated value of
$15,500,000; and
(iv) the Trirock Note in the principal amount of $13,180,000.
(d) At the Closing, the Escrow Agent (Deposit) shall deliver pursuant to
Section 12.2 $766,667 of the Deposit and any interest earned thereon.
(e) At the Closing, PIC shall deliver the following to Buyer:
(i) a certificate or certificates representing, in the aggregate,
250,000 shares of Class A Common Stock, constituting 50% of the issued and
outstanding shares of Class A Common Stock, accompanied by stock powers
duly endorsed in blank, with all required transfer taxes or stamps paid for
or affixed thereto, free and clear of all Liens; and
(ii) one or more certificates representing, in the aggregate, 571,961
shares of Class B Common Stock, constituting all of the issued and
outstanding shares of Class B Common Stock, accompanied by stock powers
duly endorsed in blank, with all required transfer taxes or stamps paid for
or affixed thereto, free and clear of all Liens.
(f) At the Closing, Trirock shall deliver to Buyer one or more certificates
representing 250,000 shares of Class A Common Stock, constituting 50% of the
issued and outstanding shares of Class A Common Stock, accompanied by stock
powers duly endorsed in blank, with all required transfer taxes or stamps paid
for or affixed thereto, free and clear of all Liens.
-15-
<PAGE>
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF PIC
PIC represents and warrants to Buyer as follows:
3A.1 Organization and Good Standing. PIC is a stock insurance company duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
3A.2 Authority, Validity and Enforceability. PIC has full corporate power
and authority to execute, deliver and perform its obligations and to consummate
the transactions required of it under or contemplated by this Agreement. The
execution, delivery and performance by PIC of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of PIC. No other action or proceeding on
the part of PIC is necessary to authorize this Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by PIC and constitutes a valid, legal and binding
obligation of PIC, enforceable in accordance with its terms.
3A.3 No Violation or Breach. The execution, delivery and performance by PIC
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time or both):
(a) violate or require any consent or approval under any provision of the
certificate of incorporation or by-laws of PIC; or
(b) except as set forth on Schedule 3A.10 of the Disclosure Schedule of
Sellers, violate or result in a default of, or require any consent or approval
under any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority, to which PIC is a party or is otherwise
subject; or
(c) result in any Lien upon any properties, assets, business or agreements
of PIC howsoever arising, except for such Liens which would not have a Material
Adverse Effect with respect to PIC.
3A.4 PIC Shares; Title to Shares. (a) The PIC Shares consist of (i) 250,000
issued and outstanding shares of Class A Common Stock owned beneficially and of
record by PIC, free and clear of any Liens, and (ii) 571,961 issued and
outstanding shares of Class B Common Stock owned beneficially and of record by
PIC, free and clear of any Liens. All of such outstanding
-16-
<PAGE>
shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(b) Upon delivery to Buyer of certificates representing the PIC Shares,
Buyer will acquire good and valid title to the PIC Shares, free and clear of any
Liens other than (a) Liens that arise solely as a result of Buyer's actions and
(b) restrictions on transferability generally imposed on transfers of securities
by federal and state securities laws and state insurance laws.
3A.5 Acquisition for Investment. PIC will require Fort Washington to agree
that it is acquiring from PIC the Front Royal Preferred Stock pursuant to the
Preferred Stock Sale Agreement for Fort Washington's own account for investment
and not with a view to any distribution thereof within the meaning of the
Securities Act, and that the issuance of the Front Royal Preferred Stock
pursuant hereto is intended to be exempt from the Securities Act pursuant to
Section 4(2) thereof, and the Front Royal Preferred Stock may not be resold or
otherwise transferred except pursuant to an effective registration statement or
an exemption from registration thereunder, and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws.
3A.6 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of PIC as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise"
of PIC as of the Closing Date, as such terms are determined in accordance with
applicable federal and state laws governing determinations of the insolvency of
debtors.
3A.7 No Brokers. Other than counsel, PIC has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of any of the transactions contemplated hereby,
other than those persons listed on Schedule 3A.7 of the Disclosure Schedule of
Sellers, all of whose fees shall be paid by PIC.
3A.8 Foreign Person. PIC is not a "foreign person" within the meaning of
Section 1445(b)(2) of the Code, and an affidavit to such effect will be
delivered by PIC at Closing.
3A.9 Affiliations with Insurance Companies. Neither Charles M. Lederman nor
Timothy I. McCarthy, Sr. is now or has ever been an officer, director or
affiliate (as defined in Section 1 of the Insurance Holding Company System
Regulatory Act) and PIC is not now nor has it ever been such an affiliate of any
insurance company that has been declared insolvent, liquidated or subject of
supervisory orders from any regulatory authority, other than the Company.
-17-
<PAGE>
3A.10 Consent. Except as set forth in Schedule 3A.10 of the Disclosure
Schedule of Sellers, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained by PIC in connection with the execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
3A.11 Transactions with Interested Persons. Except as disclosed in Schedule
3A.11 of the Disclosure Schedule of Sellers, no officer or director of PIC or
any of its Affiliates owns, directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
customer, competitor or supplier of any of the Companies or any person or entity
which has a contract or arrangement with any of the Companies. Schedule 3A.11 of
the Disclosure Schedule of Sellers lists or describes all contracts between PIC
or any of its Affiliates and any of the Companies and all services provided by
PIC or any of its Affiliates to any of the Companies.
ARTICLE IIIB
REPRESENTATIONS AND WARRANTIES OF TRIROCK
Trirock represents and warrants to Buyer as follows:
3B.1 Organization and Good Standing. Trirock is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
3B.2 Authority, Validity and Enforceability. Trirock has full power and
authority to execute, deliver and perform its obligations and to consummate the
transactions required of it under or contemplated by this Agreement. The
execution, delivery and performance by Trirock of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the partners of Trirock. No other action or proceeding on the part
of Trirock is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Trirock and constitutes a valid, legal and binding
obligation of Trirock, enforceable in accordance with its terms.
3B.3 No Violation or Breach. The execution, delivery and performance by
Trirock of this Agreement does not, and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time or both):
-18-
<PAGE>
(a) violate or require any consent or approval under any provision of the
Certificate of Limited Partnership of Trirock or the Limited Partnership
Agreement among the partners of Trirock; or
(b) except as set forth on Schedule 3B.8 of the Disclosure Schedule of
Sellers, violate or result in a default of, or require any consent or approval
under any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority, to which Trirock is a party or is otherwise
subject; or
(c) result in any Lien upon any properties, assets, business or agreements
of Trirock howsoever arising, except for such Liens which would not have a
Material Adverse Effect with respect to Trirock.
3B.4 Trirock Shares; Title to Shares. (a) The Trirock Shares consist of
250,000 issued and outstanding shares of Class A Common Stock owned beneficially
and of record by Trirock, free and clear of any Liens. All such outstanding
shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(b) Upon delivery to Buyer of certificates representing the Trirock Stock,
Buyer will acquire good and valid title to the Trirock Stock, free and clear of
any Liens other than (a) Liens that arise solely as a result of Buyer's actions
and (b) restrictions on transferability generally imposed on transfers of
securities by federal and state securities laws and state insurance laws.
3B.5 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Trirock as of the Closing
Date shall be greater than the amount of all "liabilities, contingent or
otherwise" of Trirock as of the Closing Date, as such terms are determined in
accordance with applicable federal and state laws governing determinations of
the insolvency of debtors.
3B.6 No Brokers. Other than counsel, Trirock has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of any of the transactions contemplated hereby,
other than those persons listed on Schedule 3B.6 of the Disclosure Schedule of
Sellers, all of whose fees shall be paid by Trirock.
3B.7 Foreign Person. Trirock is not a "foreign person" within the meaning
of Section 1445(b)(2) of the Code and an affidavit to such effect will be
delivered by Trirock at Closing.
-19-
<PAGE>
3B.8 Consents. Except as set forth in Schedule 3B.8 of the Disclosure
Schedule of Sellers, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained by Trirock in connection with the execution, delivery and
performance of this Agreement.
3B.9 Transactions with Interested Persons. Except as disclosed in Schedule
3B.9 of the Disclosure Schedule of Sellers, no officer or director of Trirock or
any of its Affiliates owns, directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
customer, competitor or supplier of any of the Companies or any person or entity
which has a contract or arrangement with any of the Companies. Schedule 3B.9 of
the Disclosure Schedule of Sellers lists or describes all contracts between
Trirock or any of its Affiliates and any of the Companies and all services
provided by Trirock or any of its Affiliates to any of the Companies.
ARTICLE IIIC
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of PIC and Trirock represents and warrants, jointly and severally but
subject to Article X, to Buyer, as follows:
3C.1 Organization and Good Standing. Each of the Company, Coal,
Comprehensive, Mid State and Premier is a corporation or stock insurance
company, as the case may be, duly organized, validly existing and in good
standing under the laws of the jurisdiction set forth in Schedule 3C.1 of the
Disclosure Schedule of Sellers. Each of the Companies has all requisite power
and authority to conduct its business as currently conducted and to own or lease
and to operate its properties. Each of the Companies is duly qualified or
admitted to do business and is in good standing as a foreign corporation or
stock insurance company, as the case may be, in all jurisdictions in which the
ownership, use or leasing of its assets or properties or the conduct or nature
of its business makes such qualification or admission necessary, except where
the failure to be so qualified or admitted would not have a Material Adverse
Effect with respect to the Companies.
3C.2 Licenses and Permits. Each of the Companies has all Permits required
in each of the jurisdictions listed on Schedule 3C.2 of the Disclosure Schedule
of Sellers to engage in the business of writing insurance policies of the type
specified on such Schedule 3C.2 except for such Permits, the absence, expiration
or invalidity of which, individually or in the
-20-
<PAGE>
aggregate, does not have a Material Adverse Effect with respect to the
Companies. Each of the Companies is duly licensed and qualified to transact
those lines of insurance business in those states and jurisdictions listed on
such Schedule 3C.2. Except as set forth on such Schedule 3C.2, all such Permits
are owned by the Companies, are in full force and effect and none of the
Companies or Sellers has received any notice of any event, inquiry,
investigation or proceeding that could result in a penalty or fine in excess of
$25,000, singly or in the aggregate, or in the suspension, revocation or
limitation on any such Permit, and, to the best knowledge of each Seller, there
is no basis for any such fine, penalty, suspension, revocation or limitation.
Each of the Companies possesses the minimum statutory capital and surplus as
required by each such jurisdiction for the type of insurance written by the
Companies in each jurisdiction set forth on such Schedule 3C.2.
3C.3 Capitalization. (a) The Company. The authorized capital stock of the
Company consists of 1,070,961 shares of capital stock, no par value, 500,000 of
which are designated Class A Common Stock and 571,961 of which are designated
Class B Common Stock. All of the outstanding shares of capital stock of each of
the Company Subsidiaries is owned beneficially and of record by the Company,
free and clear of any Liens except for the Lien on the capital stock of Premier
created pursuant to the terms of the Premier Stock Purchase Agreement.
(b) Coal. The authorized capital stock of Coal consists of 1,000 shares of
common stock, $100 par value per share, 997 of which are issued and outstanding
and three of which were directors qualifying shares issued to three directors of
Coal, as nominees of Coal. Certificates representing such three shares of common
stock have not been located and none of the holders thereof have any enforceable
rights, at law, in equity or otherwise, as a shareholder of Coal. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and non-assessable.
(c) Comprehensive. The authorized capital stock of Comprehensive consists
of 100 shares of common stock, no par value, 100 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(d) Mid State. The authorized capital stock of Mid State consists of 100
shares of common stock, $1.00 par value per share, 100 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(e) Premier. The authorized capital stock of Premier consists of 1,000
shares of common stock, no par value, 1,000 of
-21-
<PAGE>
which are issued and outstanding. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable.
(f) No Rights. There are no outstanding securities, rights (pre-emptive or
other), subscriptions, calls, warrants, options or other agreements (except for
this Agreement) that give any person or entity the right to (i) purchase or
otherwise receive or be issued any shares of capital stock of any of the
Companies (or any interest therein) or any security convertible into or
exchangeable for any shares of capital stock of any of the Companies (or any
interest therein), (ii) receive any dividend, voting or ownership rights similar
to those accruing to a holder of shares of capital stock of any of the
Companies, or (iii) participate in the equity, income or election of directors
or officers of the Companies. Except as set forth in Schedule 3C.3 of the
Disclosure Schedule of Sellers, there are no proxies, voting trusts or other
agreements or understandings to which either Seller is a party with respect to
the voting of any of the Purchased Stock.
3C.4 No Violation or Breach. The execution, delivery and performance by
Sellers of this Agreement does not, and the consummation of the transactions
required by each contemplated hereby will not (with or without the giving of
notice or the lapse of time or both):
(a) violate or require any consent or approval under any provision of the
certificate or articles of incorporation or by-laws of any of the Companies; or
(b) except as set forth in Section 3C.6, violate or result in a default of,
or require any consent or approval under, or result in the termination of or
loss of any right (including any right of acceleration, termination or
cancellation) in or with respect to, any Contract, Permit, Equipment Lease or
Software License, except for such violations or breaches which would not have a
Material Adverse Effect with respect to the Companies; or
(c) except as set forth on Schedule 3C.4 of the Disclosure Schedule of
Sellers, violate or result in a default of, or require any consent or approval
under any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority, to which any of the Companies is a party or
is otherwise subject; or
(d) result in any Lien upon any properties, assets, business or agreements
of the Companies howsoever arising, except for such Liens which would not have a
Material Adverse Effect with respect to the Companies.
-22-
<PAGE>
3C.5 Subsidiaries. The Company has no Subsidiaries other than the Company
Subsidiaries and no Company Subsidiary has any Subsidiaries, except for
non-operating Subsidiaries which have no assets and no liabilities and conduct
no business.
3C.6 Consents. Except as set forth in Schedule 3C.6 of the Disclosure
Schedule of Sellers, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained, by any of the Companies in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
3C.7 Statutory Statements. Sellers have delivered to Buyer (a) the Company
Statutory Statements and (b) any annual statutory statements of the Companies
that were filed for the year ended December 31, 1995 in any jurisdiction (other
than Pennsylvania) and which differ from the Company Annual Statement for the
year ended December 31, 1995. Each such Company Statutory Statement (i) complied
in all material respects with all applicable laws when so filed, (ii) was
prepared in accordance with SAP and (iii) presents fairly in all material
respects the financial position of the Company, except with respect to Reserves,
as of the respective dates thereof and the related summary of operations and
changes in capital and surplus and in cash flows of the Company for and during
the respective periods covered thereby. No material deficiency has been asserted
by any insurance regulatory authority with respect to any such Statutory
Statement.
3C.8 Insurance Regulatory Filings. (a) To the best knowledge of Sellers,
since January 1, 1991 through and including June 30, 1994 (the "1991-1994
Period"), each of the Companies has filed or otherwise provided all reports,
data, other information and applications required to be filed or otherwise
provided to the Department and all other federal, state or local governmental
authorities with jurisdiction over any of the Companies except where the failure
to file would not have a Material Adverse Effect with respect to the Companies.
Sellers have made available to Buyer copies of all reports of examinations
(whether financial, market conduct or other) issued by and all drafts of as of
yet unissued reports of examinations delivered by the Department and all other
state insurance regulatory authorities in respect of any of the Companies
received, to the best knowledge of Sellers, during the 1991-1994 Period. Except
as set forth on Schedule 3C.8 of the Disclosure Schedule of Sellers, no
deficiencies material to the financial condition, operations or prospects of any
of the Companies have been asserted by the Department or any other state
insurance regulatory authority with respect to any reports or filings made on
behalf of any of the Companies, to the best knowledge of Sellers, in the
1991-1994
-23-
<PAGE>
Period. Sellers have made available to Buyer copies of all written responses
submitted on behalf of any of the Companies, to the best knowledge of Sellers,
in the 1991-1994 Period, in respect of any report of examination (whether
financial, market conduct or other) of any of the Companies by the Department or
any other state regulatory authority.
(b) Since July 1, 1994 (the "Ownership Period"), each of the Companies has
filed or otherwise provided all reports, data, other information and
applications required to be filed or otherwise provided to the Department and
all other federal, state or local governmental authorities with jurisdiction
over any of the Companies except where the failure to file would not have a
Material Adverse Effect with respect to the Companies. Sellers have made
available to Buyer copies of all reports of examinations (whether financial,
market conduct or other) issued by and all drafts of as of yet unissued reports
of examinations delivered by the Department and all other state insurance
regulatory authorities in respect of any of the Companies received in the
Ownership Period. Except as set forth on Schedule 3C.8 of the Disclosure
Schedule of Sellers, no deficiencies material to the financial condition,
operations or prospects of any of the Companies have been asserted by the
Department or any other state insurance regulatory authority with respect to any
reports or filings made on behalf of any of the Companies in the Ownership
Period. Sellers have made available to Buyer copies of all written responses
submitted on behalf of any of the Companies in the Ownership Period, in respect
of any report of examination (whether financial, market conduct or other) of any
of the Companies by the Department or any other state regulatory authority.
(c) Sellers have made available to Buyer all files of the Companies
relating to correspondence with the Department or any other insurance regulatory
authority.
3C.9 Insurance Issued. Except as required by Law or except as disclosed in
Schedule 3C.9 of the Disclosure Schedule of Sellers:
(a) All outstanding insurance Contracts issued, reinsured or underwritten
by any of the Companies (i) in the period prior to July 1, 1994 (the
"Pre-Ownership Period") are, to the best knowledge of Sellers, and (ii) in the
Ownership Period are, to the extent required under applicable laws, on forms and
at rates approved by the insurance regulatory authority of the jurisdiction
where issued or have been filed with and not objected to by such authority
within the period provided for objection.
(b) All insurance contract benefits payable by any of the Companies or, to
the best knowledge of Sellers, by any other
-24-
<PAGE>
person or entity that is a party to or bound by any reinsurance or other similar
Contract with any of the Companies (i) with respect to any such Contracts issued
in the Pre-Ownership Period have, to the best knowledge of Sellers, and (ii)
with respect to any such Contracts issued in the Ownership Period, have in all
material respects been paid in accordance with the terms of the insurance
Contracts under which they arose, except for such benefits for which the Company
believes there is a reasonable basis to contest payment.
(c) No outstanding insurance Contract issued, reinsured or underwritten by
any of the Companies entitles the holder thereof or any other person or entity
to receive stock dividends, distributions or other benefits based on the
revenues or earnings of any of the Companies or any other person or entity,
except for policyholder dividends paid in the ordinary course of business.
(d) To the best knowledge of Sellers, all amounts to which any of the
Companies is entitled under reinsurance or other similar Contracts (including
without limitation amounts based on paid and unpaid losses) are collectible in
the ordinary course of business.
(e) To the best knowledge of Sellers, each insurance agent, at the time
such agent wrote, sold, or produced business for any of the Companies, was duly
licensed as an insurance agent (for the type of business written, sold, or
produced by such insurance agent) in the particular jurisdiction in which such
agent wrote, sold, or produced such business for any of the Companies.
3C.10 Transactions with Interested Persons. Except as disclosed in Schedule
3C.10 of the Disclosure Schedule of Sellers, no officer or director of any of
the Companies owns, directly or indirectly, on an individual or joint basis, any
material interest in, or serves as an officer or director of, any customer,
competitor or supplier of any of the Companies or any person or entity which has
a contract or arrangement with any of the Companies. Schedule 3C.10 of the
Disclosure Schedule of Sellers lists or describes all contracts between any of
the Companies and all services provided thereunder.
3C.11 Reinsurance Policies. Set forth in Schedule 3C.11 of the Disclosure
Schedule of Sellers is a complete and accurate list of all reinsurance contracts
and treaties under which any of the Companies has ceded or assumed reinsurance
obligations and the cost and terms and the expiration date of each such contract
or treaty. Such Schedule 3C.11 specifies whether any such contract or treaty has
been commuted or has lapsed. Each contract and treaty set forth on such Schedule
3C.11 (or required to be set forth on such Schedule 3C.11) will not be
terminated or
-25-
<PAGE>
otherwise adversely affected as a result of the transactions contemplated
hereby. Except as set forth on such Schedule 3C.11, each such contract or treaty
is in full force and effect, and any such contract or treaty under which any of
the Companies cedes reinsurance obligations is qualified under all Laws
applicable to reinsurance policies and treaties to receive the statutory credit
assigned to such contract or treaty in the Company Statutory Statements at the
time such Company Statutory Statements were prepared. During the Ownership
Period or, to the best knowledge of Sellers, during the Pre-Ownership Period,
none of the Companies has violated any of the terms and conditions of any such
policies and treaties and, to the best knowledge of Sellers, all of the
covenants to be performed by any other party under any such policy and treaties
were negotiated with independent third parties in good faith at arm's length,
other than any such policies or treaties among the Companies and their
Affiliates as listed on such Schedule 3C.11.
3C.12 Litigation. Except as set forth on Schedule 3C.12 of the Disclosure
Schedule of Sellers, and except for claims made under or in connection with
insurance policies issued by the Companies:
(a) there is no action, proceeding, investigation or claim pending or,
to the best knowledge of Sellers, threatened against or affecting the
Companies or their respective assets before any court or governmental or
regulatory authority or body that, if adversely determined, would have a
Material Adverse Effect with respect to the Companies or which questions
the validity of this Agreement or any action taken or to be taken pursuant
hereto or in connection with the purchase and sale of the Purchased Stock;
and
(b) to the best knowledge of Sellers, there is no state of facts and
there has occurred no event or group of related events, that would form the
basis of any claim against any of the Companies for liability in connection
with the performance of the Contracts or the conduct of their respective
businesses that, if adversely determined, would have a Material Adverse
Effect with respect to the Companies or which questions the validity of
this Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock.
Except as set forth on Schedule 3C.12 of the Disclosure Schedule of Sellers,
with respect to claims against any of the Companies made under or in connection
with insurance policies issued by the Companies, there are no claims as to which
liability in excess of applicable coverage limits has been asserted against any
of the
-26-
<PAGE>
Companies including, without limitation, claims for bad faith or for punitive
damages.
3C.13 No Brokers. Other than counsel, none of the Companies has employed
any finder, broker, agent or other intermediary in connection with the
negotiation of this Agreement or the consummation of any of the transactions
contemplated hereby.
3C.14 Absence of Certain Changes. Except as set forth on Schedule 3C.14 of
the Disclosure Schedule of Sellers, since September 30, 1996, none of the
Companies has:
(a) issued, sold or delivered or agreed to issue, sell or deliver any
shares of its capital stock or any options, warrants or rights to acquire
any such capital stock, or securities convertible into or exchangeable for
such capital stock except for the transactions contemplated by this
Agreement;
(b) incurred any obligations or liabilities, whether absolute,
accrued, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of
others), other than obligations and liabilities incurred in the ordinary
course of business and obligations and liabilities under the Contracts;
(c) mortgaged, pledged or subjected to any Lien any of its assets,
tangible or intangible;
(d) acquired or disposed of any assets or properties, or entered into
any agreement or other arrangement for any such acquisition or disposition,
except in the ordinary course of business;
(e) declared, made, paid or set apart any sum for any dividend or
other distribution to its shareholders, other than the payment of a
management fee in an amount not to exceed $700,000, in connection with this
transaction, or purchased or redeemed any shares of its capital stock or
any option, warrant or right to purchase any such capital stock, or
reclassified its capital stock;
(f) entered into any employment agreement with any officer or salaried
employee that is not terminable at any time by the employer, without cause
and without penalty;
(g) forgiven or cancelled any debts or claims or waived any rights of
material value;
-27-
<PAGE>
(h) conducted its business or entered into any transaction other than
in the ordinary course of business, except the Contracts;
(i) granted any rights or licenses under any of its trade names or
entered into general agency arrangements;
(j) formed any Subsidiaries;
(k) changed any method of accounting or accounting practice or policy
other than as required by SAP or applicable Law;
(l) been sued or, to the best knowledge of Sellers, threatened with
any suit by any employee or former employee;
(m) to the best knowledge of Sellers, suffered or experienced any
change in relations with or material loss of any employees or customers; or
(n) agreed to take any action described in clauses (a) through (m).
3C.15 Taxes. (a) The Companies are members of the affiliated group, within
the meaning of Section 1504(a) of the Code, of which the Company is the common
parent, such affiliated group files a consolidated federal income tax return,
and except as disclosed on Schedule 3C.15 of the Disclosure Schedule of Sellers,
none of the Companies has ever filed a consolidated federal income tax return
with (or been included in a consolidated return of) a different affiliated
group. Each of the Companies has filed or caused to be filed or (in the case of
returns or reports not yet due) will file all tax returns and reports required
to have been filed by or for it on or before the due date thereof (including
extensions) that is on or before the Closing Date, and all material information
set forth in such returns or reports is or (in the case of returns or reports
not yet filed) will be accurate and complete. Each of the Companies has paid or
made adequate provision for or (with respect to returns or reports not yet
filed) will make adequate provision for all taxes, additions to tax, penalties
and interest for periods covered by those returns or reports. Each of the
Companies is in compliance with, and its records contain all information and
documents (including, without limitation, properly completed IRS Forms W-9)
necessary to comply with, all applicable tax information reporting and tax
withholding requirements under federal, state, local, and foreign laws, rules,
and regulations, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Code.
-28-
<PAGE>
(b) Each of the Companies has collected or withheld all amounts required to
be collected or withheld by it for any taxes, and all such amounts have been
paid to the appropriate governmental agencies or set aside in appropriate
accounts for future payment when due. The balance sheets contained in the
Statutory Statements fully and properly reflect, as of their dates, the
liabilities of each of the Companies for all accrued taxes, additions to tax,
penalties, and interest. Except as disclosed on Schedule 3C.15 of the Disclosure
Schedule of Sellers, there are no due but unpaid taxes, additions to tax,
penalties, or interest payable by any of the Companies or any other person that
(i) are or could become a Lien on any asset, or otherwise adversely affect the
business, properties, or financial condition, of any of the Companies or (ii)
could cause Buyer to incur any liability.
(c) Schedule 3C.15 of the Disclosure Schedule of Seller describes all tax
elections, consents, and agreements made by or affecting any of the Companies,
lists all types of taxes paid and returns filed by or on behalf of any of the
Companies, and expressly indicates each tax with respect to which any of the
Companies is or has been included in a consolidated, unitary, or combined
return. Except as disclosed on such Schedule 3C.15, none of the Companies has
granted (or is subject to) any waiver of the period of limitations for the
assessment of tax for any currently open taxable period, no unpaid tax
deficiency has been asserted against or with respect to any of the Companies by
any taxing authority and there is no dispute or claim concerning any tax
liability of any of the Companies claimed by any tax authority. To the best of
Sellers' knowledge, no claim has ever been made by a tax authority in a
jurisdiction where any of the Companies does not file tax returns that any of
the Companies is or may be subject to taxation in such jurisdiction. There are
no security interests on any assets of the Companies that arose in connection
with any failure (or alleged failure) to pay taxes. None of the Companies has
entered into a closing agreement pursuant to Section 7121 of the Code.
(d) None of the Companies has made or entered into, or holds any asset
subject to, a consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder. None of the assets of any of the Companies is or will be
required to be treated as being owned by any person (other than such Company)
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately before the enactment of the Code, and
the rules and regulations thereunder. Except as disclosed on such Schedule
3C.15, none of the Companies is required to include in income any amount for an
adjustment pursuant to Section 481 of the Code.
(e) There is no contract, agreement, plan or arrangement covering any
person that, individually or
-29-
<PAGE>
collectively, could give rise to the payment of any amount that would not be
deductible by the Company by reason of Section 280G of the Code.
3C.16 Contracts. (a) Schedule 3C.16 of the Disclosure Schedule of Sellers
contains a complete and correct list of all agreements, contracts and
commitments, written or oral, to which any of the Companies is a party or by
which any of the Companies is bound including, without limitation, Equipment
Leases and Software Licenses (collectively, the "Contracts"), excluding: (i) any
of the foregoing listed on Schedule 3C.11 of the Disclosure Schedule of Sellers
[Reinsurance]; (ii) insurance policies written by the Companies in the ordinary
course of business; and (iii) agreements, contracts and commitments in the
ordinary course with obligations to pay or perform services, which payments or
performance under all such agreements, contracts and commitments aggregate less
than $10,000, or that are terminable without cost or liability on notice of 30
days or less.
(b) Sellers have delivered or made available to Buyer complete and correct
copies of all Contracts (including, without limitation, all Equipment Leases and
Software Licenses) together with all amendments thereto and waivers and consents
with respect thereto and accurate descriptions of all oral agreements. Each of
the Contracts is in full force and effect. The Companies and the other parties
to such agreements, contracts and commitments, have in all material respects
performed all obligations required to be performed by them to date and are not
in default in any material respect. None of the Companies has outstanding any
power of attorney, except routine powers of attorney relating to representation
before governmental agencies or given in connection with being licensed to
conduct business in another jurisdiction and except for routine authorizations
given to managing general agents.
3C.17 Compliance with Other Instruments and Laws. Except as set forth on
Schedule 3C.17 of the Disclosure Schedule of the Sellers, none of the Companies
is in violation of any term of its charter or by-laws or any Contract or of any
judgment, decree or order and none of the Companies is in violation of any Law,
permit, concession, grant, franchise, license or other govern- mental
authorization or approval applicable to it or any of its properties, except for
such violation that would not have a Material Adverse Effect with respect to the
Companies.
3C.18 Employees. Schedule 3C.18 of the Disclosure Schedule of Sellers lists
all persons (the "Employees") employed by any of the Companies as of September
30, 1996.
3C.19 Employee Benefit Matters. (a) None of the Companies, any ERISA
Affiliate or any employee pension benefit plan (as
-30-
<PAGE>
defined in Section 3(2) of ERISA) maintained or previously maintained by any of
them (a "Pension Plan"), has incurred any material liability with respect to any
Pension Plan, other than premiums to the Pension Benefit Guaranty Corporation
("PBGC"), payment of employer contributions in an aggregate amount of not
greater than $100,000 and expenses of administration in an aggregate amount of
not greater than $15,000. There is not currently pending with the PBGC with
respect to any Pension Plan any filing with respect to any reportable event
under Section 4043 of ERISA nor has any reportable event occurred as to which a
filing is required and has not been made.
(b) Full payment has been made (or proper accruals have been established)
of all contributions which are required for periods prior to the Closing Date
under the terms of each Employee Plan, ERISA and collective bargaining
agreement, no accumulated funding deficiency (as defined in Section 302 of ERISA
or Section 412 of the Code), whether or not waived, exists with respect to any
Pension Plan (including any Pension Plan previously maintained by the Companies
or any ERISA Affiliate), and there was no "unfunded current liability" (as
defined in Section 412 of the Code) as of December 31, 1995 with respect to any
Pension Plan, except as set forth (i) in footnote 5 of the Company Annual
Statement for the year ended December 31, 1995 or (ii) in Schedule 3C.19(b) of
the Disclosure Schedule of Sellers, and to the best knowledge of each Seller,
except as set forth in such Schedule 3C.19(b), as of the date hereof there are
no facts, circumstances or developments with respect to any Pension Plan that
would give rise to an "unfunded current liability" with respect to any Pension
Plan.
(c) Neither the Company nor any ERISA Affiliate has contributed to, or been
required to contribute to, any multiemployer plan (as defined in Section 3(37)
of ERISA.
(d) All Employee Plans that are "employee benefit plans," as defined in
Section 3(3) of ERISA, that are maintained by the Companies or previously
maintained by the Companies comply and have been administered in compliance in
all material respects with ERISA and all other applicable legal requirements,
including the terms of such plans, collective bargaining agreements and
securities laws. Except as set forth in Schedule 3C.19(b) of the Disclosure
Schedule of Sellers, none of the Companies has any material liability under any
such plan.
(e) No prohibited transaction has occurred with respect to any Employee
Plan that is an "employee benefit plan" (as defined in Section 3(3) of ERISA)
maintained by the Companies or previously maintained by the Companies that would
result, directly or indirectly, in material liability under ERISA or in the
imposition of a material excise tax under Section 4975 of the Code.
-31-
<PAGE>
(f) The funding under each Employee Plan that is an "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA) does not exceed the
limitation under Section 419A(b) or 419(c) of the Code. None of the Companies is
subject to taxation on the income of any such plan or any such plan previously
maintained by the Companies or an ERISA Affiliate.
(g) Schedule 3C.19(a) of the Disclosure Schedule of Sellers contains a true
and complete list of all Pension Plans and Employee Plans.
3C.20 Assets and Properties. (a) Schedule 3C.20(a) of the Disclosure
Schedule of Sellers contains an accurate and complete list of all domestic and
foreign letters patent, patents, patent applications, patent licenses, software
licenses and know-how licenses, trade names, trademarks, copyrights, unpatented
inventions, service marks, trademark registrations and applications, service
mark registrations and applications, and copyright registrations and
applications and software owned by the Companies or its Affiliates and used by
any of the Companies in connection with the operation of their respective
businesses (collectively the "Intellectual Property"). Unless otherwise
indicated in such Schedule 3C.20(a), one or more of the Companies owns the
entire right, title and interest in and to the Intellectual Property (including,
without limitation, the exclusive right to use and license the same), and no
person is infringing on the Companies' ownership or use of the Intellectual
Property.
(b) Schedule 3C.20(b) of the Disclosure Schedule of Sellers contains a list
of all debentures, notes, stocks, limited partnership interests, other
securities, mortgages and other investment assets owned by each of the Companies
as of September 30, 1996. Each of the Companies had good and marketable title to
all debentures, notes, stocks, limited partnership interests, other securities,
mortgages and other investment assets (excluding real property) owned by it as
of such date, free and clear of all Liens.
(c) Schedule 3C.20(c) of the Disclosure Schedule of Sellers contains a true
and complete list and description of all real property in which each of the
Companies has an ownership interest. Each of the Companies owns good and
insurable fee simple title to all such real property, free and clear of all
Liens, except for Permitted Liens.
(d) Schedule 3C.20(d) of the Disclosure Schedule of Sellers contains a true
and complete list and description of all real property leased by each of the
Companies. Each of the Companies has a valid leasehold interest in all such
leased real property.
-32-
<PAGE>
3C.21 Reserves. The Reserves in respect of each of the Companies' insurance
business as established or reflected in the Company Quarterly Statement for the
quarter ended September 30, 1996 (a) were determined in accordance with SAP and
the actuarial assumptions of Maher Associates, Inc. described in the acturial
analysis of such actuary dated February 19, 1996, (b) were in accordance with
the requirements specified in the related insurance or reinsurance Contracts in
all material respects and (c) met the requirements of the insurance laws of each
applicable jurisdiction in all material respects. Each of the Companies owns
assets that qualify as admitted assets under applicable insurance laws in an
amount at least equal to all such reserves and similar amounts of the respective
Company.
3C.22 Operating Insurance. Schedule 3C.22 of the Disclosure Schedule of
Sellers contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability and other
similar insurance contracts that insure the business, operations, or affairs of
each of the Companies or affect or relate to the ownership, use or operations of
any of the assets or properties of each of the Companies.
3C.23 Bank Accounts. Schedule 3C.23 of the Disclosure Schedule of Sellers
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
any of the Companies has an account or safe deposit box or maintains a banking,
custodial, trading, trust, or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship, (c) a
true and complete list of all signatories for each such account and box and (d)
a true and complete list of all compensating balances required with respect to
each such account.
3C.24 Charter Documents and By-laws. Sellers have heretofore made available
to Buyer true and complete copies of the certificates or articles of
incorporation and by-laws of each of the Companies, as in effect on the date
hereof.
3C.25 Minute Books. To the best knowledge of Sellers, the minute books of
each of the Companies accurately reflect in all material respects all formal
actions taken at all meetings held during the Pre-Ownership Period and all
consents in lieu of meetings of the stockholders of the respective Company since
the date of formation of such Company through and including June 30, 1994, and
all formal actions taken at all meetings held during the Pre-Ownership Period
and all consents in lieu of meetings of the boards of directors of each of the
Companies and all committees thereof since the date of formation of such Company
through and including June 30, 1994. The minute books of each of the Companies
accurately reflect in all material respects all
-33-
<PAGE>
formal actions taken at all meetings held during the Ownership Period and all
consents in lieu of meetings of the stockholders of the respective Company since
July 1, 1994, and all formal actions taken at all meetings held during the
Ownership Period and all consents in lieu of meetings of the boards of directors
of each of the Companies and all committees thereof since July 1, 1994. All of
such minute books have previously been made available for inspection by Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to (a) each Seller, with respect to
(i) the first sentence of Section 4.1 and the first sentence of Section 4.8 and
(ii) Sections 4.3, 4.4, 4.5, 4.6, 4.9 and 4.16, and (b) PIC only, with respect
to (i) the second and third sentences of Section 4.1, (ii) the second sentence
of Section 4.8 and (iii) Sections 4.2, 4.7, 4.10, 4.11, 4.12, 4.13, 4.14 and
4.15:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. Buyer has all requisite corporate power and authority to conduct its
business as currently conducted and to own or lease and to operate its
properties. Buyer is duly qualified or admitted to do business and is in good
standing as a foreign corporation in all jurisdictions in which the ownership,
use or leasing of its assets or properties or the conduct or nature of its
business makes such qualification or admission necessary, except where the
failure to be so qualified or admitted would not reasonably be likely to have a
Material Adverse Effect with respect to Buyer.
4.2 Capitalization (a) The authorized capital stock of Buyer consists of
11,700,000 shares of capital stock, (i) 10,000,000 of which are designated Class
A Common Stock, no par value (the "Front Royal Class A Stock"), (ii) 700,000 of
which are designated Class B Common Stock, no par value (the "Front Royal Class
B Stock"), and (iii) 1,000,000 of which are designated preferred stock, par
value $100 per share. There are 5,442,030 shares of Front Royal Class A Stock
issued and outstanding and 272,895 shares of Front Royal Class B Stock issued
and outstanding. All such outstanding shares have been duly authorized and
validly issued and are fully paid and non-assessable. There are no shares of
preferred stock issued and outstanding. Upon issuance on the Closing Date of the
Front Royal Preferred Stock to PIC, there will be 155,000 shares of Front Royal
Preferred Stock issued and outstanding and all such outstanding shares will be
duly authorized and validly issued, fully paid and non-assessable. All of the
outstanding capital
-34-
<PAGE>
stock of each of the Front Royal Subsidiaries is owned beneficially and of
record by Buyer or a Front Royal Subsidiary as set forth in Schedule 4.2(a) of
the Disclosure Schedule of Buyer, free and clear of all Liens, except for such
Liens set forth in the Disclosure Schedule of Buyer.
(b) The authorized capital stock of Colony Management consists of 5,000
shares of Common Stock, no par value, 100 of which are issued and outstanding.
All such outstanding shares have been duly authorized and validly issued and are
fully paid and non-assessable.
(c) The authorized capital stock of Colony Insurance consists of 200,000
shares of Common Stock, par value $10 per share, all of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(d) The authorized capital stock of FREIM consists of 200,000 shares of
Common Stock, par value $.01 per share, 60,000 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(e) The authorized capital stock of FRESI consists of 100,000 shares of
Common Stock, par value $1.00 per share, 11,875 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(f) The authorized capital stock of Hamilton Insurance consists of 1,500
shares of Common Stock, par value $1,000 per share, all of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(g) The authorized capital stock of Front Royal Insurance consists of 1,000
shares of Common Stock, par value $1,500 per share, all of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(h) The authorized capital stock of FRETS consists of 5,000 shares of
Common Stock, no par value, 100 of which are issued and outstanding. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and non-assessable.
(i) The authorized capital stock of Triangle Engineering consists of
100,000 shares of Common Stock, par value $1.00 per share, 10 of which are
issued and outstanding. All such outstanding shares have been duly authorized
and validly
-35-
<PAGE>
issued and are fully paid and non-assessable. Triangle Engineering has no
assets, other than certain immaterial assets necessary in connection with its
continued existence, and conducts no business.
(j) Except as set forth in Schedule 4.2(j) of the Disclosure Schedule of
Buyer and for this Agreement, there are no outstanding securities, rights
(pre-emptive or other), subscriptions, calls, warrants, option or other
agreements that give any person or entity the right to (i) purchase or otherwise
receive or be issued any shares of capital stock of Buyer or the Front Royal
Subsidiaries (or any interest therein) or any security convertible into or
exchangeable for any shares of capital stock of Buyer or the Front Royal
Subsidiaries (or any interest therein), (ii) receive any dividend, voting or
ownership rights similar to those accruing to a holder of shares of capital
stock of Buyer or the Front Royal Subsidiaries or (iii) participate in the
equity, income or election of directors or officers of Buyer or the Front Royal
Subsidiaries.
(k) As of the Closing Date, such number as set forth in the Charter
Amendment of shares of Front Royal Class A Stock will be reserved for issuance
upon conversion of the shares of Front Royal Preferred Stock to be issued on the
Closing Date.
4.3 Authority, Validity and Enforceability. Buyer has full corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions required of it or contemplated by
this Agreement. The execution, delivery and performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by the board of directors of Buyer. No other action
or proceeding on the part of the Buyer is necessary to authorize the Agreement
or the consummation of the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Buyer, and constitutes a legal,
valid and binding obligation of Buyer, enforceable in accordance with its terms.
4.4 No Violation or Breach. The execution, delivery and performance of this
Agreement by Buyer does not, and the consummation of the transactions required
by Buyer contemplated hereby will not (with or without the giving of notice or
the lapse of time or both):
(a) violate or require any consent or approval under, any provision of the
Certificate of Incorporation or by-laws of Buyer;
(b) except as set forth in Section 4.5 hereof, violate or result in a
default of, or require any consent or approval under any agreement, policy,
instrument, contract, commitment,
-36-
<PAGE>
license, franchise, permit or trust to which Buyer is a party or is otherwise
subject, except for such violations or breaches which would not have a Material
Adverse Effect with respect to Buyer; or
(c) violate or result in a default of, or require any consent or approval
under, any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority to which Buyer is a party or otherwise
subject.
4.5 Consents. Except as set forth on Schedule 4.5 of the Disclosure
Schedule of Buyer, no consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority is required
to be obtained or made, and no consent of any third party is required to be
obtained, by Buyer, in connection with its execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
4.6 Purchase for Investment. Buyer is purchasing the Purchased Stock for
its own account for investment and not with a view to any distribution thereof
within the meaning of the Securities Act. Buyer acknowledges that the offer and
sale of the Purchased Stock pursuant hereto are intended to be exempt from the
Securities Act, and the Purchased Stock may not be resold or otherwise
transferred except pursuant to an effective registration statement or an
exemption from registration thereunder, and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws.
4.7 Licenses and Permits. Each of Buyer and the Front Royal Subsidiaries
has all Permits required in each of the jurisdictions listed on Schedule 4.7 of
the Disclosure Schedule of Buyer to engage in the business of writing insurance
policies of the type specified on such Schedule 4.7 except for such Permits, the
absence, expiration or invalidity of which, individually or in the aggregate, do
not have a Material Adverse Effect with respect to Buyer. Each of Buyer and the
Front Royal Subsidiaries is duly licensed and qualified to transact those lines
of insurance business in those states and jurisdictions listed on such Schedule
4.7. Except as set forth on such Schedule 4.7, all such Permits are owned by
Buyer and the Front Royal Subsidiaries, are in full force and effect and none of
Buyer or the Front Royal Subsidiaries has received any notice of any event,
inquiry, investigation or proceeding that could result in a penalty or fine in
excess of $25,000, singly or in the aggregate, or in the suspension, revocation
or limitation on any such Permit, and, to the best knowledge of Buyer, there is
no basis for any such fine, penalty, suspension, revocation or limitation. Each
of Buyer and the Front Royal Subsidiaries possesses the minimum statutory
capital and surplus as required by each such jurisdiction for the type of
insurance written by
-37-
<PAGE>
Buyer and the Front Royal Subsidiaries in each jurisdiction set forth on such
Schedule 4.7.
4.8 Litigation. Except as set forth on Schedule 4.8 of the Disclosure
Schedule of Buyer, and except for claims made under or in connection with
insurance policies issued by the Front Royal Subsidiaries:
(a) there is no action, proceeding, investigation or inquiry pending
or, to the best knowledge of Buyer, threatened against Buyer which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto or thereto or in connection with the purchase and sale of
the Purchased Stock; and
(b) to the best knowledge of Buyer, there is no state of facts and
there has occurred no event or group of related events, that would form the
basis of any claim against Buyer for liability on account of violation of
statute or regulation, or otherwise in connection with the conduct of its
business that, if adversely determined, would have a Material Adverse
Effect with respect to Buyer or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock.
Except as set forth on Schedule 4.8 of the Disclosure Schedule of Buyer, with
respect to claims made against any of the Front Royal Subsidiaries under or in
connection with insurance policies issued by the Front Royal Subsidiaries, there
are no claims as to which liability in excess of applicable coverage limits has
been asserted against any of the Front Royal Subsidiaries including, without
limitation, claims for bad faith or for punitive damages.
4.9 No Brokers. Other than counsel, Buyer has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby.
4.10 Charter Documents and By-laws. Buyer has heretofore made available to
Sellers true and complete copies of the certificates of incorporation and
by-laws of Buyer and of each the Front Royal Subsidiaries, as in effect on the
date hereof.
4.11 Minute Books. The minute books of Buyer and the Front Royal
Subsidiaries accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of the stockholders
of the respective company since the date of formation of such company, and all
formal actions taken at all meetings and all consents in lieu of meetings of the
board of directors of Buyer and the Front Royal Subsidiaries and all committees
thereof since the date of formation of such
-38-
<PAGE>
company. All of such minute books have previously been made available for
inspection by PIC.
4.12 Statutory Statements. Buyer has delivered to Sellers (a) the Front
Royal Statutory Statements and (b) any annual statutory statements of Front
Royal Insurance, Hamilton Insurance and Colony Insurance that were filed for the
year ended December 31, 1995 in any jurisdiction (other than Virginia and Ohio)
and which differ from the Front Royal Annual Statement for the year ended
December 31, 1995. Each such Front Royal Statutory Statement (i) complied in all
material respects with all applicable laws when so filed, (ii) was prepared in
accordance with SAP and (iii) presents fairly in all material respects the
financial position of Front Royal Insurance, Hamilton Insurance and Colony
Insurance as of the respective dates thereof and the related summary of
operations and changes in capital and surplus and in cash flows of Front Royal
Insurance, Hamilton Insurance and Colony Insurance for and during the respective
periods covered thereby. No material deficiency has been asserted by any
insurance regulatory authority with respect to any such Statutory Statement.
4.13 Insurance Regulatory Filings. Since January 1, 1991, each of Buyer and
the Front Royal Subsidiaries has filed or otherwise provided all reports, data,
other information and applications required to be filed or otherwise provided to
the Virginia Insurance Department or the Ohio Insurance Department and all other
federal, state or local governmental authorities with jurisdiction over any of
Buyer or the Front Royal Subsidiaries except where the failure to file would not
have a Material Adverse Effect with respect to Buyer. Buyer has made available
to PIC copies of all reports of examinations (whether financial, market conduct
or other) issued by and all drafts of as of yet unissued reports of examinations
delivered by the Virginia Insurance Department or the Ohio Insurance Department
and all other state insurance regulatory authorities in respect of any of Buyer
and the Front Royal Subsidiaries received since January 1, 1991. Except as set
forth on Schedule 4.13 of the Disclosure Schedule of Buyer, no deficiencies
material to the financial condition, operations or prospects of any of Buyer or
the Front Royal Subsidiaries have been asserted by the Virginia Insurance
Department or the Ohio Insurance Department or any other state insurance
regulatory authority with respect to any reports or filings made on behalf of
any of Buyer or the Front Royal Subsidiaries since January 1, 1991. Buyer has
made available to PIC copies of all written responses submitted on behalf of any
of Buyer and the Front Royal Subsidiaries since January 1, 1991, in respect of
any report of examination (whether financial, market conduct or other) of any of
Buyer and the Front Royal Subsidiaries by the Virginia Insurance Department or
the Ohio Insurance Department or any other state regulatory authority. Buyer has
made available to PIC all files of Buyer
-39-
<PAGE>
and the Front Royal Subsidiaries relating to correspondence with the Virginia
Insurance Department or the Ohio Insurance Department or any other insurance
regulatory authority.
4.14 Reserves. The loss, loss adjustment and unearned premium reserves and
other similar amounts with respect to losses, claims, discounts and expenses in
respect of the insurance business of each of Front Royal Insurance, Hamilton
Insurance and Colony Insurance as established or reflected in the Front Royal
Quarterly Statement for the quarter ended as of September 30, 1996 (a) were
determined in accordance with SAP and the actuarial assumptions of
Tillingham-Towers Perrin described in the acturial opinion of such actuary dated
April 2, 1996, (b) were in accordance with the requirements specified in the
related insurance or reinsurance contracts in all material respects and (c) met
the requirements of the insurance laws of each applicable jurisdiction in all
material respects. Each of Front Royal Insurance, Hamilton Insurance and Colony
Insurance owns assets that qualify as admitted assets under applicable insurance
laws in an amount at least equal to all such reserves and similar amounts of the
respective company.
4.15 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Buyer as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise"
of Front Royal as of the Closing Date, as such terms are determined in
accordance with applicable federal and state laws governing determinations of
the insolvency of debtors.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course. Except as provided in this Agreement, or
with the express written consent of Buyer, between the date hereof and the
Closing Date:
(a) each of the Companies shall carry on its respective business in
the ordinary course and substantially in the same manner as heretofore
carried on;
(b) each of the Companies shall use its commercially reasonable best
efforts to preserve its respective properties, business, and relationships
with its respective clients and customers;
(c) each of the Companies shall not dispose of any material asset of
any of the Companies; provided that the disposition in the ordinary course
of business of any asset set forth on Schedule 3C.20(b) and concurrent
replacement
-40-
<PAGE>
thereof with a substantially similar asset shall not be deemed a breach of
this clause (c);
(d) each of the Companies shall not make, declare or pay any dividend
or distribution on any shares of any of the Companies' capital stock,
except from the Company Subsidiaries to the Company; and
(e) the Company shall maintain Reserves such that one-year development
of $23,293,000 will be shown on Schedule P-Part 2 Summary, Column (12),
Line (12) of the December 31, 1996 Annual Statement.
Sellers will advise Buyer promptly in writing of any material adverse change in
the properties, business, results of operations, condition (financial or
otherwise) or affairs of any of the Companies.
5.2 Indebtedness. Without the prior written consent of Buyer, none of the
Companies shall:
(a) create, incur or assume any indebtedness for borrowed money;
(b) mortgage, pledge or otherwise encumber or subject to any Lien any
of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts payable
and other liabilities incurred in the ordinary course of business.
5.3 Issuance of Stock. Sellers covenant and agree that none of the
Companies shall issue any shares of capital stock of any class or grant any
warrants, options or rights to subscribe for any shares of capital stock of any
class or securities convertible into or exchangeable for, or which otherwise
confer on the holder any right to acquire, any shares of capital stock of any
class.
5.4 Compensation. Schedule 5.4 of the Disclosure Schedule of Sellers sets
forth a complete list of the annual salaries and wages and commission schedules
of all Employees as of September 30, 1996. There have been no changes in
Employee Plans since April 30, 1993, except for changes required by Law. Except
as disclosed to Buyer by Sellers in writing prior to the date hereof, Sellers
covenant and agree that no Company shall grant any increases in the salaries and
wages or increases in commission schedules of any Employee, institute any new
employee benefits with respect to such Employees or amend any Employee Plans to
increase, benefits except for any such increases that
-41-
<PAGE>
are for cost of living or merit in accordance with past practice, without the
written consent of Buyer.
5.5 Compliance with Law. Sellers shall cause each of the Companies to use
its best efforts to comply in all material respects with all applicable Law and
with all orders of any court or of any federal, state, municipal or other
governmental department.
5.6 Access to Information. At Buyer's expense, Buyer and its authorized
agents, officers and representatives, for the purpose of confirming the
representations and warranties contained in Article III, shall have reasonable
access to the properties, books, records, contracts, information and documents
of the Companies; provided, however, that such examinations and investigations,
(a) shall occur with a minimum of 24 hours advance written notice, (b) shall be
conducted during normal business hours and (c) shall not unreasonably interfere
with the operations and activities of the Companies. Sellers and the Companies
shall cooperate in all reasonable respects with Buyer's examinations and
investigations. Buyer shall maintain all information regarding the Companies in
complete confidence and shall not disclose such information to any person except
as required by law, provided, however, Buyer shall not be required to keep
confidential information that (i) is or becomes generally available to the
public other than as a result of disclosure by Buyer, (ii) is or becomes
available to Buyer on a nonconfidential basis from a source other than Sellers
or the Companies or (iii) Buyer or any of their Affiliates is required to
disclose pursuant to applicable law, rule, regulation or subpoena. At Buyer's
expense, Buyer shall be entitled to designate an agent of Buyer reasonably
satisfactory to Sellers to act as an observer of the operations of the Companies
and such agent shall have access to all properties, books, records, contracts,
information, documents and personnel of the Companies subject to the limitations
set forth in clause (a), (b) and (c) above. Sellers acknowledge and agree that
nothing in this Section 5.6 shall be deemed to release Sellers from any of their
liabilities or obligations under this Agreement.
5.7 Cooperative; Best Efforts. (a) Subject to the terms and conditions
provided herein, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper and advisable under applicable Law
(including, without limitation, the Pennsylvania Insurance Law), to consummate
and make effective the transactions contemplated by this Agreement.
(b) Each Seller and Buyer agrees to make their respective filing promptly
pursuant to the HSR Act and to use their reasonable best efforts and to
cooperate with each other to effect compliance with the HSR Act. Each of the
parties hereto
-42-
<PAGE>
agrees to make all required regulatory filings promptly after the date hereof
and to diligently pursue compliance with Pennsylvania Insurance Law and Virginia
Insurance Law.
(c) In furtherance and not in limitation of the foregoing, each of Sellers,
on the one hand, and Buyer, on the other hand, agree to inform the other party
prior to any and all scheduled meetings and communications, whether oral
(including telephonic or otherwise) or written, between such party and the
Department with respect to this Agreement or any of the transactions
contemplated hereby, and promptly thereafter to provide the other party with a
complete and accurate report of each such scheduled meeting or communication, as
well as any unscheduled meetings and communications, and, if in writing, with a
copy thereof.
5.8 Consents. Each Seller and Buyer shall diligently pursue obtaining
consents of all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement.
5.9 Publicity. All general notices, releases, statements and communications
to employees, suppliers, distributors and customers of the Companies and to the
general public and the press relating to the transactions covered by this
Agreement shall be made only at such times and in such manner as may be mutually
agreed upon by Sellers and Buyer.
5.10 No Solicitation. None of Sellers or the Companies shall, after the
date hereof until the earlier of the Closing or the termination of this
Agreement pursuant to Section 11.1 hereof, directly or indirectly, through any
officer, director, employee, agent or otherwise, solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a substantial
portion of the assets of, or any equity interest in, any of the Companies or any
business combination with any of the Companies or, participate in any
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
any of the foregoing.
5.11 Articles and By-laws. (a) Sellers covenant and agree that none of the
Companies shall amend its certificate or articles of incorporation or by-laws,
except as may be necessary to comply with the terms of this Agreement, or merge
or consolidate with or into any other corporation.
(b) Buyer covenants and agrees that it shall file on or before the Closing
Date the Charter Amendment and except with
-43-
<PAGE>
respect to such filing and the filing of an amendment to its articles of
incorporation to increase the authorized number of shares of Front Royal Class A
Stock to 20,000,000, Buyer shall not amend its articles of incorporation or
by-laws or merge or consolidate with or into any other corporation.
5.12 Breaches of Representations and Warranties. Sellers, on the one hand,
and Buyer, on the other hand, covenant and agree to disclose in writing to Buyer
and Sellers, respectively, any breach of any representation, warranty, covenant
or agreement of any party hereto promptly upon becoming aware thereof.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 6.7 [Regulatory Approvals]
and 6.10 [HSR], may be waived by Buyer):
6.1 Compliance with Agreement. Each of PIC and Trirock shall have performed
and complied in all material respects with all of its respective obligations
under this Agreement that are to be performed or complied with by it prior to or
on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken by Sellers and the Companies in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to Buyer and Buyer's
counsel, and Sellers shall have made available to Buyer for examination the
originals or true and correct copies of all documents that Buyer may reasonably
request in connection with the transactions contemplated by this Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations and warranties made
by Sellers in this Agreement shall be true and correct as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on the Closing Date, except as otherwise contemplated hereby and
except to the extent that such representations and warranties
-44-
<PAGE>
were made as of a specified date and as to such representations and warranties
the same shall continue on the Closing Date to have been true and correct as of
the specified date. Notwithstanding the foregoing, if any of the representations
and warranties set forth in Section 3C.20(b), (c) and (d) or Section 3C.21 are
not so true and correct as of the Closing Date but the condition precedent set
forth in Section 6.13 and Section 6.6(c)(v) has been met, then the condition
precedent set forth in this Section 6.4 shall be deemed to have been satisfied.
6.5 Agreements. The following agreements shall have been duly and validly
executed and delivered by the parties thereto and shall be in full force and
effect:
(a) the Shareholders Agreement;
(b) the Lease;
(c) the Non-Compete and Non-Solicitation Agreements;
(d) the Option Agreement; and
(e) the Amended and Restated License Agreement.
6.6 Additional Deliveries at Closing. Sellers shall have, or shall cause to
have, delivered to Buyer (a) certificates representing the Purchased Stock,
accompanied by stock powers duly endorsed in blank, with all required transfer
taxes or stamps paid for or affixed thereto, free and clear of all Liens, and
(b) the following documents, each duly executed and delivered and dated as of
the Closing Date: (i) the Opinion of PIC's Counsel; (ii) the Opinion of
Trirock's Counsel; (iii) PIC's Closing Certificate; (iv) Trirock's Closing
Certificate; (v) the Surplus Certificate; and (vi) the affidavits referred to in
Sections 3A.8 and 3B.7.
6.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies with jurisdiction over
Sellers, the Companies or Buyer to permit the sale of the Purchased Stock and
the other transactions contemplated hereby shall have been obtained and shall
remain in full force and effect (without any material term, condition or
restriction that is reasonably unacceptable to Buyer).
6.8 Consents. There shall have been obtained written consent with respect
to any Contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement, except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect with respect to the Companies.
-45-
<PAGE>
6.9 Resignation of Directors and Officers. Each member of the Board of
Directors and each officer of the Companies shall have resigned from such
positions effective on the Closing Date.
6.10 Waiting Periods. All applicable waiting periods under Section 7A of
the Clayton Act and the HSR Act and the rules and regulations thereunder shall
have expired without indication from the Federal Trade Commission or the United
States Justice Department that the transactions contemplated hereby may be
consummated only upon terms which differ adversely from the description of the
transaction set forth in any filing made on behalf of Buyer for any governmental
approval.
6.11 Preferred Stock Sale Agreement. The closing under the Preferred Stock
Sale Agreement shall have been consummated concurrently with the Closing, in
accordance with the terms thereof.
6.12 Premier Stock Purchase Agreement. (a) The closing under the Premier
Stock Purchase Agreement shall have been consummated concurrently with the
Closing, in accordance with the terms thereof, including, without limitation,
the issuance by Premier of the reinsurance contract of the Company as provided
therein.
(b) PIC or Premier shall have assumed, pursuant to an assumption
reinsurance treaty in form and substance reasonably satisfactory to Buyer, all
of the private passenger automobile business written by the Company, and a cash
account of the Company in an amount equal to 100% of the loss, allocated loss
adjustment and unearned premium reserves for the private passenger automobile
business shall have been funded by PIC directly or indirectly through Premier.
6.13 Policyholders' Surplus. The amount of Surplus that will be shown on
the December 31, 1996 Annual Statement shall be equal to or greater than
$50,000,000.
6.14 Books and Records. Sellers shall have delivered to Buyer all minute
books, stock records and other corporate and financial records of each of the
Companies.
6.15 Disclaimers of Affiliation. PIC, Timothy I. McCarthy, Charles M.
Lederman, Fort Washington and Premier, each shall have (a) filed with the
Department a disclaimer of affiliation under Section 4K of the Insurance Holding
Company System Regulatory Act and the Department shall have acknowledged and
concurred with such disclaimer, and (b) delivered an undertaking to Buyer to
file similar disclaimers with respect to any insurance company or any insurance
holding company anytime in the future Controlled (as defined in Section 1 of the
foregoing Act) by it or him.
-46-
<PAGE>
6.16 Certificate of Breaches. PIC shall have delivered to Buyer an
officer's certificate and Trirock shall have delivered to Buyer a general
partner certificate, in each case setting forth, to the best knowledge of
Sellers, any breaches of any Operational Representations of Buyer.
6.17 Phase II Environmental Report. Buyer shall have received from FRESI
the Phase II environmental report with respect to the properties to be leased
pursuant to the Lease.
ARTICLE VII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS
Each and every obligation of Sellers to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 7.7 [Regulatory Approvals]
and 7.9 [HSR] may be waived by Sellers):
7.1 Compliance with Agreement. Buyer shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
7.2 Proceedings and Instruments Satisfactory. All pro- ceedings, corporate
or other, to be taken by Buyer in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Sellers and their respective counsel, and
Buyer shall have made available to Sellers for examination the originals or true
and correct copies of all documents that Sellers may reasonably request in
connection with the transactions contemplated by this Agreement.
7.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations and warranties made
by Buyer in this Agreement shall be true and correct in all material respects as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except as
otherwise contemplated hereby and except to the extent that such representations
and warranties were made as of a specified date and as to such representations
and warranties the same shall continue on
-47-
<PAGE>
the Closing Date to have been true and correct as of the specified date.
7.5 Agreements. The following agreements shall have been duly and validly
executed and delivered by the parties thereto and shall be in full force and
effect:
(a) the Shareholders Agreement;
(b) the Lease;
(c) the Non-Compete and Non-Solicitation Agreements;
(d) the Option Agreement; and
(e) the Amended and Restated License Agreement.
7.6 Additional Deliveries at Closing. Buyer shall have, or shall cause to
have, delivered: to each Seller, as appropriate, (a) the Cash Payment and
certificates representing the Preferred Stock, as provided in Section 2.3(b)
hereof, (b) the Trirock Note, (c) the following documents, each duly executed
and delivered and dated as of the Closing Date: (i) the Opinion of Buyer's
Counsel and (ii) the Buyer Closing Certificate, and (d) a copy of the Phase II
environmental report prepared by FRESI and delivered to Buyer prior to the
Closing Date with respect to the properties to be leased pursuant to the Lease.
7.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over Sellers, the
Companies or Buyer to permit the sale of the Purchased Stock and the other
transactions contemplated hereby shall have been obtained and shall remain in
full force and effect (without any material term, condition or restriction that
is reasonably unacceptable to Sellers).
7.8 Consents. There shall have been obtained written consent with respect
to any Contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement, except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect with respect to Buyer.
7.9 Waiting Periods. All applicable waiting periods under Section 7A of the
Clayton Act and the HSR Act and the rules and regulations thereunder shall have
expired without indication from the Federal Trade Commission or the United
States Justice Department that the transactions contemplated hereby any be
consummated only upon terms which differ adversely from the description of the
transaction set forth in any filing made on behalf of Buyer for any governmental
approval.
-48-
<PAGE>
7.10 Preferred Stock Sale Agreement. The closing under the Preferred Stock
Sale Agreement shall have been consummated concurrently with the Closing, in
accordance with the terms thereof.
7.11 Premier Stock Purchase Agreement. The closing under the Premier Stock
Purchase Agreement shall have been consummated concurrently with the Closing, in
accordance with the terms thereof. PIC shall have (a) assumed pursuant to an
assumption reinsurance treaty, all of the private passenger automobile business
written by the Company and (b) funded an account of the Company with cash in an
amount equal to 100% of the loss, loss adjustment and unearned premium reserves
for the private passenger automobile business reinsured by PIC.
7.12 Certificate of Breaches. Buyer shall have delivered to Sellers an
officer's certificate setting forth, to the best knowledge of Buyer, any
breaches of any Operational Representations of Sellers.
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Records. Buyer shall preserve and keep, free of charge, all books,
papers and records included in the assets of the Companies relating to their
respective businesses for periods prior to the Closing Date for a period of not
less than five years following the Closing Date; provided, however, prior to the
fifth year following the Closing Date, Buyer may destroy such materials if Buyer
provides Sellers 30 Business Days' prior notice that Buyer intends to destroy
any or all of such books, papers and records and each Seller shall have the
right to review and remove any books, papers and records to be destroyed at
Sellers' expense. Buyer agrees to permit each Seller and its attorneys,
accountants, agents and designees access to such books, papers and records from
and after the Closing Date for all reasonable purposes. Any such examination
shall be at the expense of such Seller, shall be performed at the place such
books, papers and records are regularly maintained and shall not unreasonably
interfere with Buyer's or the Companies' normal business activities.
8.2 Access. Buyer and Sellers and each of their authorized agents, officers
and representatives shall have reasonable access to the properties, books,
records, contracts, information and documents of the Companies and each other to
conduct such examinations and investigations of its or their business as it
deems necessary, provided that such examinations and investigations: (a) shall
be germane to rights or obligations arising out of this Agreement, the
operations of the Companies
-49-
<PAGE>
prior to the Closing Date or to the transactions occurring between the Companies
and their affiliates prior to the Closing Date; (b) shall be conducted only in
the presence of a designated representative of Buyer or Sellers, as appropriate;
(c) shall be during normal business hours; (d) shall not unreasonably interfere
with operations and activities; and (e) shall be subject to prior approval if
the information or documents requested are, in the reasonable opinion of an
officer, of a nature that may compromise the competitive position of Buyer or
Sellers. Buyer, on the one hand, and Sellers, on the other hand, shall cooperate
in all reasonable respects with each other's examinations and investigations.
8.3 Cooperation. Buyer and Sellers will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated
under this Agreement. Buyer promptly will furnish to Sellers copies of the Forms
A filed with the Department and all correspondence with the Department with
respect thereto.
8.4 Confidentiality. Following the Closing, Sellers shall keep confidential
all information concerning the business, operations, properties, assets and
financial affairs of the Companies and may disclose such information only upon
receipt of prior written consent from Buyer, as required by law, or if such
disclosure is required (a) in connection with a Seller's filing of any state or
federal income tax returns, (b) in connection with filings made with the
Securities and Exchange Commission or any national securities exchange or (c) by
order of any judicial or administrative authority, provided, however, Sellers
shall not be required to keep confidential information that (x) is or becomes
generally available to the public other than as a result of disclosure by
Sellers, (y) is or becomes available to Sellers on a nonconfidential basis from
a source other than Buyer or the Front Royal Subsidiaries or (z) Sellers or any
of their Affiliates is required to disclose pursuant to applicable law, rule,
regulation or subpoena.
8.5 Use of Name. From and after the Closing Date, neither PIC nor Trirock
or their respective Affiliates shall (a) use the name "Rockwood" or any name
similar thereto or any derivation thereof, except that Rockwood Asset
Management, Inc. may continue to use the name "Rockwood" provided that its sole
business is the ownership and operation of real property in Rockwood,
Pennsylvania, or (b) use the names "Mid State," "Coal," "Comprehensive" or
"Somerset" or any names similar thereto or any derivations thereof in
connection, directly or indirectly, with the insurance business.
-50-
<PAGE>
8.6 Non-Solicitation of Employees. Sellers hereby agree that for a period
commencing on the Closing Date and ending three years thereafter, neither Seller
nor any of its Affiliates shall solicit for employment by either Seller or any
of its Affiliates any employees of any of the Companies.
8.7 President of the Company. Buyer covenants and agrees that it will not
permit the Company to elect John P. Yediny as the President or Chief Executive
Officer of the Company without the prior approval of the Commissioner.
8.8 Relocation of Business; Access. (a) Buyer covenants and agrees that
prior to June 30, 2001 it will not permit the Company to move any of its
insurance operations from Somerset County, Pennsylvania.
(b) After the Closing, in connection with the prosecution and/or defense
of, those actions, claims, or beneficial interests in, those matters set forth
on Exhibit 8.8 by the Estate of Rockwood Insurance Company in Liquidation
("RIC"), without expense to RIC, Buyer shall cause the Company to cooperate and
assist RIC by making its personnel (including but not limited to John P. Yediny,
Philip Kift and David Hay) and records available to RIC, its agents and counsel;
provided that such activities do not unreasonably interfere with the operations
of the business of the Company and, provided further, that all reasonably
incurred out-of-pocket expenses of the Company shall be reimbursed by RIC to the
Company upon receipt of substantiating documentation.
8.9 Trirock Not to Dissolve. Trirock covenants and agrees that it shall not
dissolve or wind up its affairs or take any action or fail to take any action
with a view to the foregoing, prior to the third anniversary of the Closing
Date, provided that if prior to such third anniversary a notice of an Indemnity
Claim is delivered by Buyer pursuant to Section 10.5, then Trirock shall not so
dissolve or wind up its affairs or so take any action or so fail to take any
action unless and until such Indemnity Claim is resolved pursuant to the terms
of Article X.
8.10 Pittsburgh Mutual Insurance Company. Buyer hereby acknowledges that it
has no rights to or any interest in Pittsburgh Mutual Insurance Company, a
mutual insurance company formed under the laws of the Commonwealth of
Pennsylvania, as a result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
-51-
<PAGE>
ARTICLE IX
TAX LOSSES
9.1 Tax Losses. Subject to the PIC Basket and the PIC Cap and the Trirock
Basket and the Trirock Cap, Sellers shall indemnify and hold harmless Buyer and
the Companies and their respective affiliates, officers, directors and employees
against any Tax Losses. To the extent that any breach by Sellers of the
representations and warranties contained in Section 3C.15 results in any Tax
Losses, such breach shall be subject to the terms and provisions of this Article
IX and the indemnification provisions relating hereto.
9.2 Contests. Sellers and their duly appointed representatives shall have
the right to supervise or otherwise coordinate any examination process and to
negotiate, resolve, settle or contest any asserted tax deficiencies that could
give rise to any Tax Losses. The foregoing notwithstanding, without Buyer's
prior written consent, Sellers shall not enter into any agreement that would
adversely affect Buyer or any of the Companies (including, without limitation,
liability for taxes with respect to taxable periods ending after the Closing
Date), except for adverse effects that are included in Tax Losses subject to
indemnification pursuant hereto. In the event Buyer does not consent to a
settlement agreement recommended by Sellers with respect to any Tax Losses, then
the aggregate amount of the indemnification payable by Sellers in connection
with such Tax Losses shall not exceed the amount that would otherwise have been
payable had Sellers so entered into such settlement agreement. Buyer shall
within 14 days after it has knowledge of the assertion or commencement thereof
notify Sellers of the written assertion of any claim or the commencement of any
suit, action, proceeding, investigation or audit (any of the foregoing, a
"Contest") that could give rise to any Tax Losses, and shall provide Sellers
with copies (subject to deletion of unrelated information) of all correspondence
relating to such Contest. Each party shall bear its own costs of defending
against such Contest.
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The right to enforce
claims for breaches of representations, warranties, covenants and agreements of
Sellers, on the one hand, and Buyer, on the other hand, contained in this
Agreement and the respective obligations of the parties with respect thereto,
shall survive the making of this Agreement, any investigations made by or on
behalf of the parties hereto and the Closing Date, and shall
-52-
<PAGE>
continue in full force and effect until the expiration of 30 months from the
Closing Date, except:
(i) with respect to Sections 3C.15 [Taxes], 3C.19 [Employee Benefit
Matters] and Article IX, the remedy for breach of which shall continue in
full force and effect until any claims or liabilities with respect thereto
shall be barred by the expiration of the applicable statute of limitations
or any extensions thereof; and
(ii) with respect to Sections 3A.4 [Title to Shares], 3B.4 [Title to
Shares] and 3C.3 [Capitalization] and the indemnification provided pursuant
to Section 10.2A(c) and Section 10.2B(c), to which there shall be no
expiration.
All such representations and warranties and liabilities shall expire and
terminate at the time provided for above, except for any claims relating to any
specific breaches of any representations or warranties which are asserted in
writing on or before the applicable termination date. Each of the parties agrees
to give notice to the breaching party of any breach of any such representation,
warranty, covenant or agreement, describing such breach in reasonable detail, as
soon as practicable after the discovery thereof; provided, however, that the
failure to receive such notice shall not relieve the breaching party from any
liability in respect to such breach unless and to the extent that the breaching
party shall be prevented from curing such breach as a direct result of its
failure to receive a timely notice. Any claim for indemnification for which
notice has been given within the prescribed period may be prosecuted to
conclusion notwithstanding the subsequent expiration of such period.
10.2A Indemnification by PIC. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 10.4, PIC agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
claims, suits, losses, expenses, damages, obligations, liabilities (including
costs and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of PIC to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by PIC;
(c) any liabilities of PIC or its Affiliates (other than the Companies),
except for (i) those liabilities incurred pursuant to this Article X and (ii)
liabilities of PIC or its
-53-
<PAGE>
Affiliates which are actually the primary obligation of any of the Companies;
(d) claims under Article IX; or
(e) the inaccuracy of any representation and warranty made by the Company
in the Premier Stock Purchase Agreement when made or as of the date of closing
thereunder.
10.2B Indemnification by Trirock. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 10.4, Trirock agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
Losses which result from or are related to any of the following:
(a) any breach or failure of Trirock to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by
Trirock;
(c) any liabilities of Trirock or its Affiliates (other than the
Companies), except for (i) those liabilities incurred pursuant to this Article X
and (ii) liabilities of Trirock or its Affiliates which are actually the primary
obligations of any of the Companies; or
(d) claims under Article IX.
10.3 Indemnification by Buyer. After the Closing Date, and subject to the
limitations set forth below, including, without limitation, the limitations
described in Section 10.4, Buyer agrees to and does hereby indemnify and hold
each Seller and their respective Affiliates, officers, directors and employees
harmless against any Losses resulting to such Seller from any of the following:
(a) any breach or failure of Buyer to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representations or warranties made to such Seller
by Buyer herein;
(c) any liabilities of Buyer or its Affiliates (other than the Companies),
except for those liabilities of Buyer or its Affiliates incurred pursuant to
this Article X; or
(d) the conduct of the Companies' business after the Closing Date.
-54-
<PAGE>
10.4 Limitation of Liability. (a) Subject to clause (b) below:
(i) Buyer shall not have any liability to indemnify Sellers in respect
to Losses incurred by Sellers pursuant to Section 10.3(a) and (b) unless
and until the aggregate amount of such Losses exceeds $250,000 (the "Buyer
Basket"); and
(ii) Sellers shall not have any liability to indemnify Buyer in
respect of Losses incurred by Buyer pursuant to Section 10.2A(a), (b) and
(d) or Section 10.2B(a), (b) and (d), in the case of Trirock unless and
until the aggregate amount of such Losses exceeds $58,333 (the "Trirock
Basket") and in the case of PIC unless and until the aggregate amount of
such Losses exceeds $191,667 (the "PIC Basket"),
in which event the party seeking indemnification may recover the full amount of
such Losses other than the Buyer Basket, the Trirock Basket or the PIC Basket,
as the case may be; provided that (1) recovery by Sellers from Buyer in respect
of such Losses shall be limited to an aggregate amount of $38,000,000 (the
"Buyer Cap"), and (2) the recovery by Buyer from Trirock in respect of such
Losses shall be limited to $8,854,000 (the "Trirock Cap") and the recovery by
Buyer from PIC in respect of such Losses shall be limited to $29,146,000 (the
"PIC Cap").
(b) Notwithstanding anything in clause (a) above:
(i) Buyer may recover all Losses whenever incurred pursuant to Section
10.2A(c) and Section 10.2B(c), without regard to the 30-month limitation
set forth in Section 10.1, the PIC Cap or the Trirock Cap;
(ii) Buyer may recover all Losses incurred as a result of a breach of
the representation, warranty, covenant or agreement set forth in Sections
3C.10 [Transactions with Interested Persons], 5.1(d) [Carry on in Regular
Course-payment of dividends], 5.2 [Indebtedness] and as provided in Section
2.2(b)(iv), without regard to the Trirock Basket or the PIC Basket;
(iii) Buyer may recover all Losses whenever incurred pursuant to
Section 10.2A(e) without regard to the 30-month limitation set forth in
Section 10.1, the PIC Basket or the PIC Cap;
(iv) Sellers may recover all Losses whenever incurred pursuant to
Section 10.3(c) and (d), without regard to the 30-month limitation set
forth in Section 10.1 or the Buyer Cap; and
-55-
<PAGE>
(v) any Losses of the type covered by, or incurred pursuant to the
Lease ("Lease Losses") shall be satisfied in accordance with the terms
thereof.
Subject to the provisions of this Section 10.4, with respect to any Losses
resulting from the breach of any representation, warranty, covenant or agreement
set forth in Article IIIC, Buyer shall be entitled to recover (y) from PIC an
amount equal to 76.7% of such Losses and (z) from Trirock an amount equal to
23.3% of such Losses.
(c) Subject to the limitations hereinafter set forth, after payment by PIC
under this Article X of an aggregate amount equal to the PIC Cash Payment, PIC
may elect to satisfy its indemnification obligations under this Article X in
whole or in part by surrender to Buyer of some or all of the Front Royal
Preferred Stock, free and clear of all Liens. PIC shall receive a
dollar-for-dollar credit against PIC's indemnification obligation in respect of
Losses incurred by Buyer equal to the [stated value] of the Front Royal
Preferred Stock surrendered hereunder. Notwithstanding the foregoing, PIC shall
not be entitled to satisfy any of its indemnification obligations with respect
to any Tax Losses or any Lease Losses by delivery of any Front Royal Preferred
Stock and the indemnification of such Tax Losses or Lease Losses may be
satisfied only by the payment of immediately available funds.
10.5 Notice of Indemnity Claims. If a party intends to assert a claim for
indemnification (an "Indemnified Party") under this Article X (an "Indemnity
Claim"), the Indemnified Party shall promptly provide notice of such Indemnity
Claim, to the party from whom indemnification is sought (the "Indemnifying
Party") (and in any event within 15 days after becoming aware of such Indemnity
Claim). The failure to receive such notice shall not relieve the Indemnifying
Party from any liability in respect of such claim unless and to the extent that
the Indemnifying Party shall be prevented from curing such situation as a direct
result of its failure to receive timely notice. At the time the Indemnity Claim
is made and thereafter, the Indemnified Party shall provide the Indemnifying
Party with copies of any materials in its possession describing the facts or
containing information providing the basis for the Indemnity Claim. If the
Indemnity Claim involves a claim by a third party (a "Third Party Indemnity
Claim"), the Indemnifying Party may assume and control at its expense the
defense of the claim by the third party, provided that the Indemnifying Party
agrees in writing with respect to such Third Party Indemnity Claim that it is
obligated hereunder to indemnify and hold the Indemnified Party harmless in
accordance with the terms of this Article X; and provided, further, that the
Indemnified Party shall be entitled to participate in the defense of such claim
at its own expense. The failure of the Indemnifying Party to assume the defense
of any
-56-
<PAGE>
such claim shall not affect any indemnification obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party, which
shall not unreasonably be withheld. A party shall not be liable under this
Article X for any such settlement effected without its consent. In the event an
Indemnified Party fails to consent to a settlement of a Third Party Claim
recommended by the Indemnifying Party, then the amount of indemnification
payable with respect to such Third Party Claim shall not exceed the amount of
such settlement offer plus all Losses incurred with respect to such claim prior
to the date the Indemnified Party rejected the settlement offer.
10.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount of any
indemnification payable under any of the provisions of this Article X shall be
(a) net of any federal or state income tax benefit realized or the then-present
value (based on a discount rate of 5%) of any such income tax benefit to be
realized by the Indemnified Party (or, where Buyer is the Indemnified Party, any
of the Companies) by reason of the facts and circumstances giving rise to the
indemnification, and (b) increased by the amount of any federal or state income
tax required to be paid by the Indemnified Party on the accrual or receipt of
the indemnification payment. For purposes of the preceding sentence, the amount
of any state income tax benefit or cost shall take into account the federal
income tax effect of such benefit or cost.
10.7 Arbitration. Any dispute arising between the parties hereto as to any
matter covered by this Agreement, including any claim for indemnification
pursuant to Section 10.2 or 10.3, shall be submitted to arbitration in Somerset
County, Pennsylvania in the following manner:
(a) The party desiring to submit such controversy to arbitration shall give
to the other party notice in writing, stating with specificity the matter upon
which arbitration is sought. The written notice shall also name the arbitrator
selected by such party, which arbitrator shall be a present or retired insurance
company executive unaffiliated with such party.
(b) Within ten Business Days following the receipt of such notice, the
other party shall give written notice to the party desiring arbitration of the
arbitrator selected by it, which second arbitrator shall likewise be a present
or retired insurance company executive unaffiliated with such party.
(c) Upon the appointment of the second arbitrator, the two arbitrators so
chosen shall select a third arbitrator, which
-57-
<PAGE>
third arbitrator shall likewise be a present or retired insurance company
executive unaffiliated with such party.
(d) The three arbitrators thus chosen shall give to each of the parties
hereto written notice of the time and place of hearing, which hearing shall be
held in Somerset County, Pennsylvania not less than ten Business Days, nor more
than 20 Business Days, after the selection of the third arbitrator.
(e) At the time and place (in Somerset County, Pennsylvania) appointed, the
three arbitrators shall proceed with the hearing unless for some good cause, of
which a majority of the arbitrators shall be the judge, it shall be postponed
until some other day within a reasonable time. The parties hereto shall have
full opportunity to be heard on any question thus submitted.
(f) The arbitrators shall be relieved of following judicial formalities and
the rules of evidence shall not apply to such hearing. The determination by a
majority of the arbitrators shall be made in writing and a copy thereof
delivered to each of the parties hereto. The arbitrators shall in every case
deliver their decision within 60 days after the hearing, unless the parties
shall otherwise agree to extend the time. Unless the arbitrator determines
otherwise, all costs and expenses of arbitration and the reasonable legal fees
and disbursements of the prevailing party shall be paid by the other party.
(g) The determination of the arbitrator in any arbitration proceeding
hereunder shall bind Buyer and both PIC and Trirock, provided that each received
notice of such proceeding and the opportunity to participate therein and shall
be final and unappealable.
(h) Any award, judgment or determination of the arbitrators hereunder may
be entered for enforcement in the Court of Common Pleas in Somerset County,
Pennsylvania, or in the United States District Court for the Western District of
Pennsylvania, and each of the parties hereto consents to venue and the personal
jurisdiction of such courts in connection with any such entry and enforcement.
10.8 Remedies Cumulative. Each indemnified party shall be entitled to the
indemnification provided in this Article X from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
-58-
<PAGE>
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Buyer, on the one hand, and both of the
Sellers, on the other hand;
(b) by Buyer, on the one hand, or either of the Sellers, on the other hand,
if the Closing Date shall not have occurred on or before December 31, 1996;
provided that the right to terminate this Agreement under this Section 11.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or has resulted in the failure of the
Closing Date to occur on or before such date;
(c) by Buyer, on the one hand, or either of the Sellers, on the other hand,
if any court of competent jurisdiction in the United States or other United
States governmental body shall have issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the sale of the
Purchased Stock or delivery of any part of the Purchase Price or preventing the
occurrence of any condition precedent and such order, decree, ruling or other
action shall have become final and nonappealable.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the
other, other than the provisions of Article XII of this Agreement, which shall
survive any such termination, and any other provision of this Agreement that
specifically sets forth that it is to so survive.
11.3 Extension; Waiver. At any time prior to the Closing, the parties may
(a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, any party that (i) knowingly waives any representation, warranty,
agreement or condition with respect to another party under subsection (b) and
(c) or (ii) consummates the Closing notwithstanding its delivery of the
certificate set forth in Section 6.16 or Section 7.12, as the case may be, shall
thereafter be barred from seeking indemnification from such other party for such
waived breach of any representation, warranty, agreement or condition. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if (A) set
-59-
<PAGE>
forth in an instrument in writing signed on behalf of such party or (B) set
forth in such certificate referred to in Section 6.16 or Section 7.12, as the
case may be.
ARTICLE XII
DEPOSIT; PAYMENTS ON TERMINATION
12.1 Deposit. On the date of the execution of this Agreement, Buyer will
deposit with the Escrow Agent (Deposit) $1,000,000 to be held in accordance with
the provisions of this Article XII (the "Deposit") and the Escrow Agreement
(Deposit). Principal and interest earned on the Deposit shall be disbursed
according to Sections 12.2, 12.3 and 12.4 below.
12.2 Distribution. At the Closing, Buyer shall instruct the Escrow Agent
(Deposit) to distribute, by wire transfer to an account designated by PIC at
least three Business Days prior to the Closing Date, $766,667 of the Deposit as
part of the Cash Payment of the Purchase Price as provided in Section 2.3,
together with any interest accrued thereon during the time it is held by the
Escrow Agent (Deposit). Concurrently with the payment of monies due under the
Trirock Note, Buyer shall instruct the Escrow Agent (Deposit) to distribute, by
wire transfer to an account designated by Trirock at least three business days
prior to such payment date, $233,333 of the Deposit as part of the monies
payable under the Trirock Note as provided therein, together with any interest
accrued thereon during the time it is held by the Escrow Agent (Deposit). If the
Closing does not occur the Deposit will be distributed to Buyer or Sellers, as
the case may be, as provided in Sections 12.3 and 12.4 below.
12.3 Payment to Sellers. If all the conditions to Buyer's obligations under
this Agreement set forth in Article VI have been satisfied on or before December
31, 1996, or any mutual extension thereof, and Buyer fails materially to perform
its obligations hereunder, Sellers may elect to terminate this Agreement
pursuant to Section 11.1(b) and, subject to the provisions of the Escrow
Agreement (Deposit), upon such termination (unless such termination is as a
result of a breach of any of the Operational Representations of Buyer) Sellers
may direct the Escrow Agent (Deposit) to deliver the Deposit plus all interest
earned thereon, to the Sellers in accordance with the written instructions of
Sellers. In the event of a termination of this Agreement by Sellers pursuant to
Section 11.1(b), forfeiture of the Deposit by Buyer shall be Sellers' sole
remedy under this Agreement.
-60-
<PAGE>
12.4 Payment to Buyer. In the event of any termination of this Agreement,
except as provided in Section 12.3 hereof, the Deposit plus all interest earned
thereon shall be paid to Buyer upon such termination. In addition, if all the
conditions to Sellers' obligations under this Agreement set forth in Article VII
have been satisfied on or before December 31, 1996, or any mutual extension
thereof, and either of the Sellers fails materially to perform its obligations
hereunder, Buyer may elect to terminate this Agreement pursuant to Section
11.1(b) and upon such termination (a) subject to the terms and provisions of the
Escrow Agreement (Deposit), Buyer may direct the Escrow Agent (Deposit) to
deliver the Deposit plus all interest earned thereon to Buyer in accordance with
the written instructions of Buyer and (b) unless such termination is as a result
of a breach of any of the Operational Representations of Sellers or the failure
of Sellers to meet the condition precedent set forth in Section 6.13, PIC shall
pay Buyer an additional $766,667 and Trirock shall pay Buyer an additional
$233,333 in immediately available funds in accordance with the written
instructions of Buyer. The actual amount of damages that Buyer will suffer if
Sellers materially fail to perform their obligations hereunder is difficult and
impracticable to fix with certainty. Accordingly, Sellers hereby agree that the
payment of such $1,000,000 in the aggregate shall be liquidated damages, and not
a penalty or forfeiture, such amount being a reasonable estimate of Buyer's
damages. In the event of a termination of this Agreement by Buyer pursuant to
Section 11.1(b), the return of the Deposit to Buyer and payment of such
liquidation damages shall be Buyer's sole remedy under this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein.
13.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, subject to the provisions of Article XII, each of the
parties hereto shall pay the fees and expenses of their respective counsel,
investment bankers, financial advisors, accountants and other experts and the
other expenses incident to the negotiation and preparation of
-61-
<PAGE>
this Agreement and consummation of the transactions contemplated hereby.
13.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Pennsylvania, without regard to the
conflicts of law rules thereof.
13.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
13.5 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action. Sellers and Buyer will execute, and Buyer shall cause the
Companies to execute, any additional instruments necessary to consummate the
transactions contemplated hereby.
13.6 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given (i) when delivered if delivered personally or by messenger or by overnight
delivery service, or (ii) three days after mailing when mailed by registered or
certified United States mail, postage prepaid, return receipt requested, or
(iii) when received if sent by telecopy (provided that a copy is mailed
concurrently therewith pursuant to the terms hereof), in all cases addressed to
the person for whom it is intended at its address set forth below or to such
other address as a party shall have designated by notice in writing to the other
party in the manner provided by this Section 13.6:
If to Buyer: Front Royal, Inc.
2200 Gateway Blvd.
Suite 205
Morrisville, North Carolina 27560
Attention: J. Adam Abram, Chief
Executive Officer and
Gregg T. Davis, Chief
Financial Officer
Telecopier No.: (919) 469-3557
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Telecopier No.: (212) 541-4630
-62-
<PAGE>
If PIC: PIC Insurance Group, Inc.
502 West Office
Center Drive
Ft. Washington, PA 19034
Attention: Charles M. Lederman
Telecopier No.: (610) 941-5012
With a copy to: Dilworth, Paxson, Kalish & Kauffman LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103-7595
Attention: Lawrence G. McMichael, Esq.
Telecopier No.: (215) 575-7200
If to Trirock: Trirock Limited Partnership
c/o Grogan, Graffam, McGinley & Lucchino, PC
Three Gateway Center
Pittsburgh, PA 15222
Attention: John R. McGinley, Jr.
Telecopier No.: (412) 642-2601
With a copy to: Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attention: Alan H. Finegold, Esq.
Telecopier No.: (412) 355-6501
13.7 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
13.8 Interpretation. All references in this Agreements to contracts,
agreements, leases, Employee Benefit Plans or other understandings or
arrangements shall refer to oral as well as written matters.
13.9 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
13.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Sellers, Buyer and the Companies assume no liability to any third party because
of any reliance on the
-63-
<PAGE>
representations, warranties and agreements of Sellers and Buyer contained in
this Agreement.
13.11 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties. The requirements of this
Section 13.11 may not be waived.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
PIC INSURANCE GROUP, INC.
By:_________________________________
Name:
Title:
TRIROCK LIMITED PARTNERSHIP
By:_________________________________
a General Partner
FRONT ROYAL, INC.
By:_________________________________
Name:
Title:
-64-
<PAGE>
Execution Copy
================================================================================
CREDIT AGREEMENT
among
FRONT ROYAL, INC.,
THE LENDERS NAMED HEREIN,
and
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as Agent
$38,000,000 Senior Term Loan Facility
Arranged by
FIRST UNION CAPITAL MARKETS CORP.
Dated as of December 18, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
RECITALS
ARTICLE I
DEFINITIONS
1.1 Defined Terms................................................... 1
1.2. Accounting Terms............................................... 25
1.3. Other Terms; Construction...................................... 25
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.1. Loans.......................................................... 26
2.2. Borrowing...................................................... 26
2.3. Disbursements; Funding Reliance; Domicile of Loans............. 26
2.4. Term Notes..................................................... 27
2.5. Termination of Commitments..................................... 27
2.6. Mandatory Repayments and Prepayments........................... 27
2.7. Voluntary Prepayments.......................................... 30
2.8. Interest....................................................... 30
2.9. Fees........................................................... 31
2.10 Interest Periods............................................... 31
2.11 Conversions and Continuations.................................. 32
2.12 Method of Payments; Computations............................... 33
2.13 Recovery of Payments........................................... 34
2.14 Use of Proceeds................................................ 35
2.15 Pro Rata Treatment; Sharing of Payments........................ 35
2.16 Increased Costs; Change in Circumstances; Illegality; etc...... 35
2.17 Taxes.......................................................... 37
2.18 Compensation................................................... 39
2.19 Replacement of Lenders; Mitigation............................. 39
ARTICLE III
CONDITIONS OF BORROWING
3.1. Conditions of Closing.......................................... 40
-i-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1. Corporate Existence and Power.................................. 45
4.2. Authorization; Enforceability.................................. 45
4.3. No Violation................................................... 45
4.4. Governmental Authorization; Permits............................ 45
4.5. Litigation..................................................... 46
4.6. Taxes.......................................................... 46
4.7. Subsidiaries................................................... 47
4.8. Full Disclosure................................................ 47
4.9. Margin Regulations............................................. 47
4.10 Financial Matters.............................................. 47
4.11 Ownership of Properties........................................ 49
4.12 Employee Plans................................................. 50
4.13 Solvency....................................................... 51
4.14 Environmental Matters.......................................... 51
4.15 Trade Relations................................................ 52
4.16 Labor Relations................................................ 52
4.17 Proprietary Rights............................................. 53
4.18 Compliance With Laws........................................... 53
4.19 Regulated Industries........................................... 53
4.20 Collateral..................................................... 53
4.21 Certain Contracts.............................................. 54
4.22 Reinsurance Agreements......................................... 54
4.23 No Burdensome Restrictions..................................... 54
4.24 Business Locations; Trade Names................................ 55
4.25 Carried Insurance.............................................. 55
4.26 Issued Policies................................................ 55
4.27 Certain Relationships.......................................... 55
4.28 Indebtedness................................................... 56
4.29 Representations and Warranties in Transaction Documents........ 56
4.30 Transaction Documents.......................................... 56
4.31 Consummation of Transactions................................... 56
ARTICLE V
AFFIRMATIVE COVENANTS
5.1. GAAP Financial Statements...................................... 56
5.2. Statutory Financial Statements................................. 57
5.3. Other Business and Financial Information....................... 58
5.4. Notice of Certain Events....................................... 59
-ii-
<PAGE>
5.5. Corporate Existence; Franchises; Maintenance of Properties; e.. 61
5.6. Compliance with Laws........................................... 61
5.7. Performance of Obligations..................................... 61
5.8. Payment of Taxes............................................... 62
5.9. Insurance...................................................... 62
5.10 Maintenance of Books and Records; Inspection................... 62
5.11 Interest Rate Protection....................................... 62
5.12 Dividends...................................................... 63
5.13 Further Assurances............................................. 63
ARTICLE VI
NEGATIVE COVENANTS
6.1. Consolidated Statutory Surplus................................. 63
6.2. Capitalization Ratio........................................... 63
6.3. Operating Leverage Ratio....................................... 63
6.4. Fixed Charge Coverage Ratio.................................... 63
6.5. Earnings Coverage Ratio........................................ 63
6.6. RiskBased Capital.............................................. 64
6.7. Capital Expenditures........................................... 64
6.8. Merger, Consolidation.......................................... 64
6.9. Indebtedness................................................... 64
6.10 Liens.......................................................... 65
6.11 Investments.................................................... 66
6.12 Transactions with Affiliates................................... 67
6.13 Restricted Payments............................................ 68
6.14 Certain Amendments, etc........................................ 68
6.15 Limitation on Certain Restrictions............................. 69
6.16 New Business................................................... 69
6.17 Compliance of Employee Plans................................... 69
6.18 Fiscal Year.................................................... 69
6.19 Accounting Changes............................................. 69
6.20 Change of Location or Name..................................... 70
6.21 Best Rating.................................................... 70
6.22 Reinsurance Agreements......................................... 70
6.23 Hazardous Substances........................................... 71
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default.............................................. 71
7.2. Remedies: Acceleration, etc.................................... 74
7.3. Remedies: SetOff............................................... 75
-iii-
<PAGE>
ARTICLE VIII
THE AGENT
8.2. Nature of Duties............................................... 75
8.3. Exculpatory Provisions......................................... 75
8.4. Reliance by Agent.............................................. 75
8.5. NonReliance on Agent and Other Lenders ........................ 76
8.6. Notice of Default ............................................. 77
8.7. Indemnification ............................................... 77
8.8. The Agent in its Individual Capacity........................... 77
8.9. Successor Agent................................................ 78
8.10. Collateral Matters............................................. 78
ARTICLE IX
MISCELLANEOUS
9.1. Fees and Expenses.............................................. 79
9.2. Indemnification................................................ 79
9.3. Governing Law; Consent to Jurisdiction......................... 80
9.4. Arbitration; Preservation and Limitation of Remedies........... 80
9.5. Notices........................................................ 81
9.6. Amendments, Waivers, etc....................................... 82
9.7. Assignments, Participations.................................... 82
9.8. No Waiver...................................................... 84
9.9. Successors and Assigns......................................... 85
9.10. Survival....................................................... 85
9.11. Severability................................................... 85
9.12. Construction................................................... 85
9.13. Confidentiality................................................ 85
9.14. Counterparts................................................... 85
9.15. Entire Agreement............................................... 86
-iv-
<PAGE>
EXHIBITS
Exhibit A Form of Term Note
Exhibit B Form of Excess Cash Flow Certificate
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D Form of Borrower Pledge and Security Agreement
Exhibit E Form of Subsidiaries Guaranty
Exhibit F-1 Form of Borrower Collateral Assignment of Agreements
Exhibit F-2 Form of Subsidiaries Collateral Assignment of Agreements
Exhibit G Form of Escrow Agreement
Exhibit H Borrower's Counsels' Opinions
Exhibit I Form of Financial Condition Certificate
Exhibit J-1 Form of Compliance Certificate (GAAP)
Exhibit J-2 Form of Compliance Certificate (SAP)
Exhibit K Form of Assignment and Acceptance
SCHEDULES
Schedule l.l(a) Exempted Persons
Schedule l.l(b) Liens
Schedule 4.1 Corporate Existence and Power
Schedule 4.4(a) Governmental Authorization; Permits
Schedule 4.4(c) Licenses
Schedule 4.5 Litigation
Schedule 4.6 Tax Matters
Schedule 4.7 Subsidiaries
Schedule 4.12 Employee Plans
Schedule 4.14 Environmental Matters
Schedule 4.21 Certain Contracts
Schedule 4.22 Reinsurance Agreements
Schedule 4.24 Business Locations; Trade Names
Schedule 4.25 Carried Insurance
Schedule 4.27 Certain Relationships
Schedule 4.28 Indebtedness
Schedule 6.16 Lines of Business
-v-
<PAGE>
Execution Copy
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of the 18th day of December, 1996 (this
"Agreement"), is made among FRONT ROYAL, INC., a North Carolina corporation with
its principal offices in Morrisville, North Carolina (the "Borrower"), the banks
and financial institutions listed on the signature pages hereof or that become
parties hereto after the date hereof (collectively, the "Lenders"), and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA ("First Union"), as agent for the Lenders
(in such capacity, the "Agent").
RECITALS
A. The Borrower proposes to acquire from PIC Insurance Group, Inc., a
Pennsylvania stock insurance company ("PIC"), and Trirock Limited Partnership, a
Pennsylvania limited partnership ("Trirock"), all of the issued and outstanding
shares of capital stock (the "Acquisition") of Rockwood Casualty Insurance
Company, a Pennsylvania stock insurance company ("Rockwood"), pursuant to a
Stock Purchase Agreement, dated as of December 6, 1996, by and between the
Borrower, PIC and Trirock (as amended, modified or supplemented from time to
time in accordance with the terms of this Agreement, the "Stock Purchase
Agreement").
B. In order (i) to finance a portion of the purchase price of the
Acquisition, (ii) to refinance the Borrower's outstanding senior term loan from
First Union, (iii) to prepay certain other indebtedness of the Borrower, and
(iv) to pay or reimburse certain fees and expenses in connection with the
foregoing transactions and as otherwise contemplated by this Agreement, the
Borrower has requested that the Lenders extend term loans to the Borrower in the
aggregate principal amount of $38,000,000, all as more fully described herein.
C. The Lenders are willing to extend such term loans to the Borrower
subject to and on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual provisions, covenants and
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. For purposes of this Agreement, in addition to the
terms defined elsewhere herein, the following terms shall have the meanings set
forth below (such meanings to be equally applicable to the singular and plural
forms thereof):
<PAGE>
"Account Designation Letter" shall mean a letter from the Borrower to the
Agent, duly completed and signed by an Authorized Officer and in form and
substance satisfactory to the Agent, listing any one or more accounts to which
the Borrower requests the Agent to forward the proceeds of the Loans made
hereunder.
"Acquisition" shall have the meaning given to such term in the recitals
hereof.
"Actuarial Report" shall mean, with respect to any Insurance Subsidiary
for any period, an actuarial review and valuation statement of, and opinion as
to the adequacy of, such Insurance Subsidiary's loss and loss adjustment expense
reserve positions as of the end of such period with respect to the insurance
business then in force, and covering such other subjects as are customary in
actuarial reviews and as may be reasonably requested by any Lender, prepared by
an independent actuarial firm reasonably acceptable to the Lenders in accordance
with reasonable actuarial assumptions and procedures not inconsistent with the
assumptions and procedures previously employed.
"Adjusted Base Rate" shall mean, at any time with respect to any Base Rate
Loan, a rate per annum equal to the Base Rate as in effect at such time plus
1.0%.
"Adjusted LIBOR Rate" shall mean, at any time with respect to any LIBOR
Loan, a rate per annum equal to the LIBOR Rate as in effect at such time plus
the Applicable LIBOR Margin as in effect at such time.
"Admitted Assets" shall mean, as to the Insurance Subsidiaries, the
aggregate amount shown on line 21, page 2 column 1 of the Annual Statements of
the Insurance Subsidiaries (or any similar line, page and column reference in
any successor form of Annual Statement), or the amount determined in a
consistent manner for any date other than one as of which the Annual Statements
are prepared.
"Affiliate" shall mean, as to any Person, each other Person that directly,
or indirectly through one or more intermediaries, owns or controls, is
controlled by or under common control with, such Person or is a director or
officer of such Person. For purposes of this definition, with respect to any
Person "control" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of management and policies, whether through the
ownership of voting securities, by contract or otherwise; provided that, in any
event, any Person directly or indirectly owning 20% or more of the securities
having ordinary voting power for the election of directors or other governing
body of a corporation or 20% or more of the partnership or other ownership
interests of any other Person (other than as a limited partner of such other
Person) will be deemed to control such corporation or other Person.
"Agent" shall mean First Union, in its capacity as Agent appointed under
Article VIII, and its successors and permitted assigns in such capacity.
-2-
<PAGE>
"Agreement" shall mean this Credit Agreement, as amended, modified or
supplemented from time to time.
"Amended Charter" shall mean the Amended Articles of Incorporation of the
Borrower after the filing of two amendments with the North Carolina Secretary of
State on or before the Closing Date setting forth, among other things, the
terms, preferences, rights and limitations of the Series A Preferred Stock and
the Class C Common Stock, as in effect on the Closing Date and as amended or
restated from time to time in accordance with the terms of this Agreement.
"Annual Statement" shall mean, with respect to any Insurance Subsidiary
for any fiscal year, the annual financial statements of such Insurance
Subsidiary as required to be filed with the Department of its state of domicile,
together with all exhibits, schedules, certificates and actuarial opinions
required to be filed or delivered therewith.
"Applicable LIBOR Margin" shall mean, at any time from and after the
Closing Date with respect to any LIBOR Loan, 2.25%; provided, however, that on
each Adjustment Date (as defined below), the Applicable LIBOR Margin for all
LIBOR Loans shall be adjusted effective as of such date (based upon the
calculation of the Capitalization Ratio as of the last day of the fiscal period
to which such Adjustment Date relates) in accordance with the following matrix:
Capitalization Ratio Applicable LIBOR Margin
<= 0.40 to 1.0 2.25%
<= 0.35 to 1.00 but 2.00%
< 0.40 to 1.0
< 0.35 to 1.0 1.75%
Notwithstanding the foregoing, if at any time the Borrower shall have failed to
deliver the financial statements and a Compliance Certificate as required by
Section 5.1(a), 5.1(b), 5.2(a) or 5.2(b) (as the case may be) and Section
5.3(a), or if at any time an Event of Default shall have occurred and be
continuing, then, upon written notice from the Agent, whenever given, for the
entire period from and including the date on which such statements and
Compliance Certificate are required to have been delivered (or the date of
occurrence of such Event of Default, as the case may be) to the date on which
the same shall have been delivered (or such Default or Event of Default cured or
waived, as the case may be), the Applicable LIBOR Margin shall be determined as
if the Capitalization Ratio were greater than or equal to 0.40 to 1.0
(notwithstanding the actual Capitalization Ratio). For purposes of this
definition, "Adjustment Date" shall mean, with respect to any fiscal quarter of
the Borrower beginning with the fiscal quarter ending December 31, 1996, the
fifth (5th) day (or, if such day is not a Business Day, on the next succeeding
Business Day) after receipt by the Agent in accordance with Section 5.1(a) or
Section 5.1(b), as the case may be, of (i)
-3-
<PAGE>
financial statements for the most recently completed applicable fiscal period
and (ii) a duly completed Compliance Certificate with respect to such fiscal
period.
"Asset Backed Derivative Securities" shall mean Z bonds, floaters/inverse
floaters, PAC II, PAC III, Ioettes, support bonds, interest only investments,
principal only investments, residuals, inverse IO's, super floaters, and any
bonds backed in whole or in part by tranches of these bonds (including component
or kitchen sink bonds), and any other derivative of collateralized obligations,
whether such collateral is personally or realty.
"Asset Disposition" shall mean any sale, assignment, transfer or other
disposition by the Borrower or any of its Subsidiaries to any other Person
(other than to the Borrower or a Wholly Owned Subsidiary), whether in one
transaction or in a series of related transactions, of any of its assets,
business units or other properties (including any interests in property, whether
tangible or intangible, and including Capital Stock of Subsidiaries), excluding
sales of assets in the ordinary course of business.
"Assignee" shall have the meaning given to such term in Section 9.7(a).
"Assignment and Acceptance" shall mean an Assignment and Acceptance
entered into between a Lender and an Assignee and accepted by the Agent and the
Borrower, in substantially the form of Exhibit K.
"Authorized Officer" shall mean the president or chief financial officer
of the Borrower or any other officer of the Borrower authorized by resolution of
the board of directors of the Borrower to engage in the activity specified
herein with respect to such officer and whose signature and incumbency shall
have been certified to the Agent.
"Available Dividend Amount" shall mean, for any period of four consecutive
quarters, with respect to the Insurance Subsidiaries other than any Insurance
Subsidiary that itself is a Subsidiary of an Insurance Subsidiary, the aggregate
maximum amount of dividends permitted by the relevant Departments under
applicable Requirements of Law (without the necessity of any affirmative
approval or other action of such Departments involving the granting of
permission) to be paid by such Insurance Subsidiaries (whether or not any such
dividends are actually paid).
"Bankruptcy Code" shall mean 11 U.S.C. ss.ss. 101 et seq., as amended from
time to time, and any successor statute.
"Base Rate" shall mean the higher of (i) the per annum interest rate
publicly announced from time to time by First Union in Charlotte, North
Carolina, to be its prime rate (which may not necessarily be its best lending
rate), as adjusted to conform to changes as of the opening of business on the
date of any such change in such prime rate, or (ii) 0.5% per annum plus the
Federal Funds Rate, as adjusted to conform to changes as of the opening of
business on the date of any such change in the Federal Funds Rate.
-4-
<PAGE>
"Base Rate Loan" shall mean, at any time, any Loan that bears interest at
such time at the Adjusted Base Rate.
"Borrower Collateral Assignment of Agreements" shall mean the Collateral
Assignment of Agreements, dated as of the Closing Date, made by the Borrower in
favor of the Agent and Lenders, in substantially the form of Exhibit F-1, as
amended, modified or supplemented from time to time.
"Borrower Pledge and Security Agreement" shall mean the Borrower Pledge
and Security Agreement made by the Borrower in favor of the Agent and the
Lenders, in substantially the form of Exhibit D, as amended, modified or
supplemented from time to time.
"Business Day" shall mean (i) any day other than a Saturday or Sunday, a
legal holiday or a day on which commercial banks in Charlotte, North Carolina
are required by law to be closed and (ii) in respect of any determination
relevant to a LIBOR Loan, any such day that is also a day on which tradings are
conducted in the London interbank Eurodollar market.
"CMS" shall mean Colony Management Services, Inc., a Virginia corporation.
"Capital Expenditures" shall mean, with respect to the Borrower and its
Subsidiaries for any fiscal year, the aggregate expenditures (including payments
in respect of liabilities incurred) of the Borrower and its Subsidiaries during
such fiscal year (less the amount of any trade-in allowance included therein) to
acquire or construct equipment, fixed assets, real property or improvements and
other capital assets (including, without limitation, Capital Lease Obligations),
other than expenditures for replacements and substitutions therefor made with
the proceeds of insurance.
"Capital Lease" shall mean, with respect to the Borrower and its
Subsidiaries, any lease of any property by the Borrower or any of its
Subsidiaries as lessee that, in accordance with Generally Accepted Accounting
Principles, is required to be classified and accounted for as a capital lease on
its balance sheet.
"Capital Lease Obligation" shall mean, with respect to the Borrower and
its Subsidiaries for any fiscal year, the aggregate payments of the Borrower and
its Subsidiaries during such fiscal year in respect of Capital Leases.
"Capital Stock" shall mean (i) with respect to any Person that is a
corporation, any and all shares, interests or equivalents in corporate stock
(whether voting or nonvoting, and whether common or preferred) of such
corporation, and (ii) with respect to any Person that is not a corporation, any
and all partnership, membership, limited liability company or other equity
interests of such Person; and in each case, any and all warrants or options to
purchase any of the foregoing.
-5-
<PAGE>
"Capitalization Ratio" shall mean, as of any date of determination, the
ratio of (i) Consolidated Indebtedness as of such date to (ii) the sum of
Consolidated Indebtedness and Consolidated Net Worth, each as of such date.
"Cash Collateral Account" shall have the meaning given to such term in the
Escrow Agreement.
"Cash Equivalents" shall mean (i) securities issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing within one year from the date of acquisition, (ii) securities issued by
any state of the United States of America or any political subdivision or public
instrumentality thereof, maturing within one year from the date of acquisition
and, at the time of acquisition, having the highest rating obtainable from
either Standard & Poor's Ratings Services ("Standard & Poor's"), or Moody's
Investors Service, Inc. ("Moody's"), (iii) commercial paper issued by any Person
organized under the laws of the United States of America, maturing no more than
one year from the date of acquisition and, at the time of acquisition, having a
rating of at least A-1 or the equivalent thereof by Standard & Poor's or at
least P-1 or the equivalent thereof by Moody's, (iv) time deposits and
certificates of deposit that are insured by the Federal Deposit Insurance
Corporation (the "FDIC") or any successor instrumentality of the government of
the United States of America up to the applicable limit on insurance granted by
the FDIC or such other instrumentality with respect to such instruments (it
being understood that the amount invested in such instrument may not exceed the
limit on such insurance), maturing within one year from the date of issuance and
issued by a bank or trust company organized under the laws of the United States
of America or any state thereof and having combined capital and surplus of at
least $250,000,000 and (v) money market funds substantially all of whose assets
are comprised of securities of the types described in clauses (i) through (iv)
above.
"Change of Control" shall mean the occurrence of either of the following:
(i) any Person or group of Persons acting in concert as a partnership or other
group shall, as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become, after the date hereof,
the "beneficial owner" (within the meaning of such term under Rule 13d-3 under
the Exchange Act) of securities of the Borrower representing 20% (or, if such
Person is an Exempted Person, 35%) or more of the combined voting power of the
then outstanding securities of the Borrower ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors; or (ii) the Board of Directors of the Borrower shall cease to
consist of a majority of the individuals who constituted the Board of Directors
as of the Closing Date or who shall have become a member thereof subsequent to
the Closing Date after having been nominated, or otherwise approved in writing,
by at least a majority of individuals who constituted the Board of Directors of
the Borrower as of the Closing Date (or their replacements approved as herein
required).
-6-
<PAGE>
"Class C Common Stock" shall mean the Class C Common Stock, no par value,
of the Borrower to be issued on the Closing Date pursuant to the Subscription
Agreement, the terms of which are set forth in the Amended Charter.
"Closing Date" shall mean the date upon which (i) the Borrower requests
that the Loans be made pursuant to this Agreement and (ii) all of the conditions
of Article III are satisfied.
"Collateral" shall mean all the assets, property and interests in property
that shall from time to time be pledged or be purported to be pledged as direct
or indirect security for the Obligations pursuant to the Borrower Pledge and
Security Agreement, the Borrower Collateral Assignment of Agreements, the
Subsidiaries Collateral Assignment of Agreements, the Escrow Agreement or any
one or more of the other Loan Documents.
"Colony" shall mean Colony Insurance Company, a Virginia corporation.
"Combined Net Cash Flow" shall mean, for any fiscal year, the aggregate
Net Income of the Non-Insurance Subsidiaries for such fiscal year, plus the sum
of the following items of the Non-Insurance Subsidiaries for such fiscal year to
the extent taken into account in the calculation of such Net Income for such
fiscal year: (i) depreciation expense, (ii) amortization (whether positive or
negative) of intangible assets and (iii) other non-cash expenses, losses and
charges reducing income, minus the sum of the following items of the
Non-Insurance Subsidiaries for such fiscal year: (i) Capital Expenditures
permitted to be made hereunder, (ii) scheduled principal payments on
Indebtedness permitted hereunder owed by any of the Non-Insurance Subsidiaries
(but excluding the Wachovia Indebtedness), and (iii) all non-cash gains and
other non-cash items taken into account in determining such Net Income for such
fiscal year, plus any increase during such fiscal year in deterred taxes, minus
any decrease during such fiscal year in deferred taxes.
"Commitment" shall mean, with respect to any Lender at any time, the
amount set forth opposite such Lender's name on its signature page hereto or, if
such Lender has entered into one or more Assignment and Acceptances, the amount
set forth for such Lender at such time in the Register maintained by the Agent
pursuant to Section 9.7(b) as such Lender's "Commitment."
"Compliance Certificate" shall mean a fully completed and duly executed
certificate in the form of Exhibit J-1 or Exhibit J-2, as applicable, together
with the attachments required thereby.
"Consolidated Gross Written Premiums" shall mean, at any time, the
aggregate (without duplication) of the Gross Written Premiums of the Insurance
Subsidiaries at such time.
-7-
<PAGE>
"Consolidated Indebtedness" shall mean, at any time, the aggregate
Indebtedness (without duplication) of the Borrower and its Subsidiaries at such
time, determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.
"Consolidated Net Income" shall mean, for any period, Net Income for the
Borrower and its Subsidiaries for such period, determined on a consolidated
basis in accordance with Generally Accepted Accounting Principles.
"Consolidated Net Worth" shall mean, at any time, the net worth of the
Borrower and its Subsidiaries at such time, determined on a consolidated basis
in accordance with Generally Accepted Accounting Principles but without regard
to the requirements of FAS 115.
"Consolidated Net Written Premiums" shall mean, at any time, the aggregate
(without duplication) of the Net Written Premiums of the Insurance Subsidiaries
at such time.
"Consolidated Statutory Surplus" shall mean, at any time, the aggregate
(without duplication) of the amounts shown on line 25, page 3, column 1 of the
Annual Statement of each Insurance Subsidiary, or the aggregate (without
duplication) of such amounts determined in a consistent manner for any date
other than a date as of which Annual Statements of the Insurance Subsidiaries
are prepared.
"Contingent Obligation" shall mean, with respect to any Person, any direct
or indirect liability of such Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation (the "primary
obligation") of another Person (the "primary obligor"), whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligation or any property constituting direct or indirect security therefor,
(b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor in respect thereof to make payment of such primary
obligation or (d) otherwise to assure or hold harmless the owner of any such
primary obligation against loss or failure or inability to perform in respect
thereof; provided, however, that neither (i) obligations entered into in the
ordinary course of an Insurance Subsidiary's business under insurance policies
or contracts issued by it or to which it is a party, including Reinsurance
Agreements (and security posted by any such Insurance Subsidiary in the ordinary
course of its business to secure obligations thereunder), nor (ii) endorsements
of instruments or items of payment for deposit or collection in the ordinary
course of business, shall be deemed to be Contingent Obligations of the Borrower
or any of its Subsidiaries for purposes of this Agreement. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
-8-
<PAGE>
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Covenant Compliance Worksheet" shall mean a fully completed worksheet in
the form of Attachment A to Exhibit J-1 or Exhibit J-2, as the context may
require.
"Current Services Agreements" shall mean, collectively, (i) the Services
Agreements between CMS and the respective Insurance Subsidiaries, dated (a) with
respect to the Services Agreement between CMS and Colony, as of December 12,
1994, and (b) with respect to the Services Agreement between CMS and FRIC and
Hamilton, as of December 28, 1994, (ii) the Services Agreement between FRESI and
Front Royal Engineering, Inc., dated as of September 1, 1995, and the Services
Agreement between FRESI and FRIC, as of December 12, 1994, in each case without
regard to any amendments, modifications or supplements thereto or restatements
thereof other than those approved by the Lender pursuant to the terms hereof.
"Debt Service" shall mean, for any period, the aggregate (without
duplication) of all principal and interest paid by the Borrower and its
Subsidiaries during such period in respect of Indebtedness (including, without
limitation, the Loans).
"Default" shall mean any event or condition that, with the passage of time
or giving of notice, or both, would constitute an Event of Default.
"Department" shall mean, with respect to any Insurance Subsidiary, the
Department of Insurance or such other Governmental Authority of its state of
domicile charged with regulating insurance companies or insurance holding
companies.
"Dollars" or "$" shall mean dollars of the United States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"ERISA Affiliate" shall mean any Person (including any trade or business,
whether or not incorporated) that would be deemed to be under "common control"
with, or a member of the same "controlled group" as, the Borrower or any of its
Subsidiaries, within the meaning of Section 414(b), (c), (m) or (o) of the
Internal Revenue Code or Section 4001 of ERISA.
"ERISA Event" shall mean (i) a Reportable Event with respect to a
Qualified Plan or a Multiemployer Plan, (ii) a complete or partial withdrawal by
the Borrower, any of its Subsidiaries or any ERISA Affiliate from a
Multiemployer Plan, where such withdrawal would be reasonably likely to have a
Material Adverse Effect, (iii) the filing by the Borrower, any of its
Subsidiaries or any ERISA Affiliate of a notice of intent to terminate, the
treatment of a plan amendment as a termination under Section 4041 or 4041A of
ERISA,
-9-
<PAGE>
or the commencement of proceedings by the PBGC to terminate a Qualified Plan
(other than a standard termination) or Multiemployer Plan subject to Title IV of
ERISA, (iv) a failure to make required contributions to a Qualified Plan or
Multiemployer Plan, (v) the adoption of an amendment to a Qualified Plan
requiring the provision of security to such plan pursuant to Section 307 of
ERISA, (vi) the imposition upon the Borrower, any of its Subsidiaries or any
ERISA Affiliate of any liability under Title IV of ERISA, other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA, (vii) an
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code with respect to any Qualified Plan, (viii)
the engaging in or otherwise becoming liable for a nonexempt Prohibited
Transaction by the Borrower, any of its Subsidiaries or any ERISA Affiliate,
where such Prohibited Transaction would be reasonably likely to have a Material
Adverse Effect, or (ix) a violation of the applicable requirements of Section
404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the
Code by any fiduciary of any Qualified Plan for which the Borrower or any of its
Subsidiaries may be directly or indirectly liable, where such violation would be
reasonably likely to have a Material Adverse Effect.
"Earnings Coverage Ratio" shall mean, as of the last day of any fiscal
quarter, for the period of four consecutive fiscal quarters then ending, the
ratio of (i) the sum of (A) the aggregate Statutory Net Income of the Insurance
Subsidiaries, other than any Insurance Subsidiary that is itself a Subsidiary of
an Insurance Subsidiary, and (B) the Net Income of each of the Non-Insurance
Subsidiaries (other than CMS) for the period to (ii) the sum of Debt Service and
Net Overhead for such period. The calculation of the Earnings Coverage Ratio (a)
as of the last day of the fiscal quarters ending March 31, 1997, June 30, 1997,
and September 30, 1997, shall be made with respect to the periods of one, two
and three fiscal quarters, respectively, ending on such dates, and (b) as of the
last day of any fiscal quarter ending at any time thereafter shall be made with
respect to the period of four fiscal quarters ending on such date.
"Eligible Assignee" shall mean (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in excess
of $1,000,000,000, (ii) a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Cooperation and
Development or any successor thereto (the "OECD") or a political subdivision of
any such country and having total assets in excess of $1,000,000,000, provided
that such bank or other financial institution is acting through a branch or
agency located in the United States, in the country under the laws of which it
is organized or in another country that is also a member of the OECD, (iii) the
central bank of any country that is a member of the OECD, (iv) a finance company
or other financial institution or fund (other than an insurance company or an
insurance holding company) that is engaged in making, purchasing or otherwise
investing in loans in the ordinary course of its business and having total
assets in excess of $500,000,000, (v) any Affiliate of an existing Lender or
(vi) any other Person approved by the Required Lenders, which approval shall not
be unreasonably withheld.
-10-
<PAGE>
"Employee Plan" shall mean any "employee benefit plan" within the meaning
of Section 3(3) of ERISA that the Borrower, any of its Subsidiaries or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute to
and that covers any employee or former employee of the Borrower, any of its
Subsidiaries or any ERISA Affiliate with respect to such employee's relationship
with any of the foregoing, in each case including, without limitation, all
profit-sharing plans, bonus plans, incentive compensation plans, deferred
compensation plans, retirement plans, stock option plans, stock purchase plans
and health, life and disability benefit plans. Notwithstanding the foregoing,
the term "Employee Plan" shall not include any such employee benefit plan
maintained, administered, or to which any Subsidiary or ERISA Affiliate
contributed, before (but not after) it became a Subsidiary or ERISA Affiliate.
"Employment Agreements" shall mean, collectively, (i) the Employment
Agreement, dated December 28, 1994, between the Borrower and J. Adam Abram, (ii)
the Employment Agreement, dated December 28, 1994, between CMS and John Latham,
(iii) the Employment Agreement, dated on or about the Closing Date, between
Rockwood and John Yediny, and (iv) the Employment Agreement, dated on or about
the Closing Date, between the Borrower and Gregg Davis, in each case without
regard to any amendments, modifications or supplements thereto or restatements
thereof other than those approved by the Required Lenders pursuant to the terms
hereof.
"Environmental Claims" shall mean any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by the Borrower or any Subsidiary of the Borrower solely in the ordinary course
of its business and not in response to any third party action or request of any
kind) or proceedings relating in any way to any Environmental Law or any permit
issued, or any approval given, under any such Environmental Law (collectively,
"Claims"), including, without limitation, (i) any and all Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (ii) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Substances or arising from alleged injury or threat of injury to human health or
the environment.
"Environmental Laws" shall mean any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations, rules of common law and orders of courts or Governmental
Authorities, relating to the protection of human health or occupational safety
or the environment, now or hereafter in effect and in each case as amended from
time to time, including, without limitation, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Substances.
-11-
<PAGE>
"Equity Documents" shall mean the Subscription Agreement and the documents
and instruments required by the terms of the Subscription Agreement to be
executed and delivered by the parties in connection with the closing of the
transactions contemplated thereby, including, without limitation, the Amended
and Restated Registration Rights Agreement and Rights Agreement (each as defined
in the Subscription Agreement.
"Equity Issuance" shall mean (i) the issuance, sale or other disposition
by the Borrower or any of its Subsidiaries of its Capital Stock (including,
without limitation, pursuant to an initial registered public offering of the
Borrower's Capital Stock), any rights, warrants or options to purchase or
acquire any shares of its Capital Stock or any other security or instrument
representing, convertible into or exchangeable for an equity interest in the
Borrower or any of its Subsidiaries, and (ii) the receipt by the Borrower or any
of its Subsidiaries of any capital contribution (whether or not evidenced by any
security or instrument); provided, however, that the term Equity Issuance shall
not include (w) the issuance or sale of Capital Stock by any Subsidiary to the
Borrower or any other Subsidiary, provided that, to the extent not prohibited by
applicable Insurance Codes, such Capital Stock is pledged to the Agent pursuant
to the Borrower Pledge and Security Agreement or a similar pledge and security
agreement from the relevant Subsidiary, (x) any capital contribution to any
Subsidiary, to the extent made directly or indirectly by the Borrower, (y) any
Capital Stock of the Borrower issued or sold in connection with the Acquisition
and constituting a portion of the purchase price thereof, or (z) the issuance
and sale of securities of the Borrower, including Class C Common Stock, pursuant
to the Subscription Agreement on the Closing Date.
"Escrow Agent" shall mean First Union National Bank of North Carolina, in
its capacity as escrow agent under the Escrow Agreement.
"Escrow Agreement" shall mean the Escrow Agreement, dated as of the
Closing Date, between the Borrower, the Agent and the Escrow Agent, in
substantially the form of Exhibit G, as amended, modified or supplemented from
time to time.
"Event of Default" shall have the meaning given to such term in Section
7.1.
"Excess Cash Flow" shall mean, for any fiscal year (the "Subject Year"),
the excess of (i) the aggregate of the following items: (A) the Available
Dividend Amount of the Insurance Subsidiaries (calculated, for purposes of this
definition only, with respect to, and as of the last day of, the fiscal year
immediately preceding the Subject Year, and without taking into account any
unpaid amounts carried forward from prior years); (B) the Combined Net Cash Flow
(whether positive or negative, but only up to a negative amount of $250,000) of
the Non-Insurance Subsidiaries (other than CMS) for the Subject Year; (C) all
tax refunds received during the Subject Year by the Borrower or any of its
Subsidiaries from any Governmental Authority to the extent not already included
in item (A) or (B), and (D) all monies received by the Borrower during the
Subject Year from any source to the extent not already included in item (A), (B)
or (C) and other than any Excluded Items, including,
-12-
<PAGE>
without limitation, dividends from its Subsidiaries, guaranty fees, amounts
received or due (whether or not already paid) under the Tax Allocation
Agreements and any other agreement with any of its Subsidiaries, and income
earned on funds held in the Cash Collateral Account or on hand, over (ii) the
sum of the following items for such fiscal year: (A) Debt Service, (B) Net
Overhead (whether a positive or negative number) and (C) Tax Payments.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute, and all rules and regulations from
time to time promulgated thereunder.
"Excluded Items" shall mean, for any fiscal year, (i) Net Cash Proceeds,
(ii) proceeds from the repayment of advances previously made by the Borrower to
any of its Subsidiaries in the ordinary course of business and (iii) proceeds
from the sale of Investments (other than Investments in any of its Subsidiaries
and other than Investments made or held by the Non-Insurance Subsidiaries) held
by the Borrower in the ordinary course of its business to the extent reinvested
in similar assets or assets of similar or better investment quality.
"Exempted Person" shall mean any of the Persons listed on Schedule 1.1(a).
"Existing Senior Debt" shall mean all Indebtedness and other obligations
of the Borrower under the Credit Agreement, dated as of December 28, 1994,
between First Union and the Borrower, as amended.
"Existing Subordinated Debt" shall mean all Indebtedness and other
obligations of the Borrower under the Loan Agreement, dated as of September 22,
1994, between Sirrom Capital, L.P., as agent, certain lenders party thereto, and
the Borrower, as amended.
"Extraordinary Dividend Amount" shall mean, as of any fiscal quarter end,
with respect to each Insurance Subsidiary other than any Insurance Subsidiary
that itself is a Subsidiary of an Insurance Subsidiary, the aggregate amount of
dividends (other than dividends described in the definition of Available
Dividend Amount) that have been affirmatively approved in writing by the
relevant Department under applicable Requirements of Law to be paid by such
Insurance Subsidiary at any time during the next four fiscal quarters, except to
the extent such dividends have actually been paid to the Borrower on or prior to
such fiscal quarter end.
"FREIM" shall mean Front Royal Environmental Insurance Management, Inc., a
Virginia corporation.
"FRETS" shall mean Front Royal ETS, Inc., a Virginia corporation.
"FRESI" shall mean Front Royal Environmental Services, Inc., a North
Carolina corporation. For purposes of this Agreement, all assets, liabilities,
equity, items of income, loss, revenue and expense and other financial items of
FRESI shall be deemed to include the
-13-
<PAGE>
corresponding financial items of Triangle for so long as Triangle is a Wholly
Owned Subsidiary of FRESI.
"FRIC" shall mean Front Royal Insurance Company, an Ohio corporation,
formerly known as Cardinal Casualty Company.
"Federal Funds Rate" shall mean, for any period, a fluctuating per annum
interest rate (rounded upwards, if necessary, to the nearest 1/100 of one
percentage point) equal for each day during such period to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by the Agent.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System or any successor thereto.
"Fee Letter" shall mean the letter from First Union to the Borrower, dated
November 13, 1996, relating to certain fees payable by the Borrower in respect
of the transactions contemplated by this Agreement, as amended, modified or
supplemented from time to time.
"Financial Condition Certificate" shall mean a financial condition
certificate, substantially in the form of Exhibit I, duly executed by the chief
financial officer of the Borrower.
"Fixed Charge Coverage Ratio" shall mean, as of the last day of any fiscal
quarter, for the period of four consecutive fiscal quarters then ending (the
"Measurement Period"), the ratio of (i) the aggregate of (A) the Available
Dividend Amount of the Insurance Subsidiaries determined with respect to, and as
of the last day of, the Measurement Period (calculated, for the purposes of this
definition only, as if such Measurement Period were an actual fiscal year), plus
(B) the Extraordinary Dividend Amount as of the end of such fiscal quarter, plus
(C) the Net Tax Payments (whether a positive or negative number) of the Borrower
during the Measurement Period, minus (D) the Projected Net Overhead (whether a
positive or negative number) for the period of four fiscal quarters following
the Measurement Period, plus (E) the Combined Net Cash Flow (whether a positive
or negative number) of the Non-Insurance Subsidiaries (other than CMS) for the
Measurement Period (to the extent not already included in item (A), (B), (C), or
(D) above), minus, only with respect to Measurement Periods ending on December
31, (F) the amount of the prepayment required under Section 2.6(f) in respect of
Excess Cash Flow for the Measurement Period, except to the extent the Borrower
had cash on hand at the end of such Measurement Period sufficient to make such
required prepayment, to (ii) the sum of (y) Projected Debt Service for the
period of four fiscal quarters following the Measurement Period, and (z) cash
dividends or
-14-
<PAGE>
similar cash payments projected to be paid in respect of the Series A Preferred
Stock, the Class C Common Stock or the Rights for the period of four fiscal
quarters following the Measurement Period (it being understood that such cash
dividends or cash payments are restricted by Section 6.13(a)(ii)).
"Fort Washington" shall mean Fort Washington Holdings, Inc., a
Pennsylvania corporation, all of the outstanding Capital Stock of which, to the
knowledge of the Borrower, is owned by Charles M. Lederman and Timothy I.
McCarthy, Sr.
"Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles, as set forth in the statements, opinions and
pronouncements of the Accounting Principles Board, the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board (or,
to the extent not so set forth in such statements, opinions and pronouncements,
as generally followed by entities similar in size to the Borrower and engaged in
generally similar lines of business), consistently applied and maintained and in
conformity with those used in the preparation of the most recent financial
statements of the Borrower referred to in Section 4.10(a).
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any central bank thereof, any municipal,
local, city or county government, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Gross Written Premiums" shall mean, with respect to any Insurance
Subsidiary at any time, the amount of premiums written (after deducting or
adding premiums on business ceded to or assumed from others) as shown on line
32, page 9, Part 2B, sum of columns 1, 2a and 2b, of the Annual Statement of
such Insurance Subsidiary, or the amount determined in a consistent manner for
any date other than a date as of which an Annual Statement of such Insurance
Subsidiary is prepared.
"Hamilton" shall mean Hamilton Insurance Company, a Virginia corporation.
"Hazardous Substances" shall mean any substances or materials (i) that are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) that are
defined or classified by any Environmental Law as toxic, explosive, corrosive,
ignitable, infectious, radioactive, mutagenic or otherwise hazardous and are or
become regulated by any Governmental Authority, (iii) the presence of which
require investigation, response or remediation under any Environmental Law, (iv)
that constitute a nuisance or a trespass or pose a health or safety hazard to
Persons or neighboring properties, (v) that consist of underground or
aboveground storage tanks, whether empty, filled or partially filled with any
substance or (vi) that contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde
-15-
<PAGE>
foam insulation, petroleum hydrocarbons, petroleum derived substances or wastes,
crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedge Agreement" shall mean any interest or foreign currency rate swap,
cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Historical Financial Statements" shall have the meaning given to such
term in Section 4.10(a).
"Historical Statutory Statements" shall have the meaning given to such
term in Section 4.10(d).
"Hunter Note" shall mean the Front Royal, Inc. 9.00% Note Due December 31,
1996, dated as of May 19, 1993, from the Borrower to F.R. Group, Inc., in the
original principal amount of $500,000.
"IPO" shall mean the first public offering of common stock of the
Borrower, by the Borrower or through underwriters, whether on a "firm
commitment" or "best efforts" basis, for the account of the Borrower pursuant to
an offering registered with the Securities and Exchange Commission.
"IRIS Tests" shall mean the ratios and other financial measurements
developed by the NAIC under its Insurance Regulatory Information System or, in
lieu thereof, any successor or other substantially similar guidelines intended
to measure the financial performance of companies in the property and casualty
insurance industry, as the same shall be in effect from time to time.
"Indebtedness" shall mean, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money, (ii) all
reimbursement obligations of such Person with respect to surety bonds, letters
of credit and bankers' acceptances (in each case, whether or not matured and in
the stated amount thereof), (iii) all obligations of such Person evidenced by
notes, bonds, debentures or similar instruments, (iv) all obligations of such
Person to pay the deferred purchase price of property or services that, in
accordance with Generally Accepted Accounting Principles, would be required to
be shown on a balance sheet of such Person as a liability, (v) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of a default
are limited to repossession or sale of such property), (vi) all obligations of
such Person under Capital Leases to the extent such obligations are required, in
accordance with Generally Accepted Accounting Principles, to be included on such
Person's balance sheet at the time of determination, (vii) all obligations of
such Person to purchase, redeem, retire, defease or otherwise make any payment
in respect of any capital stock or other equity securities that, by their stated
terms (or by the terms of any equity securities issuable upon
-16-
<PAGE>
conversion thereof or in exchange therefor), or upon the occurrence of any
event, mature or are mandatorily redeemable, or are redeemable at the option of
the holder thereof, in whole or in part, prior to the Maturity Date, (viii) the
net termination obligations of such Person under Hedge Agreements, calculated as
of any date as if such Hedge Agreements were terminated as of such date, (ix)
any Contingent Obligation of such Person, and (x) all indebtedness referred to
in clauses (i) through (ix) above that is nonrecourse to the credit of such
Person but is secured by any property or asset owned or held by such Person, but
in any case only to the extent of the fair market value of the property of such
Person securing such indebtedness; provided, however, that Indebtedness shall
not include (y) amounts payable in the ordinary course of business under the
terms of insurance policies issued, assumed or reinsured by an Insurance
Subsidiary or (z) the Rights (subject to the limitations of Section 6.9(x)).
"Insurance Code" shall mean, with respect to any Insurance Subsidiary, the
insurance code of any state where such Insurance Subsidiary is domiciled or
conducting business, as amended from time to time, and any successor statute,
together with all rules and regulations from time to time promulgated
thereunder.
"Insurance Companies" shall mean each of Colony, FRIC, Hamilton and
Rockwood.
"Insurance Holding Company System Regulatory Act" shall mean the Insurance
Holding Company System Regulatory Act, Section 58-19-1 et seq. of the General
Statutes of North Carolina, as amended from time to time, and any successor
statute, together with all rules and regulations from time to time promulgated
thereunder.
"Insurance Subsidiary" shall mean any Subsidiary of the Borrower the
ability of which to pay dividends is regulated by a Department or other
Governmental Authority or that is otherwise required to be regulated thereby in
accordance with the applicable Requirements of Law of its state of domicile,
including, without limitation, each of FRIC, Colony and Hamilton and, as of the
Closing Date and after giving effect to the Acquisition, Rockwood.
"Interest Period" shall have the meaning given to such term in Section
2.10.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute, and all rules and
regulations from time to time promulgated thereunder.
"Investment Grade Securities" shall mean non-equity securities that are
rated "BBB-" (or the then equivalent grade) or better by Standard & Poor's,
Fitch Investor Services, Inc. or Duff & Phelps Credit Rating Company, "Baa3" (or
the then equivalent grade) or better by Moody's, "2" or better by the NAIC, or
an equivalent rating by an equivalent rating agency selected by the Agent.
"Investments" shall have the meaning given to such term in Section 6.11.
-17-
<PAGE>
"Issuer Group" shall mean any Person and each of the Persons that directly
or indirectly, through one or more intermediaries, owns or controls, is
controlled by or under common control with, such Person. For the purpose of this
definition, with respect to any Person that is controlled through the voting of
securities, "control" means the possession, direct or indirect, of the power to
vote 50% or more of the securities having ordinary voting power for the election
of directors or other managers of such person. Such term shall not include a
Person that is a federal governmental unit, political subdivision thereof or any
federal government agency.
"LIBOR Rate" shall mean, with respect to each LIBOR Loan comprising part
of the same Tranche for any Interest Period, an interest rate per annum obtained
by dividing (i) (y) the rate of interest appearing on Telerate Page 3750 (or any
successor page) or (z) if no such rate is available, or at the option of the
Agent in any event, the rate of interest determined by the Agent to be the rate
or the arithmetic mean of rates at which Dollar deposits in immediately
available funds are offered by First Union to first-tier banks in the London
interbank Eurodollar market, in each case under (y) and (z) above at
approximately 11:00 a.m., London time, two (2) Business Days prior to the first
day of such Interest Period for a period substantially equal to such Interest
Period and in an amount substantially equal to the amount of First Union's Loan
comprising part of such Tranche, by (ii) the amount equal to 1.00 minus the
Reserve Requirement for such Interest Period. The LIBOR Rate shall be rounded to
the next higher 1/100 of one percentage point.
"Lender" shall mean each financial institution signatory hereto and each
other financial institution that becomes a "Lender" hereunder pursuant to
Section 9.7, and their respective successors and assigns.
"Lending Office" shall mean, with respect to any Lender, the office of
such Lender designated as its "Lending Office" on its signature page hereto or
in an Assignment and Acceptance, or such other office as may be otherwise
designated in writing from time to time by such Lender to the Borrower and the
Agent.
"Licenses" shall have the meaning given to such term in Section 4.4(c).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
security interest, lien (statutory or otherwise), preference, priority, charge
or other encumbrance of any nature, whether voluntary or involuntary, including,
without limitation, the interest of any vendor or lessor under any conditional
sale agreement, title retention agreement, capital lease or any other lease or
arrangement having substantially the same effect as any of the foregoing, and
the filing of any financing statement or similar statement or notice under the
applicable Uniform Commercial Code or comparable recording statute of any
jurisdiction securing or purporting to secure any Indebtedness.
"Loans" shall have the meaning given to such term in Section 2.1.
-18-
<PAGE>
"Loan Documents" shall mean and collectively refer to this Agreement, the
Term Notes, the Borrower Pledge and Security Agreement, the Borrower Collateral
Assignment of Agreements, the Subsidiaries Collateral Assignment of Agreements,
the Escrow Agreement, the Subsidiaries Guaranty, any Hedge Agreement entered
into by the Borrower in respect of the Obligations (but only so long as such
Hedge Agreement is entered into with a Lender as counterparty) and any and all
other agreements, certificates, instruments and documents, heretofore, now or
hereafter executed by or in behalf of the Borrower or any of its Subsidiaries
and delivered to the Agent or any Lender with respect to any of the foregoing or
with respect to the transactions contemplated hereby or thereby (other than the
Transaction Documents), and in each case, together with any amendments,
modifications and supplements thereto and restatements thereof, in whole or in
part.
"Margin Stock" shall have the meaning given to such term in Regulation U.
"Material Adverse Change" shall mean (i) with reference to any time or
period prior to the Closing Date, a material adverse change in the condition
(financial or otherwise), operations, business, properties or prospects of (a)
the Borrower or the Borrower and its Subsidiaries, taken as a whole, or (b)
Rockwood or Rockwood and its Subsidiaries, taken as a whole, and (ii) with
reference to any time or period from and after the Closing Date, a material
adverse change in the condition (financial or otherwise), operations, business,
properties or prospects of the Borrower or the Borrower and its Subsidiaries,
taken as a whole.
"Material Adverse Effect" shall mean (i) with reference to any time or
period prior to the Closing Date, a material adverse effect upon the condition
(financial or otherwise), operations, business, properties or prospects of (a)
the Borrower or the Borrower and its Subsidiaries, taken as a whole, or (b)
Rockwood or Rockwood and its Subsidiaries, taken as a whole, and (ii) with
reference to any time or period from and after the Closing Date, a material
adverse effect upon (a) the condition (financial or otherwise), operations,
business, properties or prospects of the Borrower or the Borrower and its
Subsidiaries, taken as a whole, (b) the ability of the Borrower or any of its
Subsidiaries to perform its obligations under any Loan Document or Transaction
Document to which it is a party, (c) the legality, validity or enforceability of
any Loan Document or Transaction Document, in each case as to the obligations of
the Borrower or any of its Subsidiaries thereunder, or (d) the perfection or
priority of the Liens granted to the Agent for the benefit of the Lenders under
the Loan Documents or the rights and remedies of the Agent and Lenders under the
Loan Documents; except, in the case of clauses (c) and (d) above, to the extent
any such effect is caused by any act or omission on the part of the Agent or
Lenders.
"Material Asset" shall have the meaning given to such term in Section 6.8.
"Maturity Date" shall mean the thirtieth (30th) day prior to the seventh
anniversary of the Closing Date.
-19-
<PAGE>
"Multiemployer Plan" shall mean any "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA that is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA to which the Borrower, any of its
Subsidiaries or any ERISA Affiliate makes, is making or is obligated to make
contributions or has made or been obligated to make contributions.
Notwithstanding the foregoing, the term "Multiemployer Plan" shall not include
any such multiemployer plan to which any Subsidiary or ERISA Affiliate
contributed or was obligated to make contributions before (but not after) it
became a Subsidiary or ERISA Affiliate.
"NAIC" shall mean the National Association of Insurance Commissioners and
any successor thereto.
"Net Cash Proceeds" shall mean, with respect to any Asset Disposition or
Equity Issuance, cash payments received net of reasonable accounting, legal and
recording expenses, selling and brokerage commissions and discounts and
underwriting fees and other reasonable fees and expenses incurred in connection
with such disposition, issuance or sale (but only to the extent that the amounts
so deducted are paid to a Person not an Affiliate of the Borrower); provided,
that Net Cash Proceeds from an Asset Disposition shall be further reduced (i) in
the amount of any income or transfer taxes paid or reasonably estimated by the
Borrower to be payable by the Borrower and its Subsidiaries as a result of such
Asset Disposition and (ii) to the extent the proceeds are used to pay principal
of, and premium and interest on, any Indebtedness that is secured by a Permitted
Lien on the property that is the subject of such Asset Disposition and to the
extent that such Indebtedness is required by the transferee of such Asset
Disposition to be paid as a condition thereto.
"Net Income" shall mean, with respect to any Person for any period, the
net income (or loss) of such Person for such period, determined in accordance
with Generally Accepted Accounting Principles.
"Net Overhead" shall mean, for any period, the difference of (i) the
aggregate of all operating costs and expenses of the Borrower and CMS
(including, without limitation, for rent, utilities, taxes and payroll) incurred
or paid by the Borrower or CMS during such period on behalf of the Insurance
Subsidiaries, other than payments of interest in respect of Indebtedness, minus
(ii) the aggregate of all management, servicing and other administrative fees
paid by the Insurance Subsidiaries to the Borrower or CMS during such period,
including, without limitation, all amounts paid under the Services Agreements.
"Net Tax Payments" shall mean (i) the aggregate amounts paid or reasonably
estimated to be paid to the Borrower by its Subsidiaries pursuant to the Tax
Allocation Agreements, or other tax sharing or allocation agreements or
arrangements in effect, in respect of taxable income realized during a
Measurement Period, less (ii) Tax Payments paid or reasonably estimated to be
paid by the Borrower in respect of taxable income realized during such
Measurement Period.
-20-
<PAGE>
"Net Written Premiums" shall mean, with respect to any Insurance
Subsidiary at any time, the amount of premiums written (after deducting or
adding premiums on business ceded to or assumed from others) as shown on line
32, page 8, Part 2B, column 4 of the Annual Statement of such Insurance
Subsidiary, or the amount determined in a consistent manner for any date other
than a date as of which an Annual Statement of such Insurance Subsidiary is
prepared.
"Non-Insurance Subsidiary" shall mean any Subsidiary of the Borrower other
than an Insurance Subsidiary.
"Non-Investment Grade Securities" shall mean non-equity securities that
are rated lower than "BBB-" (or the then equivalent grade), but no lower than
"B-" (or the then equivalent grade), by Standard & Poor's, Fitch Investor
Services, Inc. or Duff & Phelps Credit Rating Company, lower than "Baa3" (or the
then equivalent grade), but no lower than "B3" (or the then equivalent grade),
by Moody's, "3" or "4" by the NAIC, or an equivalent rating by an equivalent
rating agency selected by the Agent.
"Notice of Conversion/Continuation" shall have the meaning given to such
term in Section 2.11(b).
"Obligations" shall mean all indebtedness, liabilities and obligations
owing, due or payable from the Borrower to the Agent, any Lender or any other
Person entitled thereto, of any kind or nature, under this Agreement or any of
the other Loan Documents, direct or indirect, absolute or contingent, primary or
secondary, now existing or hereafter arising and however acquired (including
those acquired by assignment), including, without limitation, all principal of
and interest (including, to the greatest extent permitted by law, post-petition
interest) on the Loans and all fees, expenses and other amounts payable by the
Borrower under this Agreement or any of the other Loan Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
successor thereto.
"PIC" shall have the meaning given to such term in the recitals hereof.
"Participant" shall have the meaning given to such term in Section 9.7(d).
"Pension Plan" shall mean any "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA (other than a Multiemployer Plan subject to the
provisions of Title IV of ERISA) and to which the Borrower, any of its
Subsidiaries or any ERISA Affiliate may have any liability. Notwithstanding the
foregoing, the term "Pension Plan" shall not include any such employee pension
benefit plan with respect to which any Subsidiary or ERISA Affiliate may have
any liability attributable to periods before (but not after) it became a
Subsidiary or ERISA Affiliate.
-21-
<PAGE>
"Permitted Liens" shall mean any of the following types of Liens:
(a) Liens created by the Loan Documents;
(b) Liens set forth on Schedule 1.1(b);
(c) Liens securing letters of credit issued for the benefit of the
Insurance Subsidiaries in the ordinary course of their business to secure
reinsurance obligations;
(d) Liens imposed by law, such as Liens of carriers, warehousemen,
mechanics and materialmen, and other similar Liens in respect of property
of the Borrower or any of its Subsidiaries, incurred in the ordinary
course of business for sums not constituting borrowed money, that do not
materially detract from the value of such property and that are being
contested in good faith by appropriate proceedings (which proceedings have
the effect of preventing the forfeiture or sale of the property subject to
such Lien) and for which adequate reserves have been established in
accordance with Generally Accepted Accounting Principles or other
appropriate provision made therefor;
(e) Liens (other than any Lien imposed by ERISA) incurred in the
ordinary course of business in connection with worker's compensation,
unemployment insurance or other forms of governmental insurance or
benefits;
(f) Liens for current taxes, assessments or other governmental
charges that are not delinquent or remain payable without any penalty, or
to the extent that the nonpayment thereof is permitted by Section 5.8;
(g) Purchase money Liens upon property used by the Borrower or any
Subsidiary of the Borrower in the ordinary course of its business,
securing Indebtedness incurred solely to pay all or a portion of the
purchase price thereof to the extent such Indebtedness is permitted under
Section 6.9(ix), provided that any such Lien (i) shall attach to such
property concurrently or within ten (10) days after the acquisition
thereof by the Borrower or such Subsidiary, (ii) shall not exceed the
lesser of (y) the fair market value of such property (as determined in
good faith by the board of directors of the Borrower or such Subsidiary)
as of the time of acquisition of such property or (z) the cost thereof to
the Borrower or such Subsidiary and (iii) shall not encumber any other
property of the Borrower or any Subsidiary of the Borrower;
(h) Liens securing Capital Lease Obligations to the extent such
Capital Lease Obligations are permitted under Section 6.9(ix), provided
that any such Lien (i) shall secure only the payment of the Indebtedness
under the respective Capital Lease and (ii) shall not encumber any other
property of the Borrower or any Subsidiary of the Borrower;
-22-
<PAGE>
(i) With respect to any real property, all easements, rights of way,
restrictions (including zoning restrictions), minor defects and similar
encumbrances on title that do not materially impair the use of such
property for its intended purposes;
(j) Any attachment or judgment Lien not constituting an Event of
Default under Section 7.1(1) and that is being contested in good faith by
appropriate proceedings and for which adequate reserves have been
established in accordance with Generally Accepted Accounting Principles or
other appropriate provision made therefor;
(k) Any other Liens that the Required Lenders may approve in writing
from time to time; and
(l) Liens securing the Existing Senior Debt, provided that such
Liens shall be terminated promptly following the Closing Date.
"Person" shall mean any corporation, association, joint venture,
partnership, limited liability company, organization, business, individual,
trust, government or agency or political subdivision thereof or any other legal
entity.
"Premier" shall mean Premier Auto Insurance Company, a Pennsylvania stock
insurance company, formerly known as Somerset Casualty Insurance Company.
"Prepayment Event" shall have the meaning given to such term in Section
2.6(h).
"Pro Forma Balance Sheet" shall mean the pro forma consolidated balance
sheet of the Borrower and its Subsidiaries required to be attached to the
Financial Condition Certificate.
"Prohibited Transaction" shall mean any transaction described in (i)
Section 406 of ERISA that is not exempt by reason of Section 408 of ERISA or by
reason of a Department of Labor prohibited transaction individual or class
exemption or (ii) Section 4975(c) of the Internal Revenue Code that is not
exempt by reason of Section 4975(c)(2) or 4975(d) of the Internal Revenue Code.
"Projected Debt Service" shall mean, as of the last day of any fiscal
quarter, for the period of four consecutive fiscal quarters following such date,
an amount equal to the aggregate (without duplication) of all scheduled
principal and interest reasonably estimated by the Borrower (and as set forth in
the relevant Covenant Compliance Worksheet) to be required to be paid by the
Borrower and its Subsidiaries during such four-quarter period in respect of
Indebtedness (including, without limitation, the Loans), based on interest rates
in effect and being paid as of the date of determination.
"Projected Net Overhead" shall mean, as of the last day of any fiscal
quarter, for the period of four consecutive fiscal quarters following such date,
an amount equal to the
-23-
<PAGE>
difference of (i) the aggregate of all operating costs and expenses of the
Borrower and CMS (including, without limitation, for rent, utilities, taxes and
payroll) reasonably estimated by the Borrower (and as set forth in the relevant
Covenant Compliance Worksheet) to be required to be incurred or paid by the
Borrower or CMS during such four-quarter period on behalf of the Insurance
Subsidiaries, other than payments of interest in respect of Indebtedness, minus
(ii) the aggregate of all management, servicing and other administrative fees
reasonably estimated by the Borrower (and as set forth in the relevant Covenant
Compliance Worksheet) to be required to be paid by the Insurance Subsidiaries to
the Borrower or CMS during such four-quarter period, including, without
limitation, all amounts required to be paid during such four-quarter period
under the Services Agreements.
"Projections" shall have the meaning given to such term in Section
4.10(c).
"Qualified Plan" shall mean any Pension Plan that is intended to be
tax-qualified under Section 401(a) of the Internal Revenue Code, and the trust
created thereunder that is intended to be tax-exempt under Section 501(a) of the
Internal Revenue Code, and that the Borrower, any of its Subsidiaries or any
ERISA Affiliate sponsors or maintains or to which it makes or is obligated to
make contributions, or, in the case of a "multiple employer plan" within the
meaning of Section 4064(a) of ERISA, has made contributions at any time during
the immediately preceding five-plan year period, but excluding any Multiemployer
Plan.
"Quarterly Statement" shall mean, with respect to any Insurance Company
for any fiscal quarter, the quarterly financial statements of such Insurance
Company as required to be filed with the Department of its state of domicile,
together with all exhibits, schedules, certificates and actuarial opinions
required to be filed or delivered therewith.
"Register" shall have the meaning given to such term in Section 9.7(b).
"Regulations D, G, T, U and X" shall mean Regulations D, G, T, U and X of
the Federal Reserve Board or any successor or other regulation relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Reinsurance Agreement" shall mean any agreement, contract, treaty,
certificate or other arrangement whereby an Insurance Subsidiary agrees to
transfer, cede or retrocede to another insurer or reinsurer all or part of the
liability assumed by such an Insurance Subsidiary under a policy or policies of
insurance issued by such an Insurance Subsidiary.
"Reportable Event" shall mean (i) any "reportable event" within the
meaning of Section 4043(c) of ERISA for which the 30-day notice under Section
4043(a) of ERISA has not been waived by the PBGC (including any failure to meet
the minimum funding standard of, or timely make any required installment under,
Section 412 of the Internal Revenue Code or Section 302 of ERISA, regardless of
the issuance of any waivers in accordance with Section 412(d) of the Internal
Revenue Code), (ii) any such "reportable event" subject to advance notice to the
PBGC under Section 4043(b)(3) of ERISA, (iii) any application for a
-24-
<PAGE>
funding waiver or an extension of any amortization period pursuant to Section
412 of the Internal Revenue Code, and (iv) a cessation of operations described
in Section 4062(e) of ERISA.
"Required Lenders" shall mean the Lenders holding outstanding Loans or,
prior to the Closing Date, Commitments, representing more than sixty-six and
two-thirds percent (66-2/3%) of the aggregate at such time of all outstanding
Loans or Commitments.
"Requirement of Law" shall mean, with respect to any Person, the charter,
articles or certificate of organization or incorporation and bylaws or other
organizational or governing documents of such Person, and any statute, law,
treaty, rule, regulation, order, decree, writ, injunction or determination of
any arbitrator or court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject or otherwise pertaining to any or all of the
transactions contemplated by this Agreement and the other Loan Documents.
"Reserve Requirement" shall mean, with respect to any Interest Period, the
reserve percentage (expressed as a decimal rounded to the next higher 1/100 of
1%) in effect for any day during such Interest Period, as provided by the
Federal Reserve Board, applied for determining the maximum reserve requirements
(including, without limitation, basic, supplemental, marginal and emergency
reserves) applicable to First Union under Regulation D with respect to
"Eurocurrency liabilities" within the meaning of Regulation D, or under any
similar or successor regulation with respect to Eurocurrency liabilities or
Eurocurrency funding.
"Responsible Officer" shall mean, when used herein or in any other Loan
Document to specify individuals having knowledge of the subject matter of any
representation, warranty, obligation or other matter, the president, chief
financial officer, or any vice president responsible for either claims or human
resources of the Borrower or any of its Subsidiaries who has actual knowledge,
or who, in the course of the normal performance of his operational
responsibilities, would have knowledge, of such subject matter and the
requirements with respect thereto.
"Rights" shall mean the rights issued in connection with the Class C
Common Stock as set forth in a rights agreement or similar document.
"Rockwood" shall have the meaning given to such term in the recitals
hereof.
"Sellers" shall mean PIC and Trirock.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock, par value $100 per share, of the Borrower issued to PIC on the Closing
Date, the terms of which are set forth in the Amended Charter.
-25-
<PAGE>
"Services Agreements" shall mean the Current Services Agreements and any
similar service, management or other agreement or arrangement entered into after
the date hereof between CMS or the Borrower and any of their Subsidiaries and
approved by each relevant Department or other Governmental Authority having
jurisdiction, in each case without regard to any amendments, modifications or
supplements thereto or restatements thereof other than those approved by the
Required Lenders pursuant to the terms hereof.
"Solvent" shall mean, with respect to any Person at any time, that such
Person (i) has capital sufficient to carry on its business as presently
conducted and as then proposed to be conducted, (ii) has assets with a fair
saleable value at such time (A) not less than the amount required to pay the
probable liability on its then existing debts as they become absolute and
matured and (B) greater than the total amount of its liabilities (including
identified contingent liabilities) at such time, and (iii) does not then intend
to, and does not then believe that it will, incur debts or liabilities beyond
its ability to pay such debts and liabilities as they mature; and, in the case
of an Insurance Subsidiary, shall mean in addition that such Insurance
Subsidiary, at such time, satisfies the minimum capital requirements of each
relevant Department.
"Special Dividend" shall mean the distribution by Rockwood of $8,500,000
contemporaneously with the Acquisition pursuant to Section 2.3(b) of the Stock
Purchase Agreement.
"Statutory Accounting Principles" shall mean, with respect to any
Insurance Subsidiary, the statutory accounting practices prescribed or permitted
by the relevant Department, consistently applied and maintained and as
applicable to the facts and circumstances on the date of determination.
"Statutory Liabilities" shall mean, with respect to any Insurance
Subsidiary at any time, the amount shown on line 21, page 3, column 1 of the
Annual Statement of such Insurance Subsidiary, or the amount determined in a
consistent manner for any date other than a date as of which an Annual Statement
of such Insurance Subsidiary is prepared.
"Statutory Net Income" shall mean, with respect to any Insurance
Subsidiary for any period, the amount shown on line 16, page 4, column 1 of the
Annual Statement of such Insurance Subsidiary for such period, or the amount
determined in a consistent manner for any period other than a period for which
an Annual Statement of such Insurance Subsidiary is prepared.
"Stock Purchase Agreement" shall have the meaning given to such term in
the recitals hereof.
"Subscription Agreement" shall mean the agreement pursuant to which the
Class C Common Stock, Rights and Warrants are issued.
-26-
<PAGE>
"Subsidiaries Collateral Assignment of Agreements" shall mean the
Collateral Assignment of Agreements, dated as of the Closing Date, made by the
Non-Insurance Subsidiaries in favor of the Agent and Lenders, in substantially
the form of Exhibit F-2, as amended, modified or supplemented from time to time.
"Subsidiaries Guaranty" shall mean the Subsidiaries Guaranty, dated as of
the Closing Date, made by the Non-Insurance Subsidiaries in favor of the Agent
and Lenders, in substantially the form of Exhibit E, as amended, modified or
supplemented from time to time.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other Person of which more than fifty percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of
directors, in the case of a corporation, or of the ownership or beneficial
interests, in the case of a Person not a corporation, is at the time, directly
or indirectly, owned or controlled by such Person and one or more of its other
Subsidiaries or a combination thereof (irrespective of whether, at the time,
securities of any other class or classes of any such corporation or other Person
shall or might have voting power by reason of the happening of any contingency).
When used without reference to a parent entity, the term "Subsidiary" shall be
deemed to refer to a Subsidiary of the Borrower.
"Surviving Indebtedness" shall have the meaning given to such term in
Section 3.11(j).
"Tax Allocation Agreements" shall mean, collectively, (i) the Tax
Allocation Agreement, dated as of December 12, 1994, between the Borrower and
Colony, (ii) the Tax Allocation Agreement, dated as of December 12, 1994,
between the Borrower and Hamilton, (iii) the Tax Allocation Agreement, dated as
of November 22, 1994, between the Borrower and FRIC, and (iv) Tax Allocation
Agreement, in form and substance reasonably satisfactory to the Required Lenders
to be executed on or promptly following the Closing Date, between the Borrower
and Rockwood, in each case without regard to any amendments, modifications or
supplements thereto or restatements thereof other than those approved by the
Required Lenders pursuant to the terms hereof.
"Tax Payments" shall mean, for any period, the aggregate (without
duplication) of all federal, state and local income, franchise and other taxes
required to be deducted from consolidated revenue of the Borrower and its
Subsidiaries in determining Consolidated Net Income for such period.
"Term Notes" shall mean the promissory notes of the Borrower in
substantially the form of Exhibit A, executed and delivered to the Lenders
pursuant to Section 2.4(a), together with any amendments, modifications and
supplements thereto and restatements thereof, in whole or in part.
-27-
<PAGE>
"Tranche" shall mean any part or all of the Loans of a single Type and, in
the case of LIBOR Loans, as to which a single Interest Period is in effect.
"Transaction Documents" shall mean, collectively, (i) this Agreement and
the other Loan Documents, (ii) the Stock Purchase Agreement and the documents
and instruments required by the terms of the Stock Purchase Agreement to be
executed and delivered by the parties in connection with the closing of the
transactions contemplated thereby, including, without limitation, the
Shareholders and Registration Rights Agreement, Lease and Non-Competition and
Non-Solicitation Agreements (each as defined in the Stock Purchase Agreement),
(iii) the Tax Allocation Agreements, the Current Services Agreements, and the
Employment Agreements, (iv) the Equity Documents and (v) any and all other
agreements, certificates, instruments and documents, heretofore, now or
hereafter executed by or in behalf of the Borrower or any of its Subsidiaries
with respect to any of the foregoing or with respect to the transactions
contemplated thereby or any of the other Transactions, in each case without
regard to any amendments, modifications or supplements thereto or restatements
thereof other than those approved by the Required Lenders pursuant to the terms
hereof.
"Transactions" shall mean, collectively, the transactions contemplated by
the Transaction Documents, including (i) the making of the Loans, (ii) the
Acquisition, (iii) the prepayment of the Existing Senior Debt, the Existing
Subordinated Debt, and the Hunter Note, (iv) the issuance of securities
including Class C Common Stock, Rights and Warrants pursuant to the Equity
Documents, and (v) the payment of permitted fees and expenses in connection with
the foregoing.
"Triangle" shall mean Triangle Engineering, Inc., a North Carolina
corporation.
"Trirock" shall have the meaning given to such term in the recitals
hereof.
"Type" shall have the meaning given to such term in Section 2.2(a).
"Unfunded Pension Liabilities" shall mean the excess of a Pension Plan's
accrued benefits, within the meaning of Section 3(23) of ERISA, over the current
value of its assets, within the meaning of Section 3(26) of ERISA.
"Uniform Commercial Code" shall mean the Uniform Commercial Code of the
State of North Carolina, as amended from time to time, unless in any particular
instance the Uniform Commercial Code of another state is applicable, in which
case such term shall mean the Uniform Commercial Code of such state.
"Wachovia Indebtedness" shall mean the Indebtedness, in the maximum
aggregate principal amount of $650,000, owed by FRESI to Wachovia Bank of North
Carolina, N.A. pursuant to the Wachovia Notes and secured by accounts receivable
and other assets of FRESI and guaranteed by the Borrower and FREIM.
-28-
<PAGE>
"Wachovia Notes" shall mean (i) the Note and Security Agreement, dated as
of April 9, 1996, from FRESI to Wachovia Bank of North Carolina, N.A., providing
for a line of credit in favor of FRESI in the original maximum principal amount
of $425,000, and (ii) the Note and Security Agreement, dated as of April 9,
1996, from FRESI to Wachovia Bank of North Carolina, N.A., providing for a term
loan to FRESI in the original principal amount of $225,000, in each case without
regard to any amendments, modifications or supplements thereto or restatements
thereof other than those approved by the Required Lenders pursuant to the terms
hereof.
"Warrants" shall mean the Warrants of the Borrower issued pursuant to the
terms of the Equity Documents.
"Wholly Owned" shall mean, with respect to any Subsidiary of any Person,
that 100% of the outstanding Capital Stock of such Subsidiary is owned, directly
or indirectly, by such Person.
"Withdrawal Liabilities" shall mean, as of any determination date, the
aggregate amount of the liabilities, if any, pursuant to Section 4021 of ERISA,
if the Borrower, each of its Subsidiaries and each ERISA Affiliate made a
complete withdrawal from all Multiemployer Plans, and any increase in
contributions pursuant to Section 4243 of ERISA.
1.2. Accounting Terms. Except as specifically provided otherwise in this
Agreement, all accounting terms used herein that are not specifically defined
shall have the meanings customarily given them in accordance with Generally
Accepted Accounting Principles (or, to the extent that such terms apply solely
to any Insurance Subsidiary or if otherwise expressly required, Statutory
Accounting Principles) as then in effect. Notwithstanding the foregoing, in the
event that any changes in Generally Accepted Accounting Principles or Statutory
Accounting Principles after the date hereof are required to be applied to the
transactions described herein and would materially affect the computation of the
financial covenants contained in Sections 6.1 through 6.7, as applicable, such
changes shall be followed only from and after the date this Agreement shall have
been amended to take into account any such changes. References to amounts on
particular exhibits, schedules, lines, pages and columns of any Annual Statement
or Quarterly Statement are based on the format promulgated by the NAIC for the
1995 Annual Statements and Quarterly Statements. In the event such format is
changed in future years so that different information is contained in such items
or they no longer exist, or if the Annual Statement or Quarterly Statement is
replaced by the NAIC or by any Department after the date hereof such that
different forms of financial statements are required to be furnished by the
Insurance Subsidiaries in lieu thereof, such references shall be to information
consistent with that reported in the referenced item in the 1995 Annual
Statements or Quarterly Statements, as the case may be.
1.3. Other Terms: Construction. Unless otherwise specified or unless the
context otherwise requires, all references herein to sections, annexes,
schedules and exhibits are references to sections, annexes, schedules and
exhibits in and to this Agreement, and all
-29-
<PAGE>
terms defined in this Agreement shall have the defined meanings when used in any
other Loan Document or any certificate or other document made or delivered
pursuant hereto.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.1. Loans. Each Lender severally agrees, subject to and on the terms and
conditions of this Agreement, to make a term loan (each, a "Loan," and
collectively, the "Loans") to the Borrower on the Closing Date in a principal
amount not to exceed its Commitment. No Loans shall be made at any time after
the Closing Date. To the extent repaid, the Loans may not be reborrowed.
2.2. Borrowing. (a) The Loans shall, at the option of the Borrower and
subject to the terms and conditions of this Agreement, be either Base Rate Loans
or LIBOR Loans (each, a "Type" of Loan) or a combination thereof, provided that,
notwithstanding any other provision of this Agreement, the Loans shall be made
initially as Base Rate Loans.
(b) The Borrower hereby requests a borrowing of the Loans on the Closing
Date in an amount equal to the aggregate Commitments. Not later than 2:00 p.m.,
Charlotte time, on the Closing Date, each Lender will make available to the
Agent at its office referred to in Section 9.5 (or at such other location as the
Agent may designate) an amount, in Dollars and in immediately available funds,
equal to the Commitment of such Lender. To the extent the Lenders have made such
amounts available to the Agent as provided hereinabove, the Agent will make the
aggregate of such amounts available to the Borrower in accordance with Section
2.3(a) and in like funds as received by the Agent.
2.3. Disbursements: Funding Reliance: Domicile of Loans. (a) The Borrower
hereby authorizes the Agent to disburse the proceeds of the Loans in accordance
with the terms of any written instructions from any of the Authorized Officers,
provided that the Agent shall not be obligated under any circumstances to
forward amounts to any account not listed in the Account Designation Leher.
(b) Unless the Agent has received, prior to 2:00 p.m., Charlotte time, on
the Closing Date, written notice from a Lender that such Lender will not make
available to the Agent such Lender's ratable portion of the borrowing to be made
on the Closing Date, the Agent may assume that such Lender has made such portion
available to the Agent in immediately available funds on the Closing Date in
accordance with the provisions of Section 2.2(b), and the Agent may, in reliance
upon such assumption, but shall not be obligated to, make a corresponding amount
available to the Borrower on the Closing Date. If and to the extent that such
Lender shall not have made such portion available to the Agent, and the Agent
shall have made such corresponding amount available to the Borrower, such
Lender, on the one hand, and the Borrower, on the other, severally agree to pay
to the Agent forthwith on demand such corresponding amount, together with
interest thereon for each day
-30-
<PAGE>
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, (i) in the case of such Lender, at the Federal
Funds Rate, and (ii) in the case of the Borrower, at the Adjusted Base Rate. If
such Lender shall repay to the Agent such corresponding amount, such amount
shall constitute such Lender's Loan as part of such borrowing for purposes of
this Agreement. The failure of any Lender to make any Loan required to be made
by it as part of such borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Loan as part of such borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the Loan
to be made by such other Lender as part of such borrowing.
(c) Subject to Section 2.19, each Lender may, at its option, make and
maintain its Loan or any portion thereof at, to or for the account of any of its
Lending Offices, provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan to or for the account of such
Lender in accordance with the terms of this Agreement.
2.4. Term Notes. (a) The Loan made by each Lender shall be evidenced by a
Term Note appropriately completed in substantially the form of Exhibit A. Each
Term Note issued to a Lender shall (i) be executed by the Borrower, (ii) be
payable to the order of such Lender, (iii) be dated as of the Closing Date, (iv)
be in a stated principal amount equal to such Lender's Commitment (or, in the
case of a Term Note issued after the Closing Date, in an amount equal to the
unpaid principal amount of such Lender's Loan), (v) bear interest in accordance
with the provisions of Section 2.8, and (vi) be entitled to all of the benefits
of this Agreement and the other Loan Documents and subject to the provisions
hereof and thereof.
(b) Each Lender will record on its internal records each payment received
by it in respect thereof and will, in the event of any transfer of part or all
of its Term Note, either endorse on the reverse side thereof or on a schedule
attached thereto (or any continuation thereof) the outstanding principal amount
of the Loan evidenced thereby as of the date of transfer or provide such
information on a schedule to the Assignment and Acceptance relating to such
transfer; provided, however, that the failure of any Lender to make any such
recordation or provide any such information, or any error therein, shall not
affect the Borrower's obligations under this Agreement or the Term Notes.
2.5. Termination of Commitments. The Commitments shall be automatically
and permanently terminated at 5:00 p.m., Charlotte time, on the earlier of (i)
January 31, 1997, (ii) the tenth Business Day following receipt of the
approvals, permits and consents required pursuant to Section 3.1(f), and (iii)
the Closing Date.
2.6. Mandatory Repayments and Prepayments. (a) Except to the extent due or
made sooner pursuant to the provisions of this Agreement, the Borrower will
repay the aggregate outstanding principal of the Loans in the amounts and on the
dates set forth below:
-31-
<PAGE>
Date Payment Amount
---- --------------
July 1, 1997 $1,250,000
January 2, 1998 $1,250,000
July 1, 1998 $2,125,000
January 2, 1999 $2,125,000
July 1, 1999 $2,500,000
January 2, 2000 $2,500,000
July 1, 2000 $3,000,000
January 2, 2001 $3,000,000
July 1, 2001 $3,125,000
January 2, 2002 $3,125,000
July 1, 2002 $3,500,000
January 2, 2003 $3,500,000
July 1, 2003 $3,500,000
Maturity Date $3,500,000
(b) To the extent not previously paid, and except to the extent due or
made sooner pursuant to the provisions of this Agreement, the aggregate
outstanding principal of the Loans shall be due and payable on the Maturity
Date.
(c) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding principal
amount of the Loans in an amount equal to 50% of the Net Cash Proceeds from any
Equity Issuance (other than an IPO) and will deliver to the Agent, concurrently
with such prepayment, a certificate signed by its chief financial officer in
form and substance satisfactory to the Agent and setting forth the calculation
of such Net Cash Proceeds; provided, however, that no prepayment pursuant to
this Section 2.6(c) shall be required from the first $250,000 of Net Cash
Proceeds from any such Equity Issuance in each fiscal year, up to an aggregate
limit of $750,000 of Net Cash Proceeds excluded pursuant to this proviso;
provided, further, that no prepayment pursuant to this Section 2.6(c) must be
made prior to the last Business Day of the fiscal quarter in which the Equity
Issuance takes place, unless the aggregate amount of the required prepayments
pursuant to this Section 2.6(c) shall be greater than $50,000.
(d) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding principal
amount of the Loans with the Net Cash Proceeds from an IPO in an amount equal to
the lesser of (i) 75% of such Net Cash Proceeds or (ii) an amount such that the
Capitalization Ratio, determined as of the last day of the fiscal quarter most
recently ended and after giving pro forma effect to the consummation of the
offering and such prepayment of the Loans as if such transactions were effected
on such date, would equal 0.20 to 1.0; provided, however, that no such
prepayment shall be required in the event that the Capitalization Ratio as of
the last day of the fiscal quarter most recently ended, determined on a pro
forma basis after giving effect to the consummation of the IPO (but without
giving pro forma effect to any prepayment of the
-32-
<PAGE>
Loans out of such Net Cash Proceeds), would equal not more than 0.20 to 1.0.
Concurrently with such prepayment, the Borrower will deliver to the Agent a
certificate signed by its chief financial officer in form and substance
satisfactory to the Agent and setting forth the calculation of such Net Cash
Proceeds.
(e) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding principal
amount of the Loans in an amount equal to 100% of the Net Cash Proceeds from any
Asset Disposition and will deliver to the Agent, concurrently with such
prepayment, a certificate signed by its chief financial officer in form and
substance satisfactory to the Agent and setting forth the calculation of such
Net Cash Proceeds; provided, however, that no prepayment pursuant to this
Section 2.6(e) shall be required from (i) the sale of the Capital Stock of
Premier to Fort Washington as permitted by Section 6.8(i), (ii) any sale of the
Capital Stock of Hamilton as permitted by Section 6.8(ii) or (iii) the first
$2,000,000 of Net Cash Proceeds from other Asset Dispositions in each fiscal
year. Notwithstanding the foregoing, nothing in this subsection shall be deemed
to permit any Asset Disposition not expressly permitted under Section 6.8
(f) Concurrently with the delivery of its annual financial statements
after the end of each fiscal year, beginning with the fiscal year ending
December 31, 1997, and in any event not later than one hundred twenty (120) days
after the last day of each such fiscal year, the Borrower will prepay the
outstanding principal amount of the Loans in an amount equal to 35% of Excess
Cash Flow, if any, for such fiscal year and will deliver to the Agent,
concurrently with such prepayment, a certificate, substantially in the form of
Exhibit B, signed by its chief financial officer and setting forth the
calculation of such Excess Cash Flow; provided, however, that no such prepayment
shall be required under this subsection with respect to the fiscal year ending
December 31, 1997 if the Earnings Coverage Ratio is greater than or equal to
1.55 to 1.0 as of the last day of such fiscal year.
(g) Promptly upon (and in any event not later than two (2) Business Days
after) its receipt thereof, the Borrower will prepay the outstanding principal
amount of the Loans in an amount equal to 100% of all amounts (including
interest), if any, received by the Borrower pursuant to Section 2.2(b) of the
Stock Purchase Agreement as a return of the escrowed portion of the purchase
price for the Acquisition.
(h) Each prepayment of the Loans made pursuant to subsections (c) through
(g) above (each, a "Prepayment Event") shall be applied to reduce the
outstanding principal amount of the Loans, with each such reduction to be
applied to the scheduled principal payments on the Loans (as set forth in
subsection (a) above) in the inverse order of maturity. Each such prepayment
shall be applied ratably among the Lenders in proportion to the principal amount
of the Loans held by each, and shall be applied first to prepay all Base Rate
Loans before any LIBOR Loans are prepaid. In the event and on each occasion that
a Prepayment Event occurs, the Borrower shall give to the Agent and the Lenders
at least five
-33-
<PAGE>
Business Days' prior written notice of such event (to the extent practicable)
and the amount of the Loans anticipated to be prepaid.
(i) Amounts to be applied to the prepayment of LIBOR Loans as provided in
Section 2.6(h) on a day other than the last day of the Interest Period
applicable thereto shall, at the option of the Borrower, be applied to prepay
such LIBOR Loans immediately, together with all amounts required under Section
2.18 to be paid as a consequence thereof, or shall be deposited in a separate
Prepayment Account (as defined below) for the LIBOR Loans to be prepaid. The
Agent shall apply any cash deposited in the Prepayment Account to prepay
Tranches of LIBOR Loans chronologically on the last day of their respective
Interest Periods until all outstanding LIBOR Loans have been prepaid or until
all the allocable cash on deposit in the Prepayment Account has been exhausted.
The term "Prepayment Account" shall mean an account established by the Borrower
with the Agent and over which the Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal for application in
accordance with this subsection. The Agent will, at the request of the Borrower,
invest amounts on deposit in the Prepayment Account in Cash Equivalents that
mature prior to the last day of the Interest Periods of the Tranches of LIBOR
Loans to be prepaid; provided, however, that (i) the Agent shall not be required
to make any investment that, in its sole judgment, would require or cause the
Agent to be in, or would result in any, violation of any Requirement of Law and
(ii) the Agent shall have no obligation to invest amounts on deposit in the
Prepayment Account if an Event of Default shall have occurred and be continuing.
The Borrower shall indemnify the Agent for any losses relating to the
investments so that the amount available to prepay the LIBOR Loans on the last
day of the applicable Interest Periods is not less than the amount that would
have been available had no investments been made pursuant hereto. Other than any
interest earned on such investments, the Prepayment Account shall not bear
interest. Interest, if any, on such investments shall be deposited in the
Prepayment Account and invested and disbursed as specified above. If the
maturity of the Loans has been accelerated pursuant to Section 7.2, the Agent
may, in its sole discretion, immediately apply all amounts on deposit in the
Prepayment Account to satisfy any of the Obligations. The Borrower hereby
pledges and assigns to the Agent, for the benefit of the Lenders, each
Prepayment Account established hereunder to secure the Obligations. Amounts
remaining in Prepayment Accounts after the Loans are fully paid and all other
outstanding Obligations are satisfied shall be returned to the Borrower or as
otherwise required by law.
2.7. Voluntary Prepayments. (a) At any time and from time to time, the
Borrower shall have the right to prepay the Loans, in whole or in part, without
premium or penalty (except as provided in clause (iii) below), upon written
notice to the Agent given not later than 11:00 a.m., Charlotte time, five (5)
Business Days prior to each intended prepayment, provided that (i) each partial
prepayment shall be in an aggregate principal amount of not less than $1,000,000
or, if greater, an integral multiple of $125,000 in excess thereof, (ii) no
partial prepayment of LIBOR Loans within any single Tranche shall reduce the
aggregate outstanding principal amount of LIBOR Loans within such Tranche to
less than $2,000,000 or to any greater amount not an integral multiple of
$125,000 in excess thereof, and (iii)
-34-
<PAGE>
unless made together with all amounts required under Section 2.18 to be paid as
a consequence of such prepayment, a prepayment of a LIBOR Loan may be made only
on the last day of the Interest Period applicable thereto. Each such notice
shall specify the proposed date of such prepayment and the aggregate principal
amount and Type of the Loans to be prepaid (and, in the case of LIBOR Loans, the
applicable Interest Period) and shall be irrevocable and shall bind the Borrower
to make such prepayment on the terms specified therein.
(b) Each prepayment of the Loans made pursuant to subsection (a) above
shall be applied to the scheduled principal payments on the Loans (as set forth
in Section 2.6(a)) in the inverse order of maturity. Each such prepayment shall
be applied ratably among the Lenders in proportion to the principal amount of
the Loans held by each.
2.8. Interest. (a) The Borrower will pay interest in respect of the unpaid
principal amount of each Loan, from the Closing Date until such principal amount
shall be paid in full, (i) at the Adjusted Base Rate, as in effect from time to
time during such periods as such Loan is a Base Rate Loan, and (ii) at the
Adjusted LIBOR Rate, as in effect from time to time during such periods as such
Loan is a LIBOR Loan.
(b) Upon the occurrence and during the continuance of an Event of Default
as the result of failure by the Borrower to pay any principal of or interest on
any Loan, any fees or other amount hereunder when due (whether at maturity,
pursuant to acceleration or otherwise), and (at the election of the Required
Lenders) upon the occurrence and during the continuance of any other Event of
Default, all outstanding principal amounts of the Loans and, to the greatest
extent permitted by law, all interest accrued on the Loans and all other accrued
and outstanding fees and other amounts hereunder, shall bear interest at a rate
per annum equal to the interest rate applicable from time to time thereafter to
such Loans (whether the Adjusted Base Rate or the Adjusted LIBOR Rate) plus 2%
(or, in the case of fees and other amounts, at the Adjusted Base Rate plus 2%),
and, in each case, such default interest shall be payable on demand. To the
greatest extent permitted by law, interest shall continue to accrue after the
filing by or against the Borrower of any petition seeking any relief in
bankruptcy or under any law pertaining to insolvency or debtor relief.
(c) Accrued (and theretofore unpaid) interest shall be payable as follows:
(i) in respect of each Base Rate Loan (including any Base Rate Loan
or portion thereof paid or prepaid pursuant to the provisions of Section
2.6, except as provided hereinbelow), in arrears on the first Business Day
of each calendar quarter, beginning with April 1, 1997; provided, that in
the event all of the Loans are repaid or prepaid in full, then accrued
interest in respect of all Base Rate Loans shall be payable together with
such repayment or prepayment on the date thereof;
-35-
<PAGE>
(ii) in respect of each LIBOR Loan (including any LIBOR Loan or
portion thereof paid or prepaid pursuant to the provisions of Section 2.6,
except as provided hereinbelow), in arrears (y) on the last Business Day
of the Interest Period applicable thereto (subject to the provisions of
clause (iv) in Section 2.10) and (z) in addition, in the case of a LIBOR
Loan with an Interest Period having a duration of six months, on the date
three months after the first day of such Interest Period; provided, that
in the event all of the Loans are repaid or prepaid in full, then accrued
interest in respect of all LIBOR Loans shall be payable together with such
repayment or prepayment on the date thereof; and
(iii) at maturity (whether pursuant to acceleration or otherwise)
and, after maturity, on demand.
(d) Nothing contained in this Agreement or in any other Loan Document
shall be deemed to establish or require the payment of interest to any Lender at
a rate in excess of the maximum rate permitted by applicable law. If the amount
of interest payable for the account of any Lender on any interest payment date
would exceed the maximum amount permitted by applicable law to be charged by
such Lender, the amount of interest payable for its account on such interest
payment date shall be automatically reduced to such maximum permissible amount.
In the event of any such reduction affecting any Lender, if from time to time
thereafter the amount of interest payable for the account of such Lender on any
interest payment date would be less than the maximum amount permitted by
applicable law to be charged by such Lender, then the amount of interest payable
for its account on such subsequent interest payment date shall be automatically
increased to such maximum permissible amount, provided that at no time shall the
aggregate amount by which interest paid for the account of any Lender has been
increased pursuant to this sentence exceed the aggregate amount by which
interest paid for its account has theretofore been reduced pursuant to the
previous sentence.
(e) The Agent shall promptly notify the Borrower and the Lenders upon
determining the interest rate for each Tranche of LIBOR Loans after its receipt
of the relevant Notice of Conversion/Continuation, and upon each change in the
Base Rate; provided, however, that the failure of the Agent to provide the
Borrower or the Lenders with any such notice shall neither affect any
obligations of the Borrower or the Lenders hereunder nor result in any liability
on the part of the Agent to the Borrower or any Lender. Each such determination
(including each determination of the Reserve Requirement) shall, absent manifest
error, be conclusive and binding on all parties hereto.
2.9. Fees. The Borrower agrees to pay:
(a) To First Union, for its own account, on the Closing Date, the
fees described in paragraphs (i) and (ii) of the Fee Letter, in the
amounts set forth therein as due and payable on such date; and
-36-
<PAGE>
(b) To the Agent, for its own account, the annual administrative fee
described in paragraph (iii) of the Fee Letter, on the terms, in the
amount and at the times set forth therein.
2.10. Interest Periods. Concurrently with the giving of a Notice of
Conversion/ Continuation in respect of any Base Rate Loans to be converted into,
or LIBOR Loans to be continued as, LIBOR Loans within a single Tranche, the
Borrower shall have the right to elect, pursuant to such notice, the interest
period (each, an "Interest Period") to be applicable to each such LIBOR Loan,
which Interest Period shall, at the option of the Borrower, be a one, two, three
or six month period; provided, however, that:
(i) all LIBOR Loans within a single Tranche shall at all times have
the same Interest Period;
(ii) the initial Interest Period for any LIBOR Loan shall commence
on the date of the continuation of, or conversion into, such LIBOR Loan,
and each successive Interest Period applicable to such LIBOR Loan shall
commence on the day on which the next preceding Interest Period applicable
thereto expires;
(iii) LIBOR Loans may not be outstanding under more than five (5)
separate Interest Periods at any one time (for which purpose Interest
Periods shall be deemed to be separate even if they are coterminous);
(iv) if any Interest Period otherwise would expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day unless such next succeeding Business Day falls in
another calendar month, in which case such Interest Period shall expire on
the next preceding Business Day;
(v) the Borrower may not select any Interest Period that begins
prior to the third (3rd) Business Day after the Closing Date or that
expires after the Maturity Date;
(vi) no Interest Period may be selected that would end after a
scheduled date for repayment of principal of the Loans occurring on or
after the first day of such Interest Period unless, immediately after
giving effect to such selection, the aggregate principal amount of Loans
that are Base Rate Loans or that have Interest Periods expiring on or
before such principal repayment date equals or exceeds the principal
amount required to be paid on such principal repayment date;
(vii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month during which such
-37-
<PAGE>
Interest Period would otherwise expire, such Interest Period shall expire
on the last Business Day of such calendar month;
(viii) if, upon the expiration of any Interest Period applicable to
any Tranche of LIBOR Loans, the Borrower shall have failed to elect a new
Interest Period to be applicable to such LIBOR Loans, then the Borrower
shall be deemed to have elected to convert such LIBOR Loans into Base Rate
Loans as of the expiration of the then current Interest Period applicable
thereto; and
(ix) LIBOR Loans of six-month Interest Periods shall be available to
the Borrower only if corresponding Dollar deposits in the London interbank
Eurodollar market are available to each Lender as of the date of the
proposed conversion or continuation.
2.11. Conversions and Continuations. (a) The Borrower shall have the
right, on any Business Day occurring on or after the Closing Date, to elect (i)
to convert a Tranche of any Base Rate Loans into an equivalent Tranche of LIBOR
Loans, or to convert a Tranche of any LIBOR Loans into an equivalent Tranche of
Base Rate Loans, or (ii) to continue a Tranche of any LIBOR Loans for an
additional Interest Period, provided that (x) any such conversion of LIBOR Loans
into Base Rate Loans shall involve an aggregate principal amount of not less
than $1,000,000 or, if greater, an integral multiple of $125,000 in excess
thereof; any such conversion of Base Rate Loans into, or continuation of, LIBOR
Loans shall involve an aggregate principal amount of not less than $2,000,000
or, if greater, an integral multiple of $125,000 in excess thereof; and no
partial conversion of LIBOR Loans within any single Tranche shall reduce the
outstanding principal amount of LIBOR Loans remaining within such Tranche to
less than $2,000,000 or to any greater amount not an integral multiple of
$125,000 in excess thereof, (y) except as otherwise provided in Section 2.16(d),
LIBOR Loans may be converted into Base Rate Loans only on the last day of the
Interest Period applicable thereto (and, in any event, if a LIBOR Loan is
converted into a Base Rate Loan on any day other than the last day of the
Interest Period applicable thereto, the Borrower will pay, upon such conversion,
all amounts required under Section 2.18 to be paid as a consequence thereof),
and (z) no conversion of Base Rate Loans into LIBOR Loans or continuation of
LIBOR Loans shall be permitted during the continuance of a Default or Event of
Default.
(b) The Borrower shall make each such election by giving the Agent written
notice not later than 11:00 a.m., Charlotte time, three (3) Business Days prior
to the intended effective date of any conversion of Base Rate Loans into, or
continuation of, LIBOR Loans and one (1) Business Day prior to the intended
effective date of any conversion of LIBOR Loans into Base Rate Loans. Each such
notice (each, a "Notice of Conversion/Continuation") shall be irrevocable, shall
be given in the form of Exhibit C and shall specify (x) the date of such
conversion or continuation (which shall be a Business Day), (y) in the case of a
conversion into, or a continuation of, LIBOR Loans, the Interest Period to be
applicable thereto, and (z) the aggregate amount and Type of the Loans being
converted
-38-
<PAGE>
or continued. Upon the receipt of a Notice of Conversion/Continuation, the Agent
will promptly notify each Lender of the proposed conversion or continuation. In
the event that the Borrower shall fail to deliver a Notice of
Conversion/Continuation as provided herein with respect to any outstanding LIBOR
Loans, such LIBOR Loans shall automatically be converted to Base Rate Loans upon
the expiration of the then current Interest Period applicable thereto (unless
repaid pursuant to the terms hereof).
2.12. Method of Payments: Computations. (a) All payments by the Borrower
hereunder or under any Term Note shall be made without setoff, counterclaim or
other defense, in Dollars and in immediately available funds to the Agent, for
the account of the Lenders (except as otherwise expressly provided herein as to
payments required to be made directly to the Lenders), at the Agent's office
referred to in Section 9.5, prior to 12:00 noon, Charlotte time, on the date
payment is due. Any payment made as required hereinabove, but after 12:00 noon,
Charlotte time, shall be deemed to have been made on the next succeeding
Business Day. If any payment falls due on a day that is not a Business Day, then
such due date shall be extended to the next succeeding Business Day (except that
in the case of LIBOR Loans to which the proviso of clause (iv) in Section 2.10
is applicable, such due date shall be the next preceding Business Day), and such
extension of time shall then be included in the computation of payment of
interest, fees or other applicable amounts.
(b) The Agent will distribute to the Lenders like amounts relating to
payments made to the Agent for the account of the Lenders as follows: (i) if the
payment is received by 12:00 noon, Charlotte time, in immediately available
funds, the Agent will make available to each Lender on the same date, by wire
transfer of immediately available funds, such Lender's ratable share of such
payment (based on the percentage that the amount of the payment owing to such
Lender bears to the total amount of such payment owing to all of the Lenders),
and (ii) if such payment is received after 12:00 noon, Charlotte time, or in
other than immediately available funds, the Agent will make available to each
Lender its ratable share of such payment by wire transfer of immediately
available funds on the next succeeding Business Day (or in the case of
uncollected funds, as soon as practicable after collected). If the Agent shall
not have made a required distribution to the Lenders as required hereinabove
after receiving a payment for the account of the Lenders, the Agent will pay to
each Lender, on demand, its ratable share of such payment with interest thereon
at the Federal Funds Rate for each day from the date such amount was required to
be disbursed by the Agent until the date repaid to such Lender.
(c) Unless the Agent shall have received written notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that such
payment will not be made in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date, and the Agent may, in
reliance on such assumption, but shall not be obligated to, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due to such Lender. If and to the extent the Borrower shall not have so made
such payment in full to the Agent, and without limiting the obligation of the
Borrower to make such payment in accordance with the terms hereof, each Lender
shall repay to the
-39-
<PAGE>
Agent forthwith on demand such amount so distributed to such Lender, together
with interest thereon for each day from the date such amount is so distributed
to such Lender until the date repaid to the Agent, at the Federal Funds Rate.
(d) Each Lender for whose account any payment is to be made hereunder may,
but shall not be obligated to, debit the amount of any such payment not made as
and when required hereunder to any ordinary deposit account of the Borrower with
such Lender (with prompt notice to the Agent and the Borrower); provided,
however, that the failure to give such notice shall not affect the validity of
such debit by such Lender.
(e) All computations of interest and fees hereunder (including
computations of the Reserve Requirement) shall be made on the basis of a year
consisting of 360 days, with regard to the actual number of days (including the
first day, but excluding the last day) elapsed.
(f) Any prepayment of the Loans, whether mandatory or voluntary, will not
affect the Borrower's obligations, including its obligation to continue making
payments, in connection with any Hedge Agreement, which Hedge Agreement will
remain in effect pursuant to its terms and notwithstanding the occurrence of any
prepayment.
2.13. Recovery of Payments. (a) The Borrower agrees that to the extent the
Borrower makes a payment or payments to or for the account of the Agent or any
Lender, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy,
insolvency or similar state or federal law, common law or equitable cause, then,
to the extent of such payment or repayment, the Obligation intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been received.
(b) If any amounts distributed by the Agent to any Lender are subsequently
returned or repaid by the Agent to the Borrower or its representative or
successor in interest, whether by court order or by settlement approved by the
Lender in question, such Lender will, promptly upon receipt of notice thereof
from the Agent, pay the Agent such amount. If any such amounts are recovered by
the Agent from the Borrower or its representative or successor in interest, the
Agent will redistribute such amounts to the Lenders on the same basis as such
amounts were originally distributed.
2.14. Use of Proceeds. The proceeds of the Loans shall be used solely (i)
to finance a portion of the purchase price of the Acquisition, (ii) to prepay in
full the Existing Senior Debt, (iii) to prepay in full the Existing Subordinated
Debt and the Hunter Note, and (iv) to pay or reimburse reasonable fees and
expenses in connection with the consummation of the Acquisition, the
consummation of the transactions contemplated hereby and the consummation of the
other Transactions.
-40-
<PAGE>
2.15. Pro Rata Treatment: Sharing of Payments. (a) All continuations and
conversions of Loans shall be made by the Lenders pro rata on the basis of their
respective outstanding Loans. All payments on account of principal of or
interest on the Loans, fees or any other Obligations owing to or for the account
of any one or more Lenders shall be apportioned ratably among such Lenders in
proportion to the amounts of such principal, interest, fees or other Obligations
owed to them respectively.
(b) Each Lender agrees that if it shall receive any amount hereunder
(whether by voluntary payment, realization upon security, exercise of the right
of setoff or banker's lien, counterclaim or cross action, or otherwise, other
than pursuant to Section 9.7) applicable to the payment of any of the
Obligations that exceeds its ratable share (according to the proportion of (i)
the amount of such Obligations due and payable to such Lender at such time to
(ii) the aggregate amount of such Obligations due and payable to all Lenders at
such time) of payments on account of such Obligations then or therewith obtained
by all the Lenders to which such payments are required to have been made, such
Lender shall forthwith purchase from the other Lenders such participations in
such Obligations as shall be necessary to cause such purchasing Lender to share
the excess payment or other recovery ratably with each of them; provided,
however, that if all or any portion of such excess payment is thereafter
recovered from such purchasing Lender, such purchase from each such other Lender
shall be rescinded and each such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery, together with an
amount equal to such other Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to the provisions of this subsection may, to the
fullest extent permitted by law, exercise any and all rights of payment
(including, without limitation, setoff, banker's lien or counterclaim) with
respect to such participation as fully as if such participant were a direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or similar law, any Lender receives a secured
claim in lieu of a setoff to which this subsection applies, such Lender shall,
to the extent practicable, exercise its rights in respect of such secured claim
in a manner consistent with the rights of the Lenders entitled under this
subsection to share in the benefits of any recovery on such secured claim.
2.16. Increased Costs; Change in Circumstances; Illegality; etc. (a) If,
at any time after the date hereof and from time to time, the introduction of or
any change in any applicable law, rule or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender with any
guideline or request from any such Governmental Authority (whether or not having
the force of law), shall (i) subject such Lender to any tax or other charge, or
change the basis of taxation of payments to such Lender, in respect of any of
LIBOR Loans or any other amounts payable hereunder or its obligation to make,
fund or maintain any LIBOR Loans (other than any change in the rate or basis of
tax on the
-41-
<PAGE>
overall net income of such Lender or its applicable Lending Office), (ii)
impose, modify or deem applicable any reserve, special deposit or similar
requirement (other than as a result of any change in the Reserve Requirement)
against assets of, deposits with or for the account of, or credit extended by,
such Lender or its applicable Lending Office, or (iii) impose on such Lender or
its applicable Lending Office any other condition, and the result of any of the
foregoing shall be to increase the cost to such Lender of making or maintaining
any LIBOR Loans or to reduce the amount of any sum received or receivable by
such Lender hereunder, the Borrower will, promptly upon demand therefor by such
Lender, pay to such Lender such additional amounts as shall compensate such
Lender for such increase in costs or reduction in return.
(b) If, at any time after the date hereof and from time to time, any
Lender shall have reasonably determined that the introduction of or any change
in any applicable law, rule or regulation regarding capital adequacy or in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by such Lender
with any guideline or request from any such Governmental Authority (whether or
not having the force of law), has or would have the effect, as a consequence of
such Lender's Commitment or Loan, of reducing the rate of return on the capital
of such Lender or any Person controlling such Lender to a level below that which
such Lender or controlling Person could have achieved but for such introduction,
change or compliance (taking into account such Lender's or controlling Person's
policies with respect to capital adequacy), the Borrower will, promptly upon
demand therefor by such Lender therefor, pay to such Lender such additional
amounts as will compensate such Lender or controlling Person for such reduction
in return.
(c) If, on or prior to the first day of any Interest Period, (y) the Agent
shall have determined that adequate and reasonable means do not exist for
ascertaining the applicable LIBOR Rate for such Interest Period or (z) the Agent
shall have received written notice from the Required Lenders of their
determination that the rate of interest referred to in the definition of "LIBOR
Rate" upon the basis of which the Adjusted LIBOR Rate for LIBOR Loans for such
Interest Period is to be determined will not adequately and fairly reflect the
cost to such Lenders of making or maintaining LIBOR Loans during such Interest
Period, the Agent will forthwith so notify the Borrower and the Lenders. Upon
such notice, (i) all then outstanding LIBOR Loans shall automatically, on the
expiration date of the respective Interest Periods applicable thereto (unless
then repaid in full), be converted into Base Rate Loans, (ii) the obligation of
the Lenders to convert Base Rate Loans into, or to continue, LIBOR Loans shall
be suspended, and (iii) any Notice of Conversion/Continuation given at any time
thereafter with respect to LIBOR Loans shall be deemed to be a request for Base
Rate Loans, in each case until the Agent or the Required Lenders, as the case
may be, shall have determined that the circumstances giving rise to such
suspension no longer exist (and the Required Lenders, if making such
determination, shall have so notified the Agent), and the Agent shall have so
notified the Borrower and the Lenders.
-42-
<PAGE>
(d) Notwithstanding any other provision in this Agreement, if, at any time
after the date hereof and from time to time, any Lender shall have determined in
good faith that the introduction of or any change in any applicable law, rule or
regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance with any guideline or request from any such Governmental
Authority (whether or not having the force of law), has or would have the effect
of making it unlawful for such Lender to continue to make or maintain LIBOR
Loans, such Lender will forthwith so notify the Agent and the Borrower. Upon
such notice, (i) each of such Lender's then outstanding LIBOR Loans shall
automatically, on the expiration date of the respective Interest Period
applicable thereto (or, to the extent any such LIBOR Loan may not lawfully be
maintained as a LIBOR Loan until such expiration date, upon such notice), be
converted into a Base Rate Loan, (ii) the obligation of such Lender to convert
Base Rate Loans into, or to continue, LIBOR Loans shall be suspended, and (iii)
any Notice of Conversion/Continuation given at any time thereafter with respect
to LIBOR Loans shall, as to such Lender, be deemed to be a request for a Base
Rate Loan, in each case until such Lender shall have determined that the
circumstances giving rise to such suspension no longer exist and shall have so
notified the Agent, and the Agent shall have so notified the Borrower.
Determinations by the Agent or any Lender for purposes of this Section
2.16 of any increased costs, reduction in return, market contingencies,
illegality or any other matter shall, absent manifest error, be conclusive,
provided that such determinations are made in good faith. Except as set forth in
Section 2.19, no failure by the Agent or any Lender at any time to demand
payment of any amounts payable under this Section 2.16 shall constitute a waiver
of its right to demand payment of any additional amounts arising at any
subsequent time. Nothing in this Section 2.16 shall require or be construed to
require the Borrower to pay any interest, fees, costs or other amounts in excess
of that permitted by applicable law.
2.17. Taxes. (a) Any and all payments by the Borrower hereunder or under
any Term Note shall be made, in accordance with the terms hereof and thereof,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, other than income and franchise taxes (including United States
withholding taxes imposed on any Non-U.S. Lender (as defined in subsection (d)
below) with respect to its income tax liability to the United States), imposed
on the Agent or any Lender by the United States or by the jurisdiction under the
laws of which the Agent or such Lender, as the case may be, is organized or in
which its principal office or (in the case of a Lender) its applicable Lending
Office is located, or any political subdivision or taxing authority thereof (all
such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Term Note to the Agent or any Lender, (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.17), the Agent or such Lender, as the case may be, receives an
amount equal to the sum it
-43-
<PAGE>
would have received had no such deductions been made, (ii) the Borrower will
make such deductions, (iii) the Borrower will pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law and (iv) the Borrower will deliver to the Agent or such Lender, as the case
may be, evidence of such payment.
(b) The Borrower will indemnify the Agent and each Lender for the full
amount of Taxes (including, without limitation, any Taxes imposed by any
jurisdiction on amounts payable under this Section 2.17) paid by the Agent or
such Lender, as the case may be, and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
such Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date the Agent or such Lender, as the case may be,
makes written demand therefor.
(c) Each of the Agent and the Lenders agrees that if it subsequently
recovers, or receives a permanent net tax benefit with respect to, any amount of
Taxes (i) previously paid by it and as to which it has been indemnified by or on
behalf of the Borrower or (ii) previously deducted by the Borrower (including,
without limitation, any Taxes deducted from any additional sums payable under
clause (i) of subsection (a) above), the Agent or such Lender, as the case may
be, shall reimburse the Borrower to the extent of the amount of any such
recovery or permanent net tax benefit (but only to the extent of indemnity
payments made, or additional amounts paid, by or on behalf of the Borrower under
this Section 2.17 with respect to the Taxes giving rise to such recovery or tax
benefit); provided, however, that the Borrower, upon the request of the Agent or
such Lender, agrees to repay to the Agent or such Lender, as the case may be,
the amount paid over to the Borrower (together with any penalties, interest or
other charges), in the event the Agent or such Lender is required to repay such
amount to the relevant taxing authority or other Governmental Authority. The
determination by the Agent or any Lender of the amount of any such recovery or
permanent net tax benefit shall, in the absence of manifest error, be conclusive
and binding.
(d) If any Lender is incorporated or organized under the laws of a
jurisdiction other than the United States of America or any state thereof (a
"Non-U.S. Lender") and claims exemption from United States withholding tax
pursuant to the Internal Revenue Code, such Non-U.S. Lender will deliver to each
of the Agent and the Borrower, on or prior to the Closing Date (or, in the case
of a Non-U.S. Lender that becomes a party to this Agreement as a result of an
assignment after the Closing Date, on the effective date of such assignment),
(i) in the case of a Non-U.S. Lender that is a "bank" for purposes of Section
881(c)(3)(A) of the Internal Revenue Code, a properly completed Internal Revenue
Service Form 4224 or 1001, as applicable (or successor forms), certifying that
such Non-U.S. Lender is entitled to an exemption from or a reduction of
withholding or deduction for or on account of United States federal income taxes
in connection with payments under this Agreement or any of the Term Notes,
together with a properly completed Internal Revenue Service Form W-8 or W-9, as
applicable (or successor forms), and (ii) in the case of a Non-U.S. Lender that
is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue
Code, a certificate in
-44-
<PAGE>
form and substance reasonably satisfactory to the Agent and the Borrower and to
the effect that (x) such Non-U.S. Lender is not a "bank" for purposes of Section
881(c)(3)(A) of the Internal Revenue Code, is not subject to regulatory or other
legal requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law or other filing or submission made
to any governmental authority, any application made to a rating agency or
qualification for any exemption from any tax, securities law or other legal
requirements, (y) is not a 10-percent shareholder for purposes of Section
881(c)(3)(B) of the Internal Revenue Code and (z) is not a controlled foreign
corporation receiving interest from a related person for purposes of Section
881(c)(3)(C) of the Internal Revenue Code, together with a properly completed
Internal Revenue Service Form W-8 or W-9, as applicable (or successor forms).
Each such Non-U.S. Lender further agrees to deliver to each of the Agent and the
Borrower an additional copy of each such relevant form on or before the date
that such form expires or becomes obsolete or after the occurrence of any event
(including a change in its applicable Lending Office) requiring a change in the
most recent forms so delivered by it, in each case certifying that such Non-U.S.
Lender is entitled to an exemption from or a reduction of withholding or
deduction for or on account of United States federal income taxes in connection
with payments under this Agreement or any of the Term Notes, unless an event
(including, without limitation, any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required, which event renders all such forms inapplicable or the exemption to
which such forms relate unavailable and such Non-U.S. Lender notifies the Agent
and the Borrower that it is not entitled to receive payments without deduction
or withholding of United States federal income taxes. Each such Non-U.S. Lender
will promptly notify the Agent and the Borrower of any changes in circumstances
that would modify or render invalid any claimed exemption or reduction.
(e) If any Lender is entitled to a reduction in (and not a complete
exemption from) the applicable withholding tax, the Borrower and the Agent may
withhold from any interest payment to such Lender an amount equivalent to the
applicable withholding tax after taking into account such reduction. If any of
the forms or other documentation required under subsection (d) above are not
delivered to the Agent as therein required, then the Borrower and the Agent may
withhold from any interest payment to such Lender not providing such forms or
other documentation an amount equivalent to the applicable withholding tax.
2.18. Compensation. The Borrower will compensate each Lender upon demand
for all losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund or maintain LIBOR
Loans) that such Lender may incur or sustain (i) if for any reason (other than a
default by such Lender) a continuation of, or conversion into, a LIBOR Loan does
not occur on a date specified therefor in a Notice of Conversion/ Continuation,
(ii) if any repayment, prepayment or conversion of any LIBOR Loan occurs on a
date other than the last day of an Interest Period applicable thereto (including
as a consequence of acceleration of the maturity of the Loans pursuant to
Section 7.2), (iii) if any
-45-
<PAGE>
prepayment of any LIBOR Loan is not made on any date specified in a notice of
prepayment given by the Borrower or (iv) as a consequence of any other failure
by the Borrower to make any payments with respect to any LIBOR Loan when due
hereunder. Calculation of all amounts payable to a Lender under this Section
2.18 shall be made as though such Lender had actually funded its relevant LIBOR
Loan through the purchase of a Eurodollar deposit bearing interest at the LIBOR
Rate in an amount equal to the amount of such LIBOR Loan, having a maturity
comparable to the relevant Interest Period; provided, however, that each Lender
may fund its LIBOR Loans in any manner it sees fit and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this Section
2.18. Determinations by any Lender for purposes of this Section 2.18 of any such
losses, expenses or liabilities shall, absent manifest error, be conclusive,
provided that such determinations are made in good faith.
2.19. Replacement of Lenders: Mitigation. The Borrower may, at any time
and so long as no Default or Event of Default has then occurred and is
continuing, replace any Lender that (i) has requested compensation from the
Borrower under Section 2.16(a), 2.16(b), or 2.17 or (ii) the obligation of which
to make or maintain LIBOR Loans has been suspended under Section 2.16(d), by
written notice to such Lender and the Agent given not more than thirty (30) days
after any such event and identifying one or more Persons each of which shall be
reasonably acceptable to the Agent (each, a "Replacement Lender," and
collectively, the "Replacement Lenders") to replace such Lender (the "Replaced
Lender"); provided that (i) the notice from the Borrower to the Replaced Lender
and the Agent provided for hereinabove shall specify an effective date for such
replacement (the "Replacement Effective Date"), which shall be at least five (5)
Business Days after such notice is given, (ii) as of the relevant Replacement
Effective Date, each Replacement Lender shall enter into an Assignment and
Acceptance with the Replaced Lender pursuant to Section 9.7(a), pursuant to
which such Replacement Lenders collectively shall acquire, in such proportion
among them as they may agree with the Borrower and the Agent, all (but not less
than all) of the outstanding Loans of the Replaced Lender, and, in connection
therewith, shall pay to the Replaced Lender, as the purchase price in respect
thereof, an amount equal to the sum as of the Replacement Effective Date
(without duplication) of the unpaid principal amount of, and all accrued but
unpaid interest on, all outstanding Loans of the Replaced Lender, and (iii) all
other obligations of the Borrower owing to the Replaced Lender (other than those
specifically described in clause (ii) above in respect of which the assignment
purchase price has been, or is concurrently being, paid), including amounts
payable under Section 2.16(a), 2.16(b) or 2.17 or under Section 2.18 (to the
extent actually incurred by the Replaced Lender as of the Replacement Effective
Date) whether as a result of the actions required to be taken under this Section
2.19 or otherwise, shall be paid in full by the Borrower to the Replaced Lender
on or prior to the Replacement Effective Date. Each Lender agrees that as
promptly as practicable after it becomes aware of the occurrence of an event
that would entitle it to request compensation under Sections 2.16(a), 2.16(b) or
2.17, or give notice under Section 2.16(d) and in any event if so requested by
the Borrower, each Lender shall use reasonable efforts to make, fund or maintain
its affected Loans through another Lending Office if, as a result thereof, the
reserves, increased costs or any other
-46-
<PAGE>
amount payable by the Borrower to such Lender would be avoided or materially
reduced or the illegality would thereby cease to exist and if, in the reasonable
opinion of such Lender, the making, funding or maintaining of such Loans through
such other Lending Office would not in any material respect be disadvantageous
to such Lender or contrary to such Lender's normal banking practices.
ARTICLE III
CONDITIONS OF BORROWING
3.1. Conditions of Closing. The obligation of each Lender to make its Loan
on the Closing Date is subject to the satisfaction of the following conditions
precedent:
(a) The Agent shall have received the following, each dated as of
the Closing Date (unless otherwise specified) and, except for the Notes
and the certificates required to be delivered under the Borrower Pledge
and Security Agreement, in sufficient executed originals for each Lender:
(i) a Term Note for each Lender that is a party hereto as of
the Closing Date, in the amount of such Lender's Commitment, duly
completed in accordance with the provisions of Section 2.4(a) and
executed by the Borrower;
(ii) the Borrower Pledge and Security Agreement, duly
completed and executed by the Borrower, together with the
certificates evidencing the capital stock being pledged thereunder
as of the Closing Date and undated stock powers for each such
certificate, duly executed in blank;
(iii) the Borrower Collateral Assignment of Agreements, duly
completed and executed by the Borrower;
(iv) the Escrow Agreement, duly completed and executed by the
Borrower;
(v) the Subsidiaries Guaranty, duly completed and executed by
each Non-Insurance Subsidiary of the Borrower;
(vi) the Subsidiaries Collateral Assignment of Agreements,
duly completed and executed by each Non-Insurance Subsidiary of the
Borrower;
(vii) the favorable opinion of (A) Robinson Silverman Pearce
Aronsohn & Berman LLP, counsel to the Borrower, Brooks, Pierce,
McLendon, Humphrey & Leonard, special North Carolina counsel to the
Borrower, Hunton & Williams, special Virginia counsel to the
Borrower, and
-47-
<PAGE>
Saul, Ewing, Remick & Saul, special Pennsylvania regulatory counsel
to the Borrower, each in form reasonably satisfactory to the Agent
and substantially covering the opinion matters set forth in Exhibit
H, and (B) the favorable North Carolina enforceability opinion of
Robinson, Bradshaw & Hinson, P.A., in each case addressed to the
Agent and the Lenders, and addressing such other matters as the
Agent or any Lender may reasonably request; and
(viii) a letter from each of Dilworth, Paxon, Kalish & Kaufman
LLP, counsel to PIC, Kirkpatrick & Lockhart LLP, counsel to Trirock,
and Robinson Silverman Pearce Aronsohn & Berman LLP, counsel to the
Borrower, each addressed to the Agent and the Lenders, and each to
the effect that the Agent and the Lenders are entitled to rely on
its opinion delivered in connection with the Acquisition as if such
opinion were addressed to them and attaching a copy thereof.
(b) The Agent shall have received a certificate, signed by the
president or chief financial officer of the Borrower, in form and
substance satisfactory to the Agent, certifying that (i) all
representations and warranties of the Borrower contained in this Agreement
and the other Loan Documents are true and correct as of the Closing Date,
both immediately before and after giving effect to the consummation of the
Transactions, the making of the Loans and the application of the proceeds
thereof, (ii) no Default or Event of Default has occurred and is
continuing, both immediately before and after giving effect to the
consummation of the Transactions, the making of the Loans and the
application of the proceeds thereof, (iii) both immediately before and
after giving effect to the consummation of the Transactions, the making of
the Loans and the application of the proceeds thereof, no Material Adverse
Change has occurred since December 31, 1995, and there exists no event,
condition or state of facts that could reasonably be expected to result in
a Material Adverse Change, and (iv) all conditions to the consummation of
the Acquisition have been satisfied and have not been waived or amended
without the prior written consent of the Agent.
(c) The Agent shall have received a certificate of the secretary or
an assistant secretary of each of the Borrower and each of its
Subsidiaries party to the Subsidiaries Guaranty, in form and substance
satisfactory to the Agent, certifying (i) that attached thereto is a true
and complete copy of its articles or certificate of incorporation and all
amendments thereto, certified as of a recent date by the Secretary of
State of its state of incorporation, and that the same has not been
amended since the date of such certification (and also, as to the
Borrower, that attached thereto is a true and complete copy of the Amended
Charter, in the form presented for filing with the Secretary of State of
North Carolina on or prior to the Closing Date), (ii) that attached
thereto is a true and complete copy of its bylaws and all amendments
thereto, as then in effect and as in effect at all times from the date on
which the resolutions referred to in clause (iii) below were adopted to
and including the date of such certificate, and (iii) that attached
thereto is a true and complete copy of resolutions adopted by its board of
directors authorizing the execution, delivery and performance by the
Borrower or such Subsidiary, as the case may be, of the Loan Documents to
which it is a
-48-
<PAGE>
party, and as to the incumbency and genuineness of the signature of each
of its officers executing any of such Loan Documents on its behalf, and
attaching all such copies of the documents described above.
(d) The Agent shall have received (i) a certificate as of a recent
date as to the corporate existence or good standing of each of the
Borrower and each of its Subsidiaries under the laws of its state of
incorporation, from the Secretary of State or other applicable
Governmental Authority of such state, (ii) to the extent generally
provided, a certificate or letter as of a recent date as to the tax status
of each of the Borrower and each of its Subsidiaries from the department
of revenue or equivalent taxing authority of its state of incorporation,
certifying that the Borrower or such Subsidiary, as the case may be, has
filed all required tax returns and does not owe any delinquent taxes, and
(iii) a certificate of compliance as of a recent date for each Insurance
Subsidiary, issued by the Department of the jurisdiction in which such
Insurance Subsidiary is domiciled.
(e) The terms of the Series A Preferred Stock and Class C Common
Stock as set forth in the Amended Charter shall be satisfactory to the
Lenders (and shall provide, without limitation, that no cash dividends or
other cash payments may be paid in respect of the Series A Preferred Stock
or the Class C Common Stock and that any Indebtedness arising from the
Series A Preferred Stock or the Class C Common Stock shall be subordinated
to the satisfaction of the Lenders); and all other aspects of the
structure and documentation of the Transactions, all legal, tax,
accounting and other matters relating to the Transactions, and all
corporate or other proceedings incident to the Transactions, shall be
reasonably satisfactory in form and substance to the Lenders, and the
Agent shall have received copies of the executed Transaction Documents in
such number as it shall have reasonably requested.
(f) All approvals, permits and consents of any Governmental
Authorities or other Persons required in connection with the execution and
delivery of this Agreement and the other Transaction Documents and the
consummation of the Transactions (including without limitation the
Department's consent to the Special Dividend and to the disclaimer of
affiliate relationship between the Borrower and any of its Subsidiaries,
on the one hand, and either PIC or Fort Washington, on the other) shall
have been obtained (without the imposition of conditions that are not
acceptable to the Lenders), and all related filings, if any, shall have
been made, and all such approvals, permits, consents and filings shall be
in full force and effect and the Agent shall have received such copies
thereof as it shall have requested; all applicable waiting periods shall
have expired without any adverse action being taken by any Governmental
Authority having jurisdiction; and no action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before, and no order, injunction or decree shall have been
entered by, any court or other Governmental Authority, in each case to
enjoin, restrain or prohibit, to obtain substantial damages in respect of,
or that is otherwise related to or arises out of, this Agreement, any of
the other Transaction Documents or the consummation of the Transactions,
or that, in the opinion of the Lenders, could reasonably be expected to
have a Material Adverse Effect.
-49-
<PAGE>
(g) The Stock Purchase Agreement shall not have been amended,
modified or supplemented, nor any provision thereof waived, in any
material respect since the date thereof, except as shall have been
approved in writing by the Lenders; the parties to the Stock Purchase
Agreement shall have duly complied with and performed in all material
respects all of its agreements and conditions set forth in the Stock
Purchase Agreement required to be complied with or performed by it on or
prior to the closing date thereunder; the Stock Purchase Agreement shall
be in full force and elect; the Agent shall have received evidence
satisfactory to it that, concurrently with the making of the Loans
hereunder, all material conditions to closing the Acquisition set forth in
the Stock Purchase Agreement shall have been met or waived with the
consent of the Lenders and the Acquisition shall be consummated in
accordance with the terms of the Stock Purchase Agreement and in
compliance with all applicable Requirements of Law, including any
necessary stockholder approvals.
(h) The Agent shall have received evidence in form and substance
satisfactory to it that the Borrower shall have received gross cash
proceeds of not less than $12,700,000 from the issuance of its Class C
Common Stock, Rights and Warrants on terms and conditions set forth in the
Equity Documents.
(i) The Agent shall have received evidence satisfactory to it that
the Amended Charter has been duly filed with the Secretary of State of
North Carolina.
(j) The Agent shall have received evidence satisfactory to it that
all Indebtedness of the Borrower and its Subsidiaries, other than
Indebtedness listed with the consent of the Lenders on Schedule 4.28 as
outstanding as of the Closing Date (collectively, "Surviving
Indebtedness"), including, without limitation, (i) the Existing Senior
Debt, (ii) the Existing Subordinated Debt and (iii) the Hunter Note, has
been paid, satisfied or extinguished in full and that all Liens and
guarantees securing such Indebtedness have been released and terminated.
(k) The Agent shall have received from the Borrower cash, in the
amount of $6,000,000 and in immediately available funds, for deposit into
the Cash Collateral Account created under the Escrow Agreement.
(l) All transaction fees and expenses payable by or on behalf of the
Borrower in connection with the Transactions shall be in an aggregate
amount acceptable to the Agent, and the Agent shall have received such
evidence thereof in form and substance satisfactory to it (including
itemizations thereof) as it shall have reasonably requested.
(m) The Agent and each Lender shall have received copies of the
Historical Financial Statements and the Historical Statutory Statements.
(n) The Agent shall have received certified reports from an
independent search service satisfactory to it listing (i) any judgment or
tax lien filing that names the Borrower or
-50-
<PAGE>
any of its Subsidiaries as debtor in any of such jurisdictions as shall
have been selected by the Agent and (ii) any Uniform Commercial Code
financing statement that names the Borrower or any of its Subsidiaries as
debtor in any of such jurisdictions as shall have been selected by the
Agent, and the results thereof shall be satisfactory to the Agent.
(o) The Agent shall have received evidence in form and substance
satisfactory to it that all filings, recordings, registrations and other
actions necessary or, in the reasonable opinion of the Agent, desirable to
perfect the Liens created by the Borrower Pledge and Security Agreement,
the Borrower Collateral Assignment of Agreements, the Subsidiaries
Collateral Assignment of Agreements shall have been completed, or
arrangements satisfactory to the Agent for the completion thereof shall
have been made.
(p) Since December 30, 1995, both immediately before and after
giving effect to the consummation of the transactions contemplated by this
Agreement, there shall not have occurred any Material Adverse Change or
any event, condition or state of facts that could reasonably be expected
to result in a Material Adverse Change (it being understood that the
Acquisition and the other Transactions do not, as such, constitute a
Material Adverse Change).
(q) The Borrower shall have paid (i) to First Union, the unpaid
balance of the fees described in paragraphs (i) and (ii) of the Fee
Letter, (ii) to the Agent, the initial payment of the annual
administrative fee described in paragraph (iii) of the Fee Letter, and
(iii) all other fees and expenses of the Agent and the Lenders required
hereunder or under any other Loan Document to be paid on or prior to the
Closing Date (including the reasonable fees and expenses of counsel to the
Agent) in connection with this Agreement and the transactions contemplated
hereby.
(r) The Agent and Lenders shall have received a Financial Condition
Certificate, together with the Pro Forma Balance Sheet and the Projections
as described in Sections 4.10(b) and 4.10(c), all of which shall be in
form and substance satisfactory to the Agent and the Lenders.
(s) The Agent shall have received evidence in form and substance
satisfactory to it that all of the requirements of Section 5.6 have been
satisfied, including receipt of copies of the declarations pages from the
policies affording the insurance coverages described on Schedule 4.25.
(t) The Agent and Lenders shall have received a schedule of the
investment portfolio of Rockwood as of the calendar month-end immediately
preceding the Closing Date, together with a listing of all securities
transactions in each investment portfolio from the date of such
information through the Closing Date, all of which shall be in form and
substance reasonably satisfactory to the Agent and the Lenders, and no
material adverse change shall have occurred with respect to such
investment portfolio since the date of such disclosure.
-51-
<PAGE>
(u) The Agent and Lenders shall have received copies of the most
recent actuarial reports of each of Colony, FRIC, Hamilton and Rockwood,
all of which shall be in form and substance reasonably satisfactory to the
Agent and the Lenders.
(v) The Agent shall have received evidence that, contemporaneously
with the Acquisition and the making of the Loans, the Special Dividend
shall have been made by Rockwood.
(w) Each of the representations and warranties contained in Article
V and in the other Loan Documents shall be true and correct on and as of
the Closing Date with the same effect as if made on and as of such date,
both immediately before and after giving effect to the consummation of the
Transactions, the making of the Loans and the application of the proceeds
thereof (except to the extent any such representation or warranty is
expressly stated to have been made as of a specific date, in which case
such representation or warranty shall be true and correct as of such
date).
(x) No Default or Event of Default shall have occurred and be
continuing, both immediately before and after giving effect to the
consummation of the Transactions, the making of the Loans and the
application of the proceeds thereof.
(y) The Agent shall have received an Account Designation Letter,
together with written instructions from an Authorized Officer, including
wire transfer information, directing the payment of the proceeds of the
Loans.
(z) The Agent and each Lender shall have received such other
documents, certificates, opinions and instruments in connection with the
Transactions as it shall have reasonably requested.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and Lenders to enter into this Agreement and
to make the Loans, the Borrower represents and warrants to the Agent and each
Lender, on the date hereof and on the Closing Date, both before and after giving
effect to the Acquisition, as follows; provided, that, on the date hereof and on
the Closing Date, to the extent such representations and warranties relate to
Rockwood and its Subsidiaries, they are made to the best knowledge of the
Borrower:
4.1. Corporate Existence and Power. Each of the Borrower and its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has the
full corporate power and authority to execute, deliver and perform the Loan
Documents and the Transaction Documents to which it is or will be a party, to
own and hold its property and to engage in its business as presently
-52-
<PAGE>
conducted and (iii) is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the nature of its business or
the ownership of its properties requires it to be so qualified, and all such
jurisdictions are listed in Schedule 4.1.
4.2. Authorization; Enforceability. Each of the Borrower and its
Subsidiaries (i) has taken, or on the Closing Date will have taken, all
necessary corporate action to execute, deliver and perform each of the Loan
Documents and Transaction Documents to which it is or will be a party, and (ii)
has, or on the Closing Date (or any later date of execution and delivery) will
have, validly executed and delivered each of the Loan Documents and Transaction
Documents to which it is or will be a party. This Agreement constitutes, and
each of the other Loan Documents and Transaction Documents upon execution and
delivery will constitute, the legal, valid and binding obligation of each of the
Borrower and its Subsidiaries to the extent a party hereto or thereto,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally or by general equitable
principles.
4.3. No Violation. The execution, delivery and performance by each of the
Borrower and its Subsidiaries of the Loan Documents and the Transaction
Documents to which it is a party, and compliance by it therewith, do not and
will not (i) violate any provision of its articles or certificate of
incorporation or bylaws, (ii) contravene any applicable Requirement of Law,
(iii) conflict with, result in a breach of or constitute (with notice, lapse of
time or both) a default under any indenture, loan agreement, mortgage, deed of
trust, lease or other agreement or instrument to which it is a party, by which
it or any of its properties is bound or to which it may be subject, (iv) result
in or require the creation or imposition of any Lien upon any of its properties,
other than Liens created pursuant to the Loan Documents, or (v) require the
approval or consent of any Person not a Governmental Authority, other than such
approvals and consents as have been obtained as required.
4.4. Governmental Authorization; Permits. (a) No consent, approval,
authorization, exemption or other action by, notice to, or filing with, any
Governmental Authority is required in connection with (i) the due execution,
delivery and performance by each of the Borrower and its Subsidiaries of the
Loan Documents and Transaction Documents to which it is a party, the
consummation of the Transactions or the legality, validity or enforceability
hereof or thereof or (ii) the perfection and maintenance (including maintenance
of priority) of the Liens created pursuant to the Loan Documents, in each case
other than filings specifically contemplated by the Loan Documents and other
than such filings and approvals as have been made or obtained and are set forth
in Schedule 4.4(a).
(b) Each of the Borrower and its Subsidiaries has, and is in good standing
with respect to, all governmental approvals, licenses, permits and
authorizations necessary to conduct its business as presently conducted and to
own or lease and operate its properties, the failure to obtain which would be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. None of such approvals, licenses, permits or authorizations
-53-
<PAGE>
contains any term, condition or limitation more burdensome than such as are
generally applicable to Persons engaged in the same or similar business.
(c) Without limitation of the provisions of subsection (b) above, Schedule
4.4(c) lists, both (i) as of the date hereof and (ii) as of the Closing Date and
immediately after giving effect to the Acquisition, all of the jurisdictions in
which each of the Insurance Subsidiaries holds licenses (including, without
limitation, licenses or certificates of authority from relevant Departments),
permits or authorizations to transact insurance and reinsurance business
(collectively, the "Licenses"), and indicates the line or lines of insurance in
which each of the Insurance Subsidiaries is permitted to be engaged with respect
to each License therein listed. To the knowledge of any Responsible Officer,
except as set forth on Schedule 4.4(c) (x) no such License is the subject of a
proceeding for suspension, revocation or limitation or any similar proceedings,
(y) there is no sustainable basis for such a suspension, revocation or
limitation, and (z) no such suspension, revocation or limitation is threatened
in writing by any relevant Department. No Insurance Subsidiary transacts any
insurance business, directly or indirectly, in any jurisdiction other than those
listed on Schedule 4.4(c), where such business requires any license, permit or
other authorization of a Department or other Governmental Authority of such
jurisdiction.
4.5. Litigation. There are no actions. investigations, suits or
proceedings pending or, to the knowledge of any Responsible Officer, threatened
in writing, at law, in equity or in arbitration, before any court, other
Governmental Authority or other Person, (i) against or affecting the Borrower
and its Subsidiaries or any of their respective properties seeking damages in
the aggregate in excess of $250,000 (other than normal claims made in the
ordinary course of business pursuant to written policies and except as set forth
on Schedule 4.5) or that would otherwise, if adversely determined, be reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect, or
(ii) with respect to this Agreement, any of the other Loan Documents, any of the
Transaction Documents or any of the Transactions.
4.6. Taxes. Each of the Borrower and its Subsidiaries has timely filed all
tax returns and reports required to be filed by it and has paid all taxes,
assessments, fees and other charges levied upon it or upon its properties that
are shown thereon as due and payable (including, without limitation, all
required withholding taxes, social security taxes and other similar payroll
taxes), other than those that are being contested in good faith and by proper
proceedings and for which adequate reserves have been established in accordance
with Generally Accepted Accounting Principles. Such returns accurately reflect
in all material respects all liability for taxes of the Borrower and its
Subsidiaries for the periods covered thereby. There is no action, suit, audit,
investigation, assessment, claim or proceeding pending or, to the knowledge of
any Responsible Officer, threatened in writing, regarding any taxes relating to
the Borrower or any of its Subsidiaries, other than those matters described on
Schedule 4.6.
4.7. Subsidiaries. Schedule 4.7 sets forth a list, both (i) as of the date
hereof and (ii) as of the Closing Date and immediately after giving effect to
the Acquisition, of all of the
-54-
<PAGE>
Subsidiaries of the Borrower and, as to each such Subsidiary, the jurisdiction
of its incorporation, the percentage ownership (direct and indirect) of the
Borrower in each class of its capital stock, and each direct owner thereof.
Except for the shares of capital stock expressly indicated on Schedule 4.7,
there are no shares of capital stock or warrants, rights, options or other
equity securities of any Subsidiary of the Borrower outstanding or reserved for
any purpose. All outstanding shares of capital stock of each Subsidiary of the
Borrower are duly and validly issued, fully paid and nonassessable and not
subject to any preemptive rights, warrants, options or similar rights or
restrictions in favor of third parties or any contractual or other restrictions
upon transfer. Each Person indicated on Schedule 4.7 as the direct owner of the
outstanding shares of capital stock of any Subsidiary of the Borrower is, or as
of the Closing Date will be, the sole legal, record and beneficial owner of, and
has, or as of the Closing Date will have, good and valid title to, all such
capital stock, free and clear of all Liens other than the security interest
created in favor of the Agent for the benefit of the Lenders under the Borrower
Pledge and Security Agreement. Neither the Borrower nor any of its Subsidiaries
is a partner or joint venturer in any partnership or joint venture.
4.8. Full Disclosure. All factual information concerning the Borrower and
its Subsidiaries (including, without limitation, Rockwood) heretofore or
contemporaneously furnished to the Agent or Lenders in writing and prepared by
or on behalf of the Borrower or any of its Subsidiaries (including, without
limitation, all information contained in the Loan Documents and the Transaction
Documents) for purposes of or in connection with this Agreement and the other
Loan Documents and the transactions contemplated hereby and thereby is, and all
other such factual information hereafter furnished to the Agent or Lenders in
writing by or on behalf of the Borrower or any of its Subsidiaries will be, true
and accurate in all material respects on the date as of which such information
is dated or certified (or, if such information has been amended or supplemented,
on the date as of which any such amendment or supplement is dated or certified)
and not made incomplete by omitting to state a material fact necessary to make
the statements contained therein, taken as a whole together with all other such
information in light of the circumstances under which such information was
provided, not misleading.
4.9. Margin Regulations. Neither the Borrower nor any of its Subsidiaries
is engaged in the business of extending credit for the purpose of purchasing or
carrying Margin Stock. No proceeds of the Loans will be used, directly or
indirectly, to purchase or carry any Margin Stock, to extend credit for such
purpose or for any other purpose that would violate Regulations G, U, T or X of
the Federal Reserve Board, as in effect from time to time, and any successor
regulations thereto, or for any purpose that would violate any provision of the
Exchange Act.
4.10. Financial Matters. (a) The Borrower has heretofore furnished to the
Agent and Lenders copies of (i) the audited consolidated balance sheets of the
Borrower and its Subsidiaries, and the unaudited consolidated balance sheets of
Rockwood and its Subsidiaries, as of calendar years ended 1993, 1994, and 1995,
and the related statements of income and cash flows for the fiscal years then
ended, and (ii) the unaudited consolidated balance sheet
-55-
<PAGE>
of the Borrower and its Subsidiaries, and of Rockwood and its Subsidiaries, as
of September 30, 1996, and the related statements of income for the nine-month
period then ended (collectively, the "Historical Financial Statements"). The
Historical Financial Statements have been prepared in accordance with Generally
Accepted Accounting Principles (subject, with respect to the unaudited
Historical Financial Statements, to the absence of notes required by Generally
Accepted Accounting Principles and to normal year-end audit adjustments) and
present fairly the financial position of the Borrower and its Subsidiaries and
of Rockwood and its Subsidiaries on a consolidated basis as of the respective
dates thereof and the consolidated results of operations of the Borrower and its
Subsidiaries and Rockwood and its Subsidiaries, respectively, for the respective
periods then ended. Except as fully reflected in the most recent Historical
Financial Statements and the notes thereto or in the Pro Forma Balance Sheet, as
of the Closing Date, and after giving effect to the Transactions, there will be
no material liabilities or obligations with respect to the Borrower or any of
its Subsidiaries of any nature whatsoever (whether absolute, contingent or
otherwise and whether or not due). Since the date of the most recent audited
Historical Financial Statements, there has been no Material Adverse Change, and,
to the knowledge of any Responsible Officer, no Material Adverse Change is
threatened or reasonably likely to occur (it being understood that the
Acquisition and the other transactions contemplated by the Transaction Documents
do not, as such, constitute a Material Adverse Change). Neither the Borrower nor
any of its Subsidiaries has directly or indirectly declared, ordered, paid, made
or set apart any amounts or property for any dividend, share acquisition or
other distribution, or agreed to do so.
(b) The Pro Forma Balance Sheet, a copy of which has heretofore been
furnished to the Agent and Lenders, has been prepared in accordance with
Generally Accepted Accounting Principles (subject to the absence of footnotes
required by Generally Accepted Accounting Principles and subject to normal
year-end audit adjustments) and, subject to stated assumptions having a
reasonable basis set forth therein, presents fairly the financial condition of
the Borrower and its Subsidiaries on an unaudited pro forma consolidated basis
as of the date set forth therein after giving effect to the Transactions.
(c) The Borrower has prepared, and has heretofore furnished to the Agent
and Lenders copies of, annual projected balance sheets and statements of income
and cash flows of the Borrower and its Subsidiaries for the period from January
1, 1997 through December 31, 2003, giving effect to the Transactions (the
"Projections"). In the opinion of the Borrower's management, the assumptions
used in preparation of the Projections were reasonable when made and continue to
be reasonable. The Projections have been prepared in good faith by the executive
and financial personnel of the Borrower in light of the historical financial
performance of the Borrower and the financial and operating condition of the
Borrower at the time prepared and represent a reasonable estimate of the future
performance and financial condition of the Borrower and its Subsidiaries,
subject to the uncertainties and approximations inherent in any projections.
-56-
<PAGE>
(d) The Borrower has heretofore furnished to the Agent and Lenders copies
of (i) the Annual Statement of each of Colony, FRIC, Hamilton and Rockwood as of
December 31, 1995, and for the fiscal year then ended, each as filed with the
relevant Department, and (ii) the Quarterly Statement of each of such Insurance
Companies as of June 30, 1996, and September 30, 1996, and for the six-month and
nine-month periods then ended, each as filed with the relevant Department
(collectively, the "Historical Statutory Statements"). The Historical Statutory
Statements (including, without limitation, the provisions made therein for
investments and the valuation thereof, reserves, policy and contract claims and
Statutory Liabilities) have been prepared in accordance with Statutory
Accounting Principles (except as may be reflected in the notes thereto and
subject, with respect to the Quarterly Statements, to the absence of notes
required by Statutory Accounting Principles and to normal year-end audit
adjustments), were in compliance with applicable Requirements of Law when filed
and present fairly the financial position of the respective Insurance Companies
covered thereby as of the respective dates thereof and the results of
operations, changes in capital and surplus and cash flow of the respective
Insurance Companies covered thereby for the respective periods then ended.
Except for liabilities and obligations disclosed or provided for in the
Historical Statutory Statements (including, without limitation, reserves, policy
and contract claims and Statutory Liabilities), no Insurance Company had, as of
the date of its respective Historical Statutory Statements, any liabilities or
obligations of any nature whatsoever (whether absolute, contingent or otherwise
and whether or not due) that, in accordance with Statutory Accounting
Principles, would have been required to have been disclosed or provided for in
such Historical Statutory Statements. All books of account of each Insurance
Company fully and fairly disclose all of its transactions, properties, assets,
investments, liabilities and obligations, are in its possession and are true,
correct and complete in all material respects.
(e) The investments of each of the Insurance Companies reflected in its
most recently filed Annual Statement and Quarterly Statement comply in all
material respects with all applicable requirements of the relevant Department
and of any other Governmental Authority having jurisdiction over the investment
of its funds. The amounts shown in the most recently filed Annual Statement and
Quarterly Statement for each of the Insurance Companies for reserves, policy and
contract claims, agents' balances and uncollected premiums and Statutory
Liabilities were computed in accordance with commonly accepted actuarial
standards consistently applied (other than changes disclosed to the Lenders and
in compliance with applicable Requirements of Law), were fairly stated in
accordance with sound actuarial principles, were based on actuarial assumptions
that were in accordance with or more stringent than those called for in the
insurance policies and contracts and in the related reinsurance, co-insurance or
similar contracts of such Insurance Companies, were computed on the basis of
assumptions consistent with those of the preceding fiscal year (other than
changes disclosed to the Lenders and in compliance with applicable Requirements
of Law), and meet the requirements of each relevant Department and of any other
Governmental Authority having jurisdiction. Such reserves as established by each
Insurance Company were, in the judgment of the Borrower, adequate as of such
date for the payment by such Insurance Company of all of its insurance benefits,
losses, claims and investigative
-57-
<PAGE>
expenses. Marketable securities and short-term investments reflected in each
Insurance Company's most recently filed Annual Statement and Quarterly Statement
are valued at cost, amortized cost or market value, as required by applicable
Requirements of Law.
4.11. Ownership of Properties. (a) Each of the Borrower and its
Subsidiaries has good and marketable title to all real property owned by it,
holds interests as lessee under valid leases in full force and effect with
respect to all leased real and material personal property used in connection
with its business, and has good title to all of its other properties and assets,
including, without limitation, the assets reflected in the Pro Forma Balance
Sheet (except as sold or otherwise disposed of since the date thereof in the
ordinary course of business), in each case free and clear of all Liens other
than Permitted Liens.
(b) Other than (i) financing statements in favor of Wachovia Bank of North
Carolina, N.A. with respect to the Wachovia Indebtedness and naming FRESI as
debtor, (ii) financing statements in favor of First Union National Bank of North
Carolina with respect to the Existing Senior Debt, (iii) financing statements
evidencing true leases of equipment that have been filed solely for notice
purposes, (iv) other financing statements not included in (i), (ii) or (iii)
above that are listed on the first page of Schedule 1.1(b), which financing
statements (A) are in respect of obligations that are satisfied and (B) Borrower
will promptly use its best efforts to have terminated, and (v) financing
statements in favor of the Agent for the benefit of the Lenders, no financing
statement that names the Borrower or any of its Subsidiaries as debtor has been
filed and is still in effect, and neither the Borrower nor any of its
Subsidiaries has signed any other financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
4.12. Employee Plans. (a) Schedule 4.12 lists all Employee Plans in effect
and separately identifies Employee Plans intended to be Qualified Plans and
Multiemployer Plans. The Borrower has heretofore made available true and
complete copies of all such Employee Plans to the Agent.
(b) Each Employee Plan is in compliance in all material respects with all
applicable Requirements of Law, including, without limitation, the applicable
provisions of ERISA and the Internal Revenue Code (including provisions therein
relating to the filing of reports in respect of such Employee Plan, which
reports are true and correct in all material respects as of the date filed).
(c) Each Qualified Plan either has an Internal Revenue Service favorable
determination letter or the remedial amendment period under Section 401(b) of
the Internal Revenue Code within which such a determination may be applied for
has not yet expired, and the trusts created thereunder are exempt from tax under
the provisions of Section 501 of the Internal Revenue Code, and, to the
knowledge of any Responsible Officer, nothing has occurred that would cause the
loss of such qualification or tax-exempt status.
-58-
<PAGE>
(d) There is no outstanding liability under Title IV of ERISA with respect
to any Pension Plan or Multiemployer Plan, and none of the Qualified Plans
subject to Title IV of ERISA has any Unfunded Pension Liability.
(e) No Employee Plan provides medical or other welfare benefits or extends
coverage relating to such benefits beyond the last day of the month in which a
participant's employment terminates, except to the extent required by Section
4980B of the Internal Revenue Code and at the sole expense of the participant or
the beneficiary of the participant to the fullest extent permissible under
Section 4980B of the Internal Revenue Code. Each of the Borrower, its
Subsidiaries and each ERISA Affiliate has complied in all material respects with
the notice and continuation coverage requirements of Section 4980B of the
Internal Revenue Code.
(f) No ERISA Event has occurred or, to the knowledge of any Responsible
Officer, is reasonably expected to occur with respect to any Pension Plan.
(g) There are no pending or, to the knowledge of any Responsible Officer,
written threats of claims, actions or proceedings against or with respect to any
Employee Plan by the Internal Revenue Service, Department of Labor, Equal
Opportunity Employment Commission or any participant, beneficiary or other
Person involving any aspect of any Employee Plan or its assets or any fiduciary
with respect to any Employee Plan (other than routine benefit claims), nor are
there any facts or circumstances that could reasonably be expected to form the
basis for any such claim, action or proceeding.
(h) Neither the Borrower nor any of its Subsidiaries, nor any ERISA
Affiliate, has incurred or, to the knowledge of any Responsible Officer,
reasonably expects to incur (i) any liability (and no event has occurred that,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan or (ii) any liability under Title IV of ERISA (other than premiums due and
not delinquent under Section 4007 of ERISA) with respect to a Pension Plan.
(i) Neither the Borrower nor any of its Subsidiaries, nor any ERISA
Affiliate, has engaged, directly or indirectly, in a Prohibited Transaction in
connection with any Employee Plan, which Prohibited Transaction would be
reasonably likely to have a Material Adverse Effect.
(j) There is no outstanding penalty, interest or excise tax under the
Internal Revenue Code or ERISA with respect to any Employee Plan, which penalty,
interest or excise tax would be reasonably likely to have a Material Adverse
Effect.
(k) With respect to each Pension Plan, (i) all required contributions and
payments have been made (including any employee election contributions described
in
-59-
<PAGE>
Section 401(k) of the Internal Revenue Code) and (ii) all benefits reasonably
determined by the administrator of such Pension Plan to be payable thereunder
have been paid.
4.13. Solvency. On the date hereof and on the Closing Date, both before
and after giving effect to the consummation of the Transactions, the Borrower
and each of its Subsidiaries is and will be Solvent.
4.14. Environmental Matters. (a) Except for the items disclosed on
Schedule 4.14, each of which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect, (i) no Hazardous
Substances are or have been generated, used, released, treated, disposed of or
(except for analytical samples stored in the ordinary course of the consulting
business of FRESI in compliance with all applicable Environmental Laws) stored,
or otherwise located, in, on or under any portion of any real property, leased
or owned, of the Borrower or any of its Subsidiaries, except in compliance with
all applicable Environmental Laws, and no portion of any such real property or
any other real property at any time leased, owned or operated by the Borrower or
any of its Subsidiaries, including, without limitation, the soil and groundwater
located thereon and thereunder, has been contaminated by any Hazardous
Substance, (ii) no improvements on any portion of any real property, leased or
owned, of the Borrower or any of its Subsidiaries contain any asbestos or
substances containing asbestos, except to the extent the same would not be
reasonably likely to have a Material Adverse Effect, and (iii) no portion of any
real property, leased or owned, of the Borrower or any of its Subsidiaries has
been the subject of an environmental audit, assessment or remedial action. The
representations and warranties in this subsection (a) are made, with respect to
Colony, FRIC and Hamilton, solely as to the knowledge of any Responsible
Officer.
(b) To the knowledge of any Responsible Officer and except for the items
disclosed on Schedule 4.14, each of which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, (i) no
portion of any real property, leased or owned, of the Borrower or any of its
Subsidiaries has been used as or for a mine, a landfill, a dump or other
disposal facility, a gasoline service station, or (other than for petroleum
substances stored in the ordinary course of business) a petroleum products
storage facility, and (ii) no portion of such real property or any other real
property at any time leased, owned or operated by the Borrower or any of its
Subsidiaries has, pursuant to any Environmental Law, been placed on the
"National Priorities List" or "CERCLIS List" (or any similar federal, state or
local list) of sites subject to possible environmental problems.
(c) To the knowledge of any Responsible Officer and except for the items
disclosed on Schedule 4.14, each of which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, (i) there
are no underground storage tanks situated on any real property, leased or owned,
of the Borrower or any of its Subsidiaries, and (ii) no underground storage
tanks have ever been situated thereon.
-60-
<PAGE>
(d) All activities and operations of the Borrower and its Subsidiaries are
in material compliance with the requirements of all applicable Environmental
Laws, and each of the Borrower and its Subsidiaries has timely filed all reports
required to be filed, has acquired all necessary certificates, approvals and
permits, and has generated and maintained in all material respects all required
data, documentation and records required under all Environmental Laws. The
representations and warranties in this subsection (d) are made, with respect to
Colony, FRIC and Hamilton, solely as to the knowledge of any Responsible
Officer.
(e) To the knowledge of any Responsible Officer, neither the Borrower nor
any of its Subsidiaries has ever sent any Hazardous Substance to a site that,
pursuant to any Environmental Law, (i) has been placed on the "National
Priorities List" or "CERCLIS List" (or any similar federal, state or local list)
of sites subject to possible environmental problems, or (2) is subject to any
claim, administrative order or other request to take "response," "removal,"
"corrective" or "remedial" action, within the meaning of applicable
Environmental Laws, or to pay for or contribute to the costs of cleaning up the
site.
(f) Neither the Borrower nor any of its Subsidiaries is involved in any
suit, action or proceeding, or has received any notice, complaint or other
request for information from any Governmental Authority or other Person with
respect to, any actual or alleged Environmental Claims; and, to the knowledge of
any Responsible Officer, there are no written threats of actions, suits,
proceedings or investigations with respect to Environmental Claims.
4.15. Trade Relations. There exists (i) no actual or, to the knowledge of
any Responsible Officer, threatened termination, cancellation or limitation of,
or any adverse modification of or change in, the business relationship of the
Borrower or any of its Subsidiaries with any of its customers or any group of
its customers whose purchases, individually or in the aggregate, are material to
its business, or with any insurance agent or insurance agency or group of
insurance agents or insurance agencies whose business relationship is,
individually or in the aggregate, material to its business, and (ii) no
condition or state of facts or circumstances that would be reasonably likely to
have a Material Adverse Effect or prevent the Borrower or any of its
Subsidiaries from conducting its business after the consummation of the
Transactions in substantially the same manner in which it has heretofore been
conducted.
4.16. Labor Relations. To the knowledge of any Responsible Officer,
neither the Borrower nor any of its Subsidiaries is engaged in any unfair labor
practice within the meaning of the National Labor Relations Act of 1947, as
amended. There is (i) no unfair labor practice complaint before the National
Labor Relations Board, or grievance or arbitration proceeding arising out of or
under any collective bargaining agreement, pending or, to the knowledge of any
Responsible Officer, threatened against the Borrower or any of its Subsidiaries,
(ii) no strike, lock-out, slowdown, stoppage, walkout or other labor dispute
pending or, to the knowledge of any Responsible Officer, threatened against the
Borrower or
-61-
<PAGE>
any of its Subsidiaries and (iii) to the knowledge of any Responsible Officer,
no petition for certification or union election or union organizing activities
with respect to the Borrower or any of its Subsidiaries.
4.17. Proprietary Rights. (a) Each of the Borrower and its Subsidiaries
owns, or has the legal right to use pursuant to a valid license in full force
and effect or otherwise, all patents, patent applications, copyrights, copyright
applications, trademarks, trademark applications, service marks, trade names,
processes and formulae, whether not registered or qualified (collectively,
"Proprietary Rights"), necessary for the conduct of its business as presently
conducted and as presently proposed to be conducted, without any known conflict
with any Proprietary Right held by any other Person that, or the failure to
obtain which, as the case may be, would (i) preclude the Borrower or any of its
Subsidiaries from offering or selling any service or product currently offered
or sold by it, or from using any Proprietary Right currently used by it in the
geographic area and in the manner in which it currently offers or sells such
product or service or (ii) otherwise materially interfere with the ability of
the Borrower or any of its Subsidiaries to conduct its business as presently
conducted and as presently proposed to be conducted.
(b) No claim has been made or, to the knowledge of any Responsible
Officer, has been threatened or is reasonably likely to be made, that the use by
the Borrower or any of its Subsidiaries of any Proprietary Right presently used
in the conduct of its business does or may violate or infringe the rights of any
other Person, or otherwise contesting the validity, enforceability, use or
ownership of any such Proprietary Right. The consummation of the Transactions
will not impair the ownership by the Borrower or any of its Subsidiaries of, or
the license or other right of the Borrower or any of its Subsidiaries to use,
any such Proprietary Right.
4.18. Compliance With Laws. Each of the Borrower and its Subsidiaries has
timely filed all reports, documents and other materials required to be filed by
it with any Governmental Authority, has retained all records and documents
required to be retained by it and is otherwise in compliance with all applicable
Requirements of Law in respect of the conduct of its business and the ownership
and operation of its properties, except for such Requirements of Law the failure
to comply with which, individually or in the aggregate, would not be reasonably
likely to have a Material Adverse Effect.
4.19. Regulated Industries. Neither the Borrower nor any of its
Subsidiaries is (i) an "investment company," a company "controlled" by an
"investment company," or an "investment advisor," within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a "holding company," a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
4.20. Collateral. The provisions of the Borrower Pledge and Security
Agreement, the Borrower Collateral Assignment of Agreements, the Subsidiaries
Collateral Assignment of
-62-
<PAGE>
Agreements, and the Escrow Agreement are effective to create in favor of the
Agent for the benefit of the Lenders, upon the making of the Loans hereunder,
and, as to the Collateral, (i) the possession by the Escrow Agent, for the
benefit of the Lender, of the funds and investments maintained and held from
time to time in the Cash Collateral Account, (ii) the possession by the Lender
of certificates and instruments evidencing the Pledged Investments (as defined
in the Borrower Pledge and Security Agreement), and (iii) the proper filing of
appropriately completed financing statements in the offices of the North
Carolina Secretary of State and the Wake County, North Carolina Register of
Deeds and in the locations listed on Schedule 2 to the Borrower Pledge and
Security Agreement, a valid and enforceable first priority perfected security
interest in and Lien upon all right, title and interest of the Borrower in the
Collateral described therein, subject only to Permitted Liens.
4.21. Certain Contracts. Schedule 4.21 lists, both (a) as of the date
hereof and (b) as of the Closing Date and immediately after giving effect to the
Acquisition, each contract, agreement or commitment, written or oral, to which
the Borrower or any of its Subsidiaries is a party, by which any of them or
their respective properties is bound or to which any of them is subject (other
than as may be disclosed on another schedule to this Agreement or elsewhere
herein and other than insurance policies written by the Insurance Companies in
the ordinary course of business) and that (i) relates to employment or labor
matters, (ii) involves aggregate consideration payable to or by any party
thereto of $100,000 or more, or (iii) is otherwise material to the business,
condition (financial or otherwise), operations, performance or properties of the
Borrower or any of its Subsidiaries (including, without limitation, the Current
Services Agreements and the Tax Allocation Agreements), and also indicates the
parties, subject matter and term thereof. Each such contract is in full force
and effect; neither the Borrower nor any of its Subsidiaries or, to the
knowledge of any Responsible Officer, any other party thereto, is in default
under any such contract; and no Responsible Officer has any reason to believe
that the financial condition of any other party to any such contract is impaired
such that a default thereunder by such party could reasonably be anticipated.
4.22. Reinsurance Agreements. Schedule 4.22 lists, both (a) as of the date
hereof and (b) as of the Closing Date and immediately after giving effect to the
Acquisition, each Reinsurance Agreement to which any of the Insurance
Subsidiaries is a party, indicates the other parties thereto and the term
thereof and also designates those Reinsurance Agreements containing any
provision requiring or permitting any increase in premiums thereunder as a
result of losses incurred with respect to policies ceded (a "Premium Adjustment
Provision"). Each such Reinsurance Agreement is in full force and effect;
neither the Borrower nor any of its Insurance Subsidiaries or, to the knowledge
of any Responsible Officer, any other party thereto, is in default under any
such contract; and the Borrower has no reason to believe that the financial
condition of any other party to any such contract is impaired such that a
default thereunder by such party could reasonably be anticipated. Each such
Reinsurance Agreement is qualified under all applicable Requirements of Law to
receive the statutory credit assigned to such Reinsurance Agreement in the
relevant Annual Statement or Quarterly Statement at the time prepared. Except as
expressly shown to the contrary on Schedule 4.22, each
-63-
<PAGE>
Person to whom the Borrower or any of its Subsidiaries has ceded any liability
pursuant to any Reinsurance Agreement has a rating of "A" or better by A.M. Best
& Company. Schedule 4.22 also lists separately, both (a) as of the date hereof
and (b) as of the Closing Date and immediately after giving effect to the
Acquisition, each Reinsurance Agreement no longer in force to which any of the
Insurance Subsidiaries was a party and under which, to the knowledge of any
Responsible Officer, any material benefits or liabilities remain outstanding.
4.23. No Burdensome Restrictions. There exists no restriction or
encumbrance on (i) the ability of the Borrower and its Subsidiaries to perform
and comply with their respective obligations under the Loan Documents, (ii) the
creation or assumption of any Lien upon the assets or properties of the Borrower
or any of its Subsidiaries as security, directly or indirectly, for the
Obligations, or (iii) the ability of any Subsidiary of the Borrower to make any
dividend payments or other distributions in respect of its capital stock or any
other interest or participation in its profits owned by the Borrower or any
other Subsidiary of the Borrower, or to make loans or advances thereto, in each
case other than such restrictions or encumbrances in effect on the Closing Date
or existing under or by reason of (x) applicable law, (y) this Agreement and the
other Loan Documents and (z) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Borrower or any of
its Subsidiaries; and neither the Borrower nor any of its Subsidiaries is a
party to or bound by any other restriction, encumbrance or obligation, whether
pursuant to its articles or certificate of incorporation, bylaws, contract or
any applicable Requirement of Law, that could reasonably be expected to have a
Material Adverse Effect.
4.24. Business Locations: Trade Names. Schedule 4.24 lists each of the
locations where the Borrower or any of its Subsidiaries maintains an office, a
place of business or any records, together with each trade, previous corporate
or other fictitious name under or by which the Borrower or any of its
Subsidiaries has conducted its business.
4.25. Carried Insurance. Schedule 4.25 sets forth a true and complete
summary of all insurance policies or arrangements carried by the Borrower and
its Subsidiaries, and indicates the insurer's name, policy number, expiration
date, amount of coverage, type of coverage, annual premiums, exclusions and
deductibles, and also indicates any self-insurance programs that are in effect.
The assets, properties and business of the Borrower and its Subsidiaries are
insured against such hazards and liabilities, under such coverages and in such
amounts, as are customarily maintained by prudent companies similarly situated
and under policies issued by insurers of recognized responsibility. No notice of
any pending or threatened cancellation or premium increase has been received by
the Borrower or any of its Subsidiaries with respect to any such policies. The
Borrower and each of its Subsidiaries are in substantial compliance with all
conditions contained in such policies.
4.26. Issued Policies. Except with respect to any terms specifically
negotiated with policyholders, all policies of insurance issued by the Insurance
Subsidiaries as now in force are, to the extent required under applicable law,
on forms approved by the relevant
-64-
<PAGE>
Governmental Authorities in the jurisdictions where issued, or have been filed
with, and not objected to by, such Governmental Authorities within the period
provided for objection. None of the terms embraced by the exception set forth in
the preceding sentence adversely affects, or could reasonably be expected to
adversely affect, the enforceability of any such policies or jeopardizes, or
could reasonably be expected to jeopardize, the License of an Insurance
Subsidiary in any jurisdiction. Any rates for premiums required to be filed with
or approved by any Governmental Authority have been so filed or approved, and
such premiums charged by each Insurance Subsidiary conform thereto in all
respects.
4.27. Certain Relationships. Except as set forth on Schedule 4.27, (i) no
officer or director of the Borrower or any of its Subsidiaries owns, directly or
indirectly, any interest in (other than less than 1% stock holdings for
investment purposes in securities of publicly held and traded companies), or is
an officer, director or employee of, any Person that is, or is engaged in
business as, a competitor, lessor, lessee, supplier, agent or customer of, or
lender to or borrower from, the Borrower or any of its Subsidiaries, and (ii) no
officer, director, shareholder or Affiliate of the Borrower or any of its
Subsidiaries (y) owns, directly or indirectly, in whole or in part, any real or
personal property, tangible or intangible, that the Borrower or any of its
Subsidiaries uses in the conduct of its business, or (z) is a party to any
contract or agreement, written or oral, with the Borrower or any of its
Subsidiaries, or has any cause of action or other claim (including claims for
the repayment of indebtedness) against, or owes any amount to, the Borrower or
any of its Subsidiaries, except under the Employment Agreements and except for
ordinary claims for accrued benefits under Employee Plans and similar matters.
4.28. Indebtedness. Schedule 4.28 sets forth, both (i) as of the date
hereof and (ii) as of the Closing Date and immediately after giving effect to
the Acquisition, a complete and accurate list of all Indebtedness of the
Borrower or any of its Subsidiaries (other than the Indebtedness incurred
pursuant to this Agreement and the other Loan Documents), describes the
agreement, note or other instrument evidencing such Indebtedness and lists the
parties thereto, and indicates the principal amount outstanding thereunder, the
scheduled maturity thereof and the existence of any Liens in respect thereof.
All letters of credit described on Schedule 4.28 have been issued in support of
liabilities that are reflected on the most recent Historical Financial
Statements of the Insurance Subsidiaries. The Borrower has heretofore delivered,
or on or prior to the Closing Date will deliver, true and complete copies of all
such agreements, notes and other instruments to the Agent.
4.29. Representations and Warranties in Transaction Documents. Each of the
representations and warranties of the Borrower and its Subsidiaries set forth in
the Transaction Documents (other than the Loan Documents) is true and correct as
of the date made and as of the Closing Date.
4.30. Transaction Documents. The Borrower has heretofore delivered, or
will on or prior to the Closing Date deliver, to the Agent a true, complete and
correct copy of each of the Stock Purchase Agreement and the other Transaction
Documents executed and delivered
-65-
<PAGE>
in connection therewith, together with all amendments and modifications thereto.
Each such Transaction Document (together with all schedules and exhibits
thereto) comprises, or upon execution and delivery on or prior to the Closing
Date will comprise, a full and complete copy of all agreements between the
parties thereto with respect to the subject matter thereof, and there are no,
and will not then be any, other agreements or understandings, written or oral,
or side agreements not contained therein that relate to or modify the substance
thereof. Each such Transaction Document is, or upon execution and delivery on or
prior to the Closing Date will be, in full force and effect and, except with the
prior approval of the Agent, no provision thereof has been, or will then have
been, amended, modified or waived by any party thereto.
4.31. Consummation of Transactions. As of the Closing Date, the
Acquisition will have been consummated in accordance with the terms of the Stock
Purchase Agreement and all applicable Requirements of Law, and the Borrower will
be the legal owner of all of the outstanding Capital Stock of Rockwood, free and
clear of any Liens other than the Liens created by the Loan Documents.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Obligations
shall remain unpaid, unless the Required Lenders shall have consented in
writing:
5.1. GAAP Financial Statements. The Borrower will deliver to each Lender:
(a) As soon as practicable and in any event within forty-five (45)
days after the end of each of the first three fiscal quarters of each
fiscal year, beginning with the fiscal quarter ending March 31, 1997,
unaudited consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as of the end of such fiscal quarter and unaudited
consolidated and consolidating statements of income, retained earnings for
the Borrower and its Subsidiaries for the fiscal quarter then ended and
for that portion of the fiscal year then ended, in each case setting forth
comparative figures for the corresponding period in the preceding fiscal
year, all prepared in accordance with Generally Accepted Accounting
Principles (subject to the absence of notes required by Generally Accepted
Accounting Principles and subject to normal year-end audit adjustments)
applied on a basis consistent with that of the preceding quarter or
containing disclosure of the effect on the financial position or results
of operations of any change in the application of accounting principles
and practices during the quarter; and
(b) As soon as practicable and in any event within 120 days after
the end of each fiscal year, beginning with the current fiscal year, (i)
an audited consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of such fiscal year and audited consolidated statements of
income, retained earnings and cash flows for the Borrower and its
-66-
<PAGE>
Subsidiaries for the fiscal year then ended, including the notes thereto,
in each case setting forth comparative figures for the preceding fiscal
year, certified by Ernst & Young or another independent certified public
accounting firm reasonably acceptable to the Agent, together with (y) a
report thereon by such accountants that is not qualified as to going
concern or scope of audit and to the effect that such financial statements
present fairly the consolidated financial position and results of
operations of the Borrower and its Subsidiaries as of the dates and for
the periods indicated in accordance with Generally Accepted Accounting
Principles applied on a basis consistent with that of the preceding year
or containing disclosure of the effect on the financial position or
results of operations of any change in the application of accounting
principles and practices during the year and (z) a report by such
accountants to the effect that, based on and in connection with their
examination of the financial statements of the Borrower and its
Subsidiaries, they obtained no knowledge of the occurrence or existence of
any Event of Default arising under any of Section 6.1 through 6.9, 6.11
through 6.13 or 6.19, or a statement specifying the nature and period of
existence of any such Event of Default disclosed by their audit; provided,
however that such accountants shall not be liable by reason of the failure
to obtain knowledge of any Event of Default that would not be disclosed or
revealed in the course of their audit examination, and (ii) an unaudited
consolidating balance sheet of the Borrower and its Subsidiaries as of the
end of such fiscal year and unaudited consolidating statements of income,
retained earnings and cash flows for the Borrower and its Subsidiaries for
the fiscal year then ended, all in reasonable detail.
5.2. Statutory Financial Statements. The Borrower will deliver to each
Lender:
(a) As soon as practicable and in any event within forty-five (45)
days after the end of each of the first three fiscal quarters of each
fiscal year, beginning with the fiscal quarter ending March 31, 1997, a
Quarterly Statement of each Insurance Subsidiary as of the end of such
fiscal quarter and for that portion of the fiscal year then ended, in the
form filed with the relevant Department, prepared in accordance with
Statutory Accounting Principles applied on a basis consistent with that of
the preceding quarter or containing disclosure of the effect on the
financial position or results of operations of any change in the
application of accounting principles and practices during the quarter; and
(b) As soon as practicable and in any event within sixty (60) days
after the end of each fiscal year, beginning with the current fiscal year,
an Annual Statement of each Insurance Subsidiary as of the end of such
fiscal year and for the fiscal year then ended, in the form filed with the
relevant Department, prepared in accordance with Statutory Accounting
Principles applied on a basis consistent with that of the preceding year
or containing disclosure of the effect on the financial position or
results of operations of any change in the application of accounting
principles and practices during the year; and concurrently with the filing
thereof with the NAIC, the consolidated Annual Statements of all of the
Insurance Subsidiaries as of the end of such fiscal year and for the
fiscal year then ended, prepared in accordance with Statutory Accounting
Principles applied on a basis consistent with that of the preceding year
or containing disclosure of the effect on the
-67-
<PAGE>
financial position or results of operations of any change in the
application of accounting principles and practices during the year; and
(c) As soon as practicable and in any event (i) promptly after
filing with the relevant Department, or (ii) within 120 days after request
therefor by the Required Lenders, a certification as to the most recent
Annual Statement of any Insurance Subsidiary by the Borrower's independent
certified public accounting firm referred to in Section 5.1(b), together
with a report thereon by such accountants that is not qualified as to
going concern or scope of audit and to the effect that such Annual
Statement presents fairly the financial position and results of operations
of such Insurance Subsidiary as of the date and for the period indicated
in accordance with Statutory Accounting Principles applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on the financial position or results of operations of any change in
the application of accounting principles and practices during the year.
5.3. Other Business and Financial Information. The Borrower will deliver
to each Lender:
(a) Concurrently with each delivery of the financial statements
described in Sections 5.1, 5.2(a) and 5.2(b), a Compliance Certificate
with respect to the period covered by the financial statements then being
delivered and in the form of Exhibit J-1 or Exhibit J-2, as applicable,
executed by the chief financial officer of the Borrower (together, in the
case of the financial statements described in Section 5.1, with a Covenant
Compliance Worksheet reflecting the computation of the financial covenants
set forth in Sections 6.2, 6.4, 6.5 and 6.7 as of the last day of the
period covered by such financial statements, and in the case of the
financial statements described in Section 5.2(a) and 5.2(b), with a
Covenant Compliance Worksheet reflecting the computation of the financial
covenants set forth in Sections 6.1, 6.3 and 6.6 as of the last day of the
period covered by such financial statements);
(b) Promptly upon filing with the relevant Department and in any
event within ninety (90) days after the end of each fiscal year, beginning
with the current fiscal year, a copy of each Insurance Subsidiary's
"Statement of Actuarial Opinion" (or equivalent information should the
relevant Department not require such a statement) as to the adequacy of
such Insurance Subsidiary's loss reserves for such fiscal year, together
with a copy of its management discussion and analysis in connection
therewith, each in the format prescribed by the applicable Insurance Code;
(c) As soon as practicable and in any event within 120 days after
the end of each fiscal year, beginning with the current fiscal year, an
Actuarial Report with respect to each Insurance Subsidiary as of the end
of such fiscal year;
(d) As soon as practicable and in any event (i) prior to the end of
each fiscal year, beginning with the fiscal year ending December 31, 1997,
new business plans
-68-
<PAGE>
and a consolidated and consolidating operating budget for the Borrower and
its Subsidiaries for the succeeding fiscal year and (ii) within 90 days
after the start of each fiscal year, beginning with the fiscal year
beginning January 1, 1998, projected financial statements for the Borrower
and its Subsidiaries for a five-year period from the first day of such
fiscal year, consisting of consolidated and consolidating balance sheets,
statements of income and cash flows, together with a certificate of the
president or chief financial officer of the Borrower to the effect that
such budgets and financial projections have been prepared in good faith
and are reasonable estimates of the financial position and results of
operations of the Borrower and its Subsidiaries for the period covered
thereby, all in form and substance satisfactory to the Lenders;
(e) Promptly upon (and in any event within three (3) Business Days
after) receipt thereof, a copy of each final report to each Insurance
Subsidiary from the NAIC as to such Insurance Subsidiary's status under
the relevant IRIS Tests;
(f) Promptly upon (and in any event within three (3) Business Days
after) receipt thereof, copies of any "management letter" or other
significant report or other communication submitted to the Borrower or any
of its Subsidiaries by its certified public accountants, and any response
reports from the Borrower or any such Subsidiary in respect thereof, in
connection with each annual, interim or special audit;
(g) Promptly upon (and in any event within three (3) Business Days
after) the sending, filing or receipt thereof, copies of (i) all financial
statements, reports, notices and proxy statements that the Borrower or any
of its Subsidiaries shall send or make available generally to its
shareholders, (ii) all regular, periodic and special reports, registration
statements and prospectuses that the Borrower or any of its Subsidiaries
shall render to or file with the Securities and Exchange Commission, the
National Association of Securities Dealers or any national securities
exchange, (iii) all reports on examination or similar reports, financial
examination reports or market conduct examination reports by the NAIC or
any Department or other Governmental Authority with respect to any
Insurance Subsidiary's insurance business, (iv) all Insurance Holding
Company Systems Act filings with Governmental Authorities made by the
Borrower or any of its Subsidiaries, including, without limitation,
filings seeking approval of transactions with Affiliates, and (v) all
press releases and other statements that the Borrower or any of its
Subsidiaries shall make available generally to the public concerning
developments in the business of the Borrower or any of its Subsidiaries,
other than press releases or statements issued in the ordinary course of
business;
(h) Within thirty (30) days after the filing thereof with the
Internal Revenue Service, copies of each annual report on Form 5500
required to be filed under ERISA in connection with each Employee Plan;
and
-69-
<PAGE>
(i) As promptly as reasonably possible, such other information about
the business, condition (financial or otherwise), operations or properties
of the Borrower or any of its Subsidiaries as the Agent or any Lender may
from time to time reasonably request.
5.4 Notice of Certain Events. The Borrower will promptly, but in no event
later than five (5) Business Days after any Responsible Officer obtains
knowledge thereof, give written notice to the Agent and each Lender of:
(a) The occurrence of any Default or Event of Default, together with
a written statement of the president or chief financial officer of the
Borrower specifying the nature of such Default or Event of Default, the
period of existence thereof and the action that each of the Borrower and
its Subsidiaries has taken and proposes to take with respect thereto;
(b) The occurrence of any material development in any action, suit,
investigation or proceeding described in Schedule 4.5 or the institution
or threat in writing of the institution of any action, suit, investigation
or proceeding of the type described in Section 4.5, including, in each
instance, any such investigation or proceeding by any Department or other
Governmental Authority (other than routine periodic inquiries,
investigations or reviews), together with copies of any filings,
communications, reports or other information relating thereto made
available to the Borrower or any of its Subsidiaries;
(c) The receipt by the Borrower or any of its Subsidiaries from any
Governmental Authority of a notice of violation or noncompliance by the
Borrower or any of its Subsidiaries that, if established, would be
reasonably likely to have a Material Adverse Effect, or a notice of any
actual or written threat of suspension, termination, limitation or
revocation of any material license, permit or authorization (including,
without limitation, any License) of the Borrower or any of its
Subsidiaries, together with a copy of such notice and any other
information relating thereto made available to the Borrower or any of its
Subsidiaries;
(d) The occurrence of any actual or (to the knowledge of any
Executive Officer) proposed changes in any Insurance Code governing the
investment or dividend practices of any of the Insurance Subsidiaries that
would be reasonably likely to have a Material Adverse Effect (for purposes
of this subsection, "Executive Officer" shall mean (i) any Responsible
Officer of the Borrower and (ii) any president, chief executive officer,
chief financial officer, chief operating officer, executive vice president
or senior vice president of any Subsidiary of the Borrower);
(e) The occurrence of any proposed or actual amendment or
modification to any Reinsurance Agreement (whether entered into before or
after the Closing Date), including any Reinsurance Agreements that are in
a runoff mode on the Closing Date, which amendment or modification could
reasonably be expected to have a Material Adverse Effect, or the receipt
by the Borrower or any of its Subsidiaries of any written notice of denial
of coverage, litigation, claim or arbitration arising out of any
Reinsurance Agreement to which
-70-
<PAGE>
it is a party or any cancellation or change in any insurance policy
carried by it, which, in any case, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect;
(f) The occurrence of any ERISA Event with respect to the Borrower
or any of its ERISA Affiliates, together with (i) a written statement of
the president or chief financial officer of the Borrower specifying the
details of such ERISA Event and the action that the Borrower or such ERISA
Affiliate has taken or proposes to take with respect thereto, (ii) a copy
of any notice with respect to such ERISA Event that may be required to be
filed with the PBGC and (iii) any notice delivered by the PBGC to the
Borrower or such ERISA Affiliate with respect to such ERISA Event;
(g) The occurrence of any of the following, together with a
reasonably detailed description thereof and copies of any filings,
communications, reports or other information relating thereto made
available to the Borrower or any of its Subsidiaries: (i) the taking of
any remedial action by the Borrower, any of its Subsidiaries or any other
Person in response to the actual or alleged generation, storage, release,
disposal or discharge of any Hazardous Substances on, to, upon or from any
of the real property, leased or owned, of the Borrower or any of its
Subsidiaries; (ii) any pending Environmental Claim or written threat of an
Environmental Claim against or affecting the Borrower, any of its
Subsidiaries or any of their respective real property, leased or owned; or
(iii) any other condition or occurrence on or arising from or with respect
to any real property, leased or owned, of the Borrower or any of its
Subsidiaries, that (x) results in noncompliance by the Borrower or any of
its Subsidiaries with any applicable Environmental Law, (y) could
reasonably be anticipated to form the basis of an Environmental Claim
against the Borrower, any of its Subsidiaries or any of their respective
real property, leased or owned, or (z) could reasonably be anticipated to
cause any of such real property, or any interest therein (including
leaseholds), to be subject to any restrictions on ownership, occupancy,
use or transfer under any Environmental Law;
(h) Any information that would cause the representations and
warranties made pursuant to Article IV, to the extent such representations
and warranties related to Rockwood and its Subsidiaries, to be materially
incorrect or misleading; and
(i) Any other matter or event that has, or would be reasonably
likely to have, a Material Adverse Effect, together with a written
statement of the president or chief financial officer of the Borrower
setting forth the nature and period of existence thereof and the action
that each of the Borrower and its Subsidiaries has taken and proposes to
take with respect thereto.
5.5. Corporate Existence; Franchises; Maintenance of Properties; etc. The
Borrower will, and will cause each of its Subsidiaries to:
-71-
<PAGE>
(a) Maintain and preserve in full force and effect its corporate
existence; provided, that, so long as they have remained inactive from the
Closing Date and have de minimis assets, the Borrower may dissolve
Triangle or FRETS or both of them;
(b) Obtain, maintain and preserve in full force and effect all other
rights, franchises, licenses, permits, certifications, approvals and
authorizations (including, without limitation, Licenses) required by
Governmental Authorities and necessary to the ownership, occupation or use
of its properties or the conduct of its business, except to the extent
failure to do so would not be reasonably likely to have a Material Adverse
Effect; and
(c) Keep all properties useful to its business in good working order
and condition (normal wear and tear excepted) and from time to time make
all necessary repairs to and renewals and replacements of such properties,
except to the extent that any of such properties are obsolete or are being
replaced.
5.6. Compliance with Laws. The Borrower will, and will cause each of its
Subsidiaries to, comply in all material respects with all Requirements of Law
applicable in respect of the conduct of its business and the ownership and
operation of its properties, including, without limitation, applicable Insurance
Codes.
5.7. Performance of Obligations. The Borrower will, and will cause each of
its Subsidiaries to, (i) pay all Indebtedness as and when due (subject to any
applicable subordination provisions) and otherwise, in all material respects,
comply with and perform all contracts, agreements and instruments creating or
evidencing Indebtedness to which it is a party, and (ii) pay all other
obligations in accordance with their respective terms or customary trade
practices (except to the extent being contested in good faith and by proper
proceedings and for which adequate reserves have been established in accordance
with Generally Accepted Accounting Principles) and, except to the extent failure
to do so would not be reasonably likely to have a Material Adverse Effect,
otherwise comply with and perform all contracts, agreements and instruments
(other than those creating or evidencing Indebtedness) to which it is a party.
5.8. Payment of Taxes. The Borrower will, and will cause each of its
Subsidiaries to, pay and discharge (i) all taxes, assessments and governmental
charges or levies imposed upon it, upon its income or profits or upon any of its
properties, prior to the date on which penalties would attach thereto, and (ii)
all lawful claims that, if unpaid, might become a Lien upon any of the
properties of the Borrower or any of its Subsidiaries; provided, however, that
neither the Borrower nor any of its Subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim that is being contested in good
faith and by proper proceedings and as to which the Borrower or such Subsidiary
is maintaining adequate reserves with respect thereto in accordance with
Generally Accepted Accounting Principles, unless and until any tax lien notice
has become effective with respect thereto or until any Lien resulting therefrom
attaches to its properties and becomes enforceable against its other creditors.
-72-
<PAGE>
5.9. Insurance. The Borrower will, and will cause each of its Subsidiaries
to, maintain with responsible insurance companies insurance with respect to its
assets, properties and business, against such hazards and liabilities, of such
types and in such amounts, as is customarily maintained by prudent companies
similarly situated (including all coverages in effect as of the date hereof),
and in any event as may be required by applicable Requirements of Law and as
shall be reasonably satisfactory to the Agent.
5.10. Maintenance of Books and Records; Inspection. The Borrower will, and
will cause each of its Subsidiaries to:
(a) Maintain adequate books, accounts and records, in which full,
true and correct entries shall be made of all financial transactions in
relation to its business and properties, and prepare all financial
statements required under this Agreement, in each case in accordance with
Generally Accepted Accounting Principles or Statutory Accounting
Principles, as applicable, and in compliance with the requirements of any
Governmental Authority having jurisdiction over it; and
(b) Permit employees or agents of the Agent or any Lender to inspect
its properties and examine or audit its books, records, working papers and
accounts and make copies and memoranda of them, and to discuss its
affairs, finances and accounts with its officers and employees and, upon
notice to the Borrower, the independent public accountants of the Borrower
and its Subsidiaries (and by this provision the Borrower authorizes such
accountants to discuss the finances and affairs of the Borrower and its
Subsidiaries), all at such times and from time to time during business
hours as may be reasonably requested.
5.11. Interest Rate Protection. Within ninety (90) days after the Closing
Date, the Borrower will enter into or obtain, and will maintain in full force
and effect, Hedge Agreements pursuant to which the Borrower will obtain
protection against increases in interest rates, either (i) covering increases in
excess of three percentage points (3%) as to not less than fifty percent (50%)
of all principal amounts outstanding from time to time under the Loans for a
period of not less than three (3) years after the Closing Date, or (ii) on such
other terms and conditions as are reasonably acceptable to the Agent. The
Borrower will deliver to the Agent, promptly upon receipt thereof, copies of
such Hedge Agreements, and promptly upon request therefor, any other information
reasonably requested by the Agent to evidence its compliance with the provisions
of this Section.
5.12. Dividends. The Borrower will take all action necessary to cause its
Subsidiaries to make such dividends, distributions or other payments to the
Borrower as shall be necessary for the Borrower to make payments of the
principal of and interest on the Loans in accordance with this Agreement,
including scheduled repayments and mandatory prepayments required under Section
2.6, without the necessity of using funds held in the Cash Collateral Account.
In the event the approval of any Governmental Authority or other Person is
required in order for any such Subsidiary to make any such dividends,
distributions or other payments to the Borrower, or for the Borrower to make any
such principal or
-73-
<PAGE>
interest payments to the Lenders, the Borrower will forthwith exercise its best
efforts and take all actions premised by law and necessary to obtain such
approval.
5.13. Further Assurances. The Borrower will, and will cause each of its
Subsidiaries to, make, execute, endorse, acknowledge and deliver any amendments,
modifications or supplements hereto or restatements hereof and any other
agreements, instruments, financing statements, certificates or other documents,
and take any and all such other actions, as may from time to time be reasonably
requested by the Agent or the Required Lenders to perfect and maintain the
validity and priority of the Liens granted pursuant to the Loan Documents and to
effect, confirm or further assure or protect and preserve the interests, rights
and remedies of the Agent and Lenders under this Agreement and the other Loan
Documents.
ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Obligations
shall remain unpaid, unless the Required Lenders shall have consented in
writing:
6.1. Consolidated Statutory Surplus. The Borrower will not permit
Consolidated Statutory Surplus to be less than $60,000,000 at any time from and
after the Closing Date.
6.2. Capitalization Ratio. The Borrower will not permit the Capitalization
Ratio to be greater than 0.5 to 1.0 at any time from and after the Closing Date.
6.3. Operating Leverage Ratio. The Borrower will not permit, at any time
from and after the Closing Date, the ratio of (i) Consolidated Net Written
Premiums to Consolidated Statutory Surplus to be greater than 2.5 to 1.0 or (ii)
Consolidated Gross Written Premiums to Consolidated Statutory Surplus to be
greater than 5.0 to 1.0 (or, in either case, any lower ratio required under any
applicable Requirement of Law).
6.4. Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed
Charge Coverage Ratio to be less than (i) 1.25 to 1.0 as of the last day of the
fiscal quarter ending December 31, 1996, and as of the last day of any fiscal
quarter ending thereafter up to and including the fiscal quarter ending December
31, 1998, and (ii) 1.3 to 1.0 as of the last day of any fiscal quarter ending
thereafter.
6.5. Earnings Coverage Ratio. The Borrower will not permit the Earnings
Coverage Ratio to be less than (i) 1.15 to 1.0 as of the last day of the fiscal
quarter ending December 31, 1996, and as of the last day of any fiscal quarter
ending thereafter up to and including the fiscal quarter ending December 31,
1998, and (ii) 1.3 to 1.0 as of the last day of any fiscal quarter ending
thereafter.
-74-
<PAGE>
6.6. Risk-Based Capital. The Borrower will not permit "total adjusted
capital" (within the meaning of the Risk-Based Capital for Insurers Model Act as
promulgated by the NAIC as of the date hereof (the "Model Act")) of any
Insurance Subsidiary to be less than (i) as of the last day of the fiscal year
ending December 31, 1996, and as of the last day of any fiscal year ending
thereafter up to and including the fiscal year ending December 31, 1998, 135% of
the applicable "Company Action Level RBC" (within the meaning of the Model Act)
for such Insurance Subsidiary at such time, and (ii) as of the last day of any
fiscal year ending thereafter, to be less than 150% of the applicable "Company
Action Level RBC" for such Insurance Subsidiary at such time.
6.7. Capital Expenditures. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, make any Capital Expenditure if, after giving
effect to such Capital Expenditure, the aggregate amount of all Capital
Expenditures made by the Borrower and its Subsidiaries shall exceed (i)
$1,500,000 during the fiscal year ending December 31, 1997 and (ii) $1,000,000
in any fiscal year thereafter.
6.8. Merger, Consolidation. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, liquidate, wind up or dissolve, enter into any
consolidation, merger or other combination, or directly or indirectly sell,
assign, lease, convey, transfer or otherwise dispose of, whether in one or a
series of transactions, any Material Assets, or enter into any arrangement with
any Person providing for the lease by the Borrower or any of its Subsidiaries as
lessee of any asset that has been sold or transferred by the Borrower or such
Subsidiary to such Person, or agree to do any of the foregoing; provided,
however, that, (i) on the Closing Date, Rockwood may sell all of the issued and
outstanding Capital Stock of Premier to Fort Washington in accordance with the
Transaction Documents or on other terms and conditions satisfactory to the
Lenders, (ii) Colony may grant an option to Fort Washington to purchase all of
the issued and outstanding Capital Stock of Hamilton in accordance with the
Transaction Documents or on other terms and conditions satisfactory to the Agent
and, subject to such terms and conditions, such sale may occur upon exercise of
the option, and (iii) so long as they have remained inactive from the Closing
Date and have de minimis assets, the Borrower may dissolve Triangle or FRETS or
both of them. For purposes of this Agreement, "Material Asset" shall mean (i)
any asset or line of business of the Borrower or any of its Subsidiaries that is
material to its business, operations or condition (financial or otherwise),
including, without limitation, as to an Insurance Subsidiary at any time, any
insurance product line to which greater than five percent (5%) of such Insurance
Subsidiary's Net Written Premiums for the prior fiscal year are attributable,
and (ii) any Capital Stock of any Subsidiary of the Borrower.
6.9. Indebtedness. The Borrower will not, and will not permit or cause any
of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness other than:
(i) Indebtedness incurred pursuant to this Agreement and the other
Loan Documents;
-75-
<PAGE>
(ii) accrued expenses, current trade payables and other current
liabilities arising in the ordinary course of business and not incurred
through the borrowing of money;
(iii) noncurrent trade payables being contested in good faith and by
appropriate proceedings and with respect to which adequate reserves are
being maintained in accordance with Generally Accepted Accounting
Principles;
(iv) current amounts due within seven Business Days to or from
brokers for securities transactions in the ordinary course of business;
(v) Indebtedness under letters of credit for the benefit of the
Insurance Subsidiaries in the ordinary course of their business to secure
reinsurance obligations;
(vi) Indebtedness of the Borrower under the Hedge Agreements
required to be entered into pursuant to Section 5.11;
(vii) Surviving Indebtedness listed on Schedule 4.28 and in amounts
not exceeding the amounts listed thereon;
(viii) Indebtedness of the Borrower's Subsidiaries to the Borrower
in an aggregate principal amount not to exceed $300,000 at any time,
provided that such Indebtedness is, concurrently with its issuance,
evidenced by a written promissory note in form and substance satisfactory
to the Agent and pledged to the Agent for the benefit of the Lenders
pursuant to the Borrower Pledge and Security Agreement;
(ix) Indebtedness incurred by the Borrower or any of its
Subsidiaries (but not by any of the Insurance Subsidiaries) to finance
Capital Expenditures permitted under Section 6.8, provided that the
aggregate amount of all payments of principal and interest made in respect
of such Indebtedness during any fiscal year shall not, when taken together
with all other Capital Expenditures made during such fiscal year, exceed
(i) $1,500,000 during the fiscal year ending December 31, 1997 and (ii)
$1,000,000 in any fiscal year thereafter; and
(x) Indebtedness of the Borrower issued in payment of (i) accrued
dividends with respect to the Series A Preferred Stock in accordance with
the terms of the Amended Charter and (ii) any payments arising from the
exercise of the Rights; provided that such Indebtedness, in either case,
(a) is fully subordinated in right and time of payment to the prior
payment in full in cash of the Obligations on terms satisfactory to the
Required Lenders, (b) matures by its terms no earlier than the seventh
anniversary of the Closing Date, (c)
-76-
<PAGE>
does not include any provision creating a cross-default or
cross-acceleration in respect of the Obligations (d) does not require any
cash payment of interest or principal at any time prior to maturity, and
(e) is otherwise satisfactory to the Required Lenders in all respects.
(xi) purchase money note to Trirock for $13,180,000, provided, that any
such note must be paid in full on or before January 15, 1997.
6.10. Liens. The Borrower will not, and will not permit or cause any of
its Subsidiaries to, directly or indirectly, make, create, incur, assume or
suffer to exist, or enter into or suffer to exist any Lien upon or with respect
to any part of its property or assets, whether now owned or hereafter acquired,
or assign or otherwise convey any right to receive any income or profits
therefrom, or file or permit the filing of, or permit to remain in effect, any
financing statement or other similar notice of any Lien with respect to any such
property, asset, income or profits under the Uniform Commercial Code of any
state or under any similar recording or notice statute, or agree to do any of
the foregoing, other than Permitted Liens.
6.11. Investments. The Borrower will not, and will not permit or cause any
of its Subsidiaries to, directly or indirectly, create, organize or acquire any
Subsidiary or otherwise purchase, own, invest in or otherwise acquire any
capital stock, evidence of indebtedness or other obligation or security or any
interest whatsoever in any other Person, or make or permit to exist any loans,
advances or extensions of credit to, or any investment in cash or by delivery of
property in, any other Person, or become a partner or joint venturer in any
partnership or joint venture, or (other than in the ordinary course of business)
acquire any of the assets or properties of any Person (collectively,
"Investments"), or make a commitment or otherwise agree to do any of the
foregoing, other than:
(i) Cash Equivalents and, as to the Insurance Subsidiaries,
Investment Grade Securities maintained in compliance with the
provisions of clause (ix) below, but in each case excluding Asset
Backed Derivative Securities;
(ii) prepaid expenses incurred, and loans and advances to
employees for reasonable travel and business expenses made, in the
ordinary course of business;
(iii) without duplication, Investments permitted as
Indebtedness under Section 6.9;
(iv) Investments made in the consummation of the Acquisition,
including, without limitation, the promissory note of Fort
Washington in a principal amount not exceeding $2,500,000, given in
respect of the purchase of the Capital Stock of Premier;
-77-
<PAGE>
(v) accounts receivable owing to the Borrower or any of its
Subsidiaries created in the ordinary course of business and payable
in accordance with customary terms prevailing in the industry;
(vi) Investments made in connection with marketing joint
ventures entered into in the ordinary course of business, in an
amount not exceeding $100 with respect to each such joint venture;
(vii) existing Investments in corporations that are
Subsidiaries as of the Closing Date;
(viii) loans in an aggregate amount of up to $250,000 to
employees of the Borrower or its Subsidiaries for purchases of the
Borrower's Capital Stock; and
(ix) other Investments by any of the Insurance Subsidiaries in
compliance with the following restrictions (for purposes of the
following, valuations of Investments in equity securities shall be
made on the basis of cost):
(a) All Investments of each Insurance Subsidiary shall be in
compliance at all times with the applicable Insurance Code and with all
applicable insurance laws and regulations of any other relevant
jurisdictions relating to investments by such Insurance Subsidiary;
(b) The aggregate Investments of any Insurance Subsidiary in
Investment Grade Securities rated "A-" or lower or the then equivalent
grade by any of the rating agencies listed in the definition of
"Investment Grade Securities" shall constitute at all times no more than
ten percent (10%) of Admitted Assets of such Insurance Subsidiary;
(c) The aggregate Investments of any Insurance Subsidiary in
Non-Investment Grade Securities shall constitute at all times no more than
two percent (2%) of Admitted Assets of such Insurance Subsidiary;
(d) The aggregate Investments of any Insurance Subsidiary in equity
securities shall constitute at all times no more than seven percent (7%)
of Admitted Assets of such Insurance Subsidiary, provided, that interests
in closed end bond funds (A) having investment parameters limited to (y)
securities issued or unconditionally guaranteed by the United States of
America or any agency or instrumentality thereof and backed by the full
faith and credit of the United States of America and (z) Investment Grade
Securities rated "AAA" or the then equivalent grade by any of the rating
agencies listed in the definition of "Investment Grade Securities," or (B)
having investment parameters substantially limited to Investment Grade
Securities rated "2" or higher, or the then equivalent grades, by the NAIC
and which closed end bond fund Investments are otherwise applied against
the investment
-78-
<PAGE>
limitations of Section 6.11(ix)(b), in either case shall not be considered
equity securities for purposes of this subsection (d);
(e) The aggregate Investments of any Insurance Subsidiary in
securities of an Issuer Group shall constitute at all times no more than
two percent (2.0%) of Admitted Assets of such Insurance Subsidiary during
the period from the Closing Date through December 31, 1998, and no more
than one and one-half percent (1.5%) of Admitted Assets of such Insurance
Subsidiary thereafter;
(f) The aggregate Investments of any Insurance Subsidiary in any
single equity security shall constitute at all times no more than one and
one-quarter percent (1.25%) of Admitted Assets of such Insurance
Subsidiary during the period from the Closing Date through December 31,
1998, and no more than one percent (1.0%) of Admitted Assets of such
Insurance Subsidiary thereafter; and
(g) The promissory note or notes from Fort Washington representing a
portion of the purchase price for the Capital Stock of Premier or Hamilton
or both of them to the extent such Capital Stock is sold pursuant to
Section 6.8(i) and (ii);
provided, however, that, with respect to any violation of Section 6.11(ix)
that in the reasonable determination of the Agent has not resulted and is
not likely to result in a Material Adverse Effect, the Borrower shall have
sixty (60) days following the end of the calendar month in which the
violation occurred to cure such violation.
6.12. Transactions with Affiliates. Except for transactions (i) otherwise
permitted hereunder or described in Schedule 4.27 or (ii) transactions between
the Borrower and its Wholly-Owned Subsidiaries or between Wholly-Owned
Subsidiaries of the Borrower, the Borrower will not, and will not permit or
cause any of its Subsidiaries to, enter into any transaction with any officer,
director, stockholder or other Affiliate of the Borrower or any Subsidiary, or
any Affiliate of any of the foregoing, including without limitation PIC and Fort
Washington, except transactions that are otherwise permitted under this
Agreement and are entered into in the ordinary course of and pursuant to the
reasonable requirements of its business and upon fair and reasonable terms that
are no less favorable to it than would obtain in a comparable arm's length
transaction with a Person other than an Affiliate of the Borrower or such
Subsidiary.
6.13. Restricted Payments. (a) The Borrower will not, and will not permit
or cause any of its Subsidiaries to, directly or indirectly, declare or make any
dividend payment, or make any other distribution of cash, property or assets, in
respect of any of its capital stock or any warrants, rights or options to
acquire its capital stock, or purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or any warrants, rights or options to
acquire its capital stock, or set aside funds for any of the foregoing, except
that:
-79-
<PAGE>
(i) the Borrower may declare and make dividend payments or other
distributions payable solely in its common stock;
(ii) for so long as no Default shall have occurred and be
continuing, the Borrower may make (y) non-cash dividend payments with
respect to the Series A Preferred Stock to the extent expressly required
under the terms of the Amended Charter and (z) non-cash payments upon the
exercise of the Rights; provided, however, that, any such non-cash
payments are made in compliance with Section 6.9(x);
(iii) each Subsidiary may declare and make dividend payments or
other distributions to the Borrower or another Subsidiary to the extent
permitted under applicable Requirements of Law and, as to the Insurance
Subsidiaries, by each relevant Department (including, subject to the
foregoing limitations, the Special Dividend by Rockwood on the Closing
Date); and
(iv) the Borrower may redeem or repurchase all of the Warrants,
pursuant to their terms, for an aggregate purchase price not to exceed
$5,000.
(b) The Borrower will not, and will not permit or cause any of its
Subsidiaries to, make (or give any notice in respect of) any voluntary or
optional payment or prepayment on any of the Surviving Indebtedness or, directly
or indirectly, make any redemption (including pursuant to any change of control
provision), retirement, defeasance or other acquisition for value of any of the
Surviving Indebtedness or make any deposit or otherwise set aside funds for any
of the foregoing purposes.
6.14. Certain Amendments, etc. The Borrower will not, and will not permit
or cause any of its Subsidiaries to, (i) amend, modify, terminate or waive, or
permit the amendment, modification, termination or waiver of, any provision of
any of the Transaction Documents or any agreement, note or other instrument
evidencing any Surviving Indebtedness, (ii) breach or otherwise violate any of
the subordination provisions applicable to any Indebtedness of the type
described in Section 6.9(x), including, without limitation, restrictions against
payment of principal and interest thereon, (iii) amend, modify or change its
articles or certificate of incorporation (as to the Borrower, the Amended
Charter) or bylaws, or any other agreement entered into by it, in each case with
respect to its Capital Stock, other than amendments to Employee Plans permitted
hereunder and other than any immaterial amendments, modifications or changes
that could not reasonably be expected to affect the Lenders adversely (it being
understood that any such amendment relating to the Series A Preferred Stock
shall not be deemed immaterial), or (iv) enter into any new agreement with
respect to its Capital Stock other than Employee Plans permitted hereunder and
ancillary agreements relating thereto.
6.15. Limitation on Certain Restrictions. The Borrower will not, and will
not permit or cause any of its Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer
-80-
<PAGE>
to exist or become effective any restriction or encumbrance on (i) the ability
of the Borrower and its Subsidiaries to perform and comply with their respective
obligations under the Loan Documents, (ii) the creation or assumption of any
Lien upon the assets or properties of the Borrower or any of its Subsidiaries as
security, directly or indirectly, for the Obligations, or (iii) the ability of
any Subsidiary of the Borrower to make any dividend payments or other
distributions in respect of its capital stock or any other interest or
participation in its profits owned by the Borrower or any other Subsidiary of
the Borrower, or to make loans or advances thereto, in each case other than such
restrictions or encumbrances in effect on the Closing Date or existing under or
by reason of (x) applicable law, (y) this Agreement and the other Loan Documents
and (z) customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Borrower or any of its Subsidiaries.
6.16. New Business. The Borrower will not, and will not permit or cause
any of its Subsidiaries to, engage in any business other than the businesses in
which it is engaged on the date hereof or, in addition, in the case of an
Insurance Subsidiary, write insurance policies or contracts or offer and sell
any insurance products other than the types listed opposite its name on Schedule
6.16.
6.17. Compliance of Employee Plans. The Borrower will not, and will not
permit or cause any of its Subsidiaries or any ERISA Affiliate to, directly or
indirectly, (i) take or fail to take any action that could reasonably be
expected to result in any liability of the Borrower, any Subsidiary or any ERISA
Affiliate to the PBGC or to a Multiemployer Plan, which liability would be
reasonably likely to have a Material Adverse Effect, (ii) terminate any Pension
Plan subject to Title IV of ERISA so as to result in any liability of the
Borrower, any Subsidiary or any ERISA Affiliate, which liability would be
reasonably likely to have a Material Adverse Effect, (iii) permit to exist any
ERISA Event, or any other event or condition, that presents the risk of any
liability of the Borrower or any ERISA Affiliate, which liability would be
reasonably likely to have a Material Adverse Effect, (iv) enter into any new
Employee Plan or amend or modify any existing Employee Plan (other than in the
ordinary course of business consistent with past practice) where such new
Employee Plan or amendment or modification would be reasonably likely to have a
Material Adverse Effect and (v) operate any Employee Plan in a manner such that
the Borrower, any Subsidiary or any ERISA Affiliate will incur any tax liability
under Section 4980B of the Internal Revenue Code or a material liability to any
"qualified beneficiary" within the meaning of Section 4980B of the Internal
Revenue Code, which liability would be reasonably likely to have a Material
Adverse Effect.
6.18. Fiscal Year. The Borrower will not, and will not permit or cause any
of its Subsidiaries to, change the ending date of its fiscal year to a date
other than December 31.
6.19. Accounting Changes. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, make or permit any material change in its
accounting policies or reporting practices, except as may be required by
Generally Accepted Accounting Principles or Statutory Accounting Principles, as
applicable.
-81-
<PAGE>
6.20. Change of Location or Name. The Borrower will not, and will not
permit or cause any of its Subsidiaries to, change (i) the location of its chief
executive office, principal place of business or records concerning its business
and financial affairs, or (ii) its corporate name or the trade or fictitious
name under which it conducts its business, in each case without having given the
Agent at least thirty (30) days' prior written notice and having taken any and
all action requested by the Agent to preserve and maintain the Agent's Liens in
and upon the Collateral as valid first priority perfected Liens, subject only to
Permitted Liens.
6.21. Best Rating. The Borrower will not, and will not permit or cause any
of its Insurance Subsidiaries to, permit the rating by A.M. Best & Company of
(i) FRIC, Colony or Hamilton to be lower than "B+" at any time or (ii) Rockwood
to be lower than "B" at any time.
6.22. Reinsurance Agreements. (a) The Borrower will not, and will not
permit or cause any of its Insurance Subsidiaries to, (i) be or become a party
to any Reinsurance Agreement (whether in effect as of the date hereof or at any
time hereafter) with any reinsurer not rated "A" or better by A.M. Best &
Company unless such reinsurer has provided collateral in form and amount
satisfactory to the Agent, (ii) renew or extend the term of any of the
Reinsurance Agreements designated on Schedule 4.22 as containing any Premium
Adjustment Provision, (iii) enter into any new Reinsurance Agreement containing
any Premium Adjustment Provision, or (iv) enter into any Reinsurance Agreement,
or reinsurance agreement as a reinsurer, with PIC, Fort Washington, or any
Affiliate thereof; provided, however, that any Insurance Subsidiary may enter
into a Reinsurance Agreement with another Insurance Subsidiary.
(b) Notwithstanding anything to the contrary set forth in Section
6.22(a)(i), the Borrower may permit the Insurance Subsidiaries to undertake the
following: (i) Colony may cede up to $1,000,000 in premiums, and Rockwood may
cede up to $3,000,000 in premiums, on an uncollateralized basis to reinsurers
having an A.M. Best rating lower than "A" but not lower than "B++," (ii) on the
Closing Date, Rockwood may cede to PIC and its Subsidiaries (including Premier),
on a collateralized basis satisfactory to the Agent, premiums relating to
private passenger automobile business written by Rockwood or its Subsidiaries
prior to the Closing Date, and (iii) each Insurance Subsidiary may remain a
party to Reinsurance Agreements (but not extend, renew or enter into any new
Reinsurance Agreements) with reinsurers whose ratings have been lowered below
the levels required by Sections 6.22(a)(i) or 6.22(b)(i), provided, with respect
to this subsection (iii), that (x) the aggregate amount, as of the end of each
fiscal year, of the net amount recoverable (as shown on Schedule F - Part 3,
column 13 of the Insurance Subsidiaries' Annual Statements) from such reinsurers
as of such year end is not or will not be greater than five percent (5%) of the
Consolidated Statutory Surplus for the Insurance Subsidiaries as of such year
end, (y) as of the end of each fiscal quarter, the aggregate amount of
reinsurance premiums ceded (calculated in the same manner as required for
Schedule F - Part 3, column 1 of the Insurance Subsidiaries' Annual Statements)
by the Insurance Subsidiaries as of such date to
-82-
<PAGE>
all such reinsurers is not or will not be greater than five percent (5%) of the
total reinsurance premiums ceded for the Insurance Subsidiaries as of such date,
and (z) promptly upon the Borrower or any Insurance Subsidiary obtaining
knowledge that A.M. Best has announced a lowering of the rating of a reinsurer
below the level required by Sections 6.22(a)(i) or 6.22(b)(i), the Borrower
shall provide notice thereof to the Agent and Lenders, together with a
computation, in form and detail acceptable to the Agent, demonstrating
compliance or anticipated compliance as of the next fiscal quarter and fiscal
year ends with the provisions of subsections (x) and (y) of this Section
6.22(b)(iii).
6.23. Hazardous Substances. The Borrower will not, and will not permit or
cause any of its Subsidiaries to, permit any Hazardous Substances, the removal
of which is required or the maintenance of which is restricted, prohibited or
penalized by any Governmental Authority, to be unlawfully brought on to or
located on any real property owned or leased by the Borrower or any of its
Subsidiaries (other than, with respect to leased properties, preexisting
Hazardous Substances for which the Borrower and its Subsidiaries are not legally
responsible), except in full compliance with all applicable Environmental Laws;
and if any such Hazardous Substance is brought or located thereon in violation
of any applicable law (other than, with respect to leased properties,
preexisting Hazardous Substances for which the Borrower and its Subsidiaries are
not legally responsible), it shall be immediately removed, with proper disposal,
and all required environmental cleanup procedures shall be diligently undertaken
pursuant to all such Environmental Laws; and the Borrower will permit the Agent
or any Lender to inspect any such real property, conduct tests thereon and
inspect all books, records and correspondence pertaining thereto and, at the
request of the Agent and at the Borrower's expense, will cause to be prepared
and delivered to the Agent and Lenders a report of a qualified environmental
engineer, satisfactory in form and substance to the Agent, that such removal and
cleanup has been completed, and such other and further assurances relating
thereto, in form and substance satisfactory to the Agent as it may reasonably
request.
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
(a) The Borrower shall fail to pay any principal of or interest on
the Loans when due;
(b) The Borrower shall fail to pay any fees or any other Obligations
(other than as provided in subsection (a) above) within three (3) Business
Days after notice from the Agent or any Lender that the same is due;
-83-
<PAGE>
(c) The Borrower shall fail to observe, perform or comply with any
term, condition or covenant contained in Sections 2.14, 5.1, 5.2, 5.3,
5.4, 5.5(a) or 5.11 or in Article VI;
(d) The Borrower shall tail to observe, perform or comply with any
term, condition or covenant contained in this Agreement other than those
enumerated in subsections (a), (b) or (c) above, and such failure shall
continue unremedied for a period of ten (10) Business Days after any
Responsible Officer acquires knowledge thereof; provided, however, that,
except with respect to any of the provisions of Article IV or Sections
5.5(b) or 5.13, the Borrower shall be entitled to a period of forty-five
(45) days to remedy any such failure if the Borrower demonstrates to the
satisfaction of the Required Lenders that the failure can be remedied in
such period, the Borrower is acting diligently to remedy such failure and
the Borrower is pursuing such remedy to completion;
(e) The Borrower or any of its Subsidiaries shall fail to observe,
perform or comply with any term, condition or covenant contained in any of
the Loan Documents other than this Agreement, and such failure shall
continue unremedied for any grace period specifically applicable thereto
or, if no such grace period is applicable, for a period of ten (10)
Business Days after any Responsible Officer acquires knowledge thereof;
provided, however, that, in the event no such grace period is specifically
applicable thereto, the Borrower shall be entitled to a period of
forty-five (45) days to remedy any such failure if the Borrower
demonstrates to the satisfaction of the Required Lenders that the failure
can be remedied in such period, the Borrower is acting diligently to
remedy such failure and the Borrower is pursuing such remedy to
completion;
(f) Any representation or warranty made in writing by or on behalf
of the Borrower or any of its Subsidiaries in this Agreement, any of the
other Loan Documents or in any certificate, instrument or document
delivered in connection herewith or therewith, or in connection with the
transactions contemplated hereby or thereby, shall prove to have been
false or incorrect in any material respect at the time as of which such
representation or warranty was made;
(g) The Borrower or any of its Subsidiaries shall fail to pay when
due, whether by scheduled maturity, acceleration or otherwise (taking into
account any applicable grace period), any principal of, interest on or
other amount payable in respect of any Indebtedness (other than the
Indebtedness incurred pursuant to this Agreement) having an aggregate
principal amount of at least $250,000; any other default or event of
default shall occur under the terms of any agreement or instrument
pursuant to which the Borrower or any of its Subsidiaries has incurred any
such Indebtedness, the effect of which default or event of default is to
accelerate, or permit acceleration of (after any applicable grace period,
notice or lapse of time), the maturity of at least $250,000 in principal
amount of such Indebtedness; or any such Indebtedness of the Borrower or
any of its Subsidiaries shall be declared to be due and payable or
required to be prepaid or redeemed (other than pursuant to a regular
schedule
-84-
<PAGE>
therefor), purchased or defeased, or an offer to prepay, redeem, purchase
or defease shall be required to be made, in each case prior to the stated
maturity thereof;
(h) Any Department or other Governmental Authority having
jurisdiction shall institute any action or proceeding seeking to place any
Insurance Subsidiary under supervision, conservation or rehabilitation, or
to appoint a receiver therefor;
(i) The Borrower or any of its Subsidiaries shall (i) file a
voluntary petition or commence a voluntary case seeking liquidation,
reorganization, dissolution, arrangement, readjustment of debts or any
other relief under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law. now or hereafter in effect, (ii)
consent to the appointment of or taking possession by a custodian,
trustee, receiver or similar official for or of all or a substantial part
of its properties (or any of the Collateral), (iii) fail generally to pay
its debts as they become due or admit in writing its inability to pay its
debts generally as they become due, (iv) make a general assignment for the
benefit of creditors or (v) take any corporate action to authorize or
approve any of the actions described above;
(j) Any involuntary petition or case shall be filed or commenced
against the Borrower or any of its Subsidiaries seeking liquidation,
reorganization, dissolution, arrangement, readjustment of debts, the
appointment of a custodian, trustee, receiver or similar official for it
or all or a substantial part of its properties (or any of the Collateral)
or any other relief under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in
effect, which petition or case is not dismissed, bonded or discharged
within sixty (60) days of the date of filing; or an order for relief
(including, without limitation, the appointment of a custodian, trustee,
receiver or similar official) shall be entered in any such proceeding,
which order is not stayed or made subject to other similar relief within
sixty (60) days thereafter;
(k) The Borrower or any of its Subsidiaries shall (i) cease to be
Solvent, (ii) cease to conduct business as now conducted or (iii) be
enjoined, restrained or in any way prevented by order of court or any
other Governmental Authority from conducting all or any material part of
its business affairs:
(l) Any one or more judgments, writs or warrants of attachment,
execution or similar processes involving an aggregate amount (not
reimbursed or reimbursable by an insurer (other than an Insurance
Subsidiary) that has acknowledged its liability in writing) in excess of
$250,000 (other than a liability of an Insurance Subsidiary under an
insurance contract written in the ordinary course of business) shall be
entered or filed against the Borrower or any of its Subsidiaries or any of
their respective properties, and all such judgments and processes shall
not be dismissed, vacated, stayed, discharged or bonded for a period of
thirty (30) days or in any event later than five (5) days prior to the
date of any proposed sale thereunder, and, if bonded, such bond (or a
replacement bond) shall not continue in effect at all times until such
judgment is dismissed or discharged;
-85-
<PAGE>
(m) Any Lien, levy or assessment, or notice thereof, shall be filed
of record with respect to all or any portion of the assets of the Borrower
or any of its Subsidiaries by the United States, or any department, agency
or instrumentality thereof, or by any other Governmental Authority,
including, without limitation, the PBGC; such Lien, levy or assessment,
taken together with all other Liens, levies or assessments then of record
with respect to the assets of the Borrower and its Subsidiaries, taken as
a whole, exceeds $250,000; and such Lien, levy or assessment shall be
executed upon or shall not be paid, dismissed, vacated, stayed, released,
bonded or discharged within thirty (30) days after the same becomes a Lien
or, in the case of a Lien involving ad valorem taxes, prior to the last
day when payment may be made without penalty;
(n) Any Loan Document, at any time after execution and delivery
thereof, shall for any reason cease to be a legal, valid and binding
obligation of the Borrower or any of its Subsidiaries to the extent a
party thereto, enforceable against it in accordance with its terms, or to
give the Agent and Lenders the rights, powers and remedies purported to be
created thereby, including, without limitation, a valid, first priority
perfected security interest in and Lien upon all of the Collateral
purported to be covered thereby, subject only to Permitted Liens, in each
case unless any such cessation is due to any act or failure to act on the
part of the Agent or any Lender;
(o) Any Non-Insurance Subsidiary of the Borrower or any Person
acting on behalf of any such Subsidiary shall deny or disaffirm such
Subsidiary's obligations under the Subsidiaries Guaranty;
(p) The occurrence of any of the following events: (i) the Borrower,
any Subsidiary or any ERISA Affiliate shall fail to pay when due, after
expiration of any applicable grace period, any installment payment with
respect to its Withdrawal Liabilities under a Multiemployer Plan; (ii) the
failure of the Borrower, any Subsidiary or any ERISA Affiliate to satisfy
its contribution requirements under Section 412(c)(11) of the Internal
Revenue Code, whether or not it has sought a waiver under Section 412(d)
of the Internal Revenue Code; (iii) notice of intent to terminate any
Pension Plan having Unfunded Pension Liabilities shall be filed under
Title IV of ERISA, where such Unfunded Pension Liabilities would be
reasonably likely to have a Material Adverse Effect; (iv) the institution
by the PBGC of proceedings under Title IV of ERISA to terminate any
Pension Plan; (v) the institution by a fiduciary of any Employee Plan of
proceedings against the Borrower, any Subsidiary or any ERISA Affiliate to
enforce Section 515 of ERISA to collect contributions; (vi) loss of
qualification of a Qualified Plan, where such loss would be reasonably
likely to have a Material Adverse Effect; or (vii) the existence of any
condition that would permit the PBGC under Section 4042 of ERISA to obtain
a decree adjudicating that any Pension Plan or Plans having Unfunded
Pension Liabilities must be terminated; provided, however, that no Event
of Default shall occur as a result of any of the matters described in
clause (i), (iv) or (v) above so long as such matter is being contested in
good faith and by proper proceedings and the Borrower and its Subsidiaries
are maintaining appropriate reserves therefor in accordance with Generally
Accepted Accounting Principles;
-86-
<PAGE>
(q) Any one or more licenses, permits or authorizations (including,
without limitation, Licenses) now or hereafter held by the Borrower or any
of its Subsidiaries shall be terminated, suspended or revoked or shall not
be renewed, which terminations, suspensions, revocations or failures to
renew would, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect;
(r) The occurrence of any one or more changes in any of the
Insurance Codes governing the dividend practices of any of the Insurance
Subsidiaries, which changes would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect;
(s) The occurrence of any one or more changes in the status of any
of the Reinsurance Agreements of any of the Insurance Subsidiaries, which
changes would, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect;
(t) Any of J. Adam Abram, John Latham, John Yediny, or Gregg Davis
shall have ceased to be employed by the Borrower or to continue to perform
his current duties pursuant to his respective Employment Agreement, and
the Borrower shall have failed to hire or appoint a replacement for him,
reasonably satisfactory to the Required Lenders, within one hundred eighty
(180) days thereafter; or
(u) The occurrence of a Change of Control.
7.2. Remedies; Acceleration, etc. Upon and at any time after the
occurrence and during the continuance of any Event of Default, the Agent shall
at the direction, or may with the consent, of the Required Lenders, take any or
all of the following actions at the same or different times:
(a) Declare all or any part of the outstanding principal amount of
the Loans, all unpaid interest accrued thereon, and all other amounts
payable under this Agreement, the Term Notes and the other Loan Documents
to be immediately due and payable, whereupon such outstanding principal
amount, accrued interest and other such amounts shall become immediately
due and payable without presentment, demand, protest, notice of intent to
accelerate or other notice or legal process of any kind, all of which are
hereby knowingly and expressly waived by the Borrower to the greatest
extent permitted by law (provided that, upon the occurrence of an Event of
Default pursuant to Sections 7.1(h), (i) or (j), all of such outstanding
principal amount, accrued interest and other such amounts shall
automatically become immediately due and payable); and
(b) Exercise all rights and remedies available to it under this
Agreement, the other Loan Documents and applicable law.
7.3. Remedies; Set-Off. In addition to all other rights and remedies
available under the Loan Documents or applicable law or otherwise, upon and at
any time after the
-87-
<PAGE>
occurrence and during the continuance of any Event of Default, each Lender and
each of its Affiliates may, and each is hereby authorized by the Borrower, at
any such time and from time to time, to the fullest extent permitted by
applicable law, without presentment, demand, protest or other notice of any
kind, all of which are hereby knowingly and expressly waived by the Borrower to
the greatest extent permitted by applicable law, to set off and to apply any and
all deposits (general or special, time or demand, provisional or final,
including without limitation the Cash Collateral Account) and any other property
at any time held, and any other indebtedness at any time owing, by any Lender or
any of its Affiliates to or for the credit or the account of the Borrower
against any or all of the Obligations now or hereafter existing, whether or not
such Obligations may be contingent or unmatured, the Borrower hereby granting to
the Lenders a continuing security interest in and Lien upon all such deposits
and other property as security for such Obligations. The Lenders agree promptly
to notify the Borrower after any such set-off and application; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application.
ARTICLE VIII
THE AGENT
8.1. Appointment. Each Lender hereby irrevocably appoints and authorizes
First Union to act as Agent hereunder and under the other Loan Documents and to
take such actions as agent on its behalf hereunder and under the other Loan
Documents, and to exercise such powers and to perform such duties, as are
specifically delegated to the Agent by the terms hereof or thereof, together
with such other powers and duties as are reasonably incidental thereto.
8.2. Nature of Duties. The Agent shall have no duties or responsibilities
other than those expressly set forth in this Agreement and the other Loan
Documents. The Agent shall not have, by reason of this Agreement or any other
Loan Document, a fiduciary relationship in respect of any Lender; and nothing in
this Agreement or any other Loan Document, express or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations or liabilities
in respect of this Agreement or any other Loan Document except as expressly set
forth herein or therein. The Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents or attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact that it selects with reasonable care. The Agent shall be
entitled to consult with legal counsel, independent public accountants and other
experts selected by it with respect to all matters pertaining to this Agreement
and the other Loan Documents and its duties hereunder and thereunder and shall
not be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts. The Lenders
hereby acknowledge that the Agent shall not be under any duty to take any
discretionary action permitted to be taken by it pursuant to the provisions of
this Agreement or any other Loan Document unless it shall be requested in
writing to do so by the Required Lenders (or, where a higher percentage of the
Lenders is expressly required hereunder, such Lenders).
-88-
<PAGE>
8.3. Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action taken or omitted to be taken by it or such Person under or
in connection with the Loan Documents, except for its or such Person's own gross
negligence or willful misconduct, (ii) responsible in any manner to any Lender
for any recitals, statements, information, representations or warranties herein
or in any other Loan Document or in any document, instrument, certificate,
report or other writing delivered in connection herewith or therewith, for the
execution, effectiveness, genuineness, validity, enforceability or sufficiency
of this Agreement or any other Loan Document, or for the financial condition of
the Borrower, its Subsidiaries or any other Person, or (iii) required to
ascertain or make any inquiry concerning the performance or observance of any of
the terms, provisions or conditions of this Agreement or any other Loan Document
or the existence or possible existence of any Default or Event of Default, or to
inspect the properties, books or records of the Borrower or any of its
Subsidiaries.
8.4. Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any notice, statement, consent or other
communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it in good faith to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons. The Agent may deem and treat each Lender as the owner of its interest
hereunder for all purposes hereof unless and until a written notice of the
assignment, negotiation or transfer thereof shall have been given to the Agent
in accordance with the provisions of this Agreement. The Agent shall be entitled
to refrain from taking or omitting to take any action in connection with this
Agreement or any other Loan Document (i) if such action or omission would, in
the reasonable opinion of the Agent, violate any applicable law or any provision
of this Agreement or any other Loan Document or (ii) unless and until it shall
have received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first have been indemnified to its
satisfaction by the Lenders against any and all liability and expense (other
than liability and expense arising from its own gross negligence or willful
misconduct) that may be incurred by it by reason of taking, continuing to take
or omitting to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Agent as a result of the
Agent's acting or refraining from acting hereunder or under any other Loan
Document in accordance with the instructions of the Required Lenders (or, where
a higher percentage of the Lenders is expressly required hereunder, such
Lenders), and such instructions and any action taken or failure to act pursuant
thereto shall be binding upon all of the Lenders (including all subsequent
Lenders).
8.5. Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representation
or warranty to it and that no act by the Agent or any such Person hereafter
taken, including any review of the affairs of the Borrower and its Subsidiaries,
shall be deemed to constitute any representation or warranty
-89-
<PAGE>
by the Agent to any Lender. Each Lender represents to the Agent that (i) it has,
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
properties, financial and other condition and creditworthiness of the Borrower
and its Subsidiaries and made its own decision to enter into this Agreement and
extend credit to the Borrower hereunder, and (ii) it will, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
hereunder and under the other Loan Documents and to make such investigation as
it deems necessary to inform itself as to the business, prospects, operations,
properties, financial and other condition and creditworthiness of the Borrower
and its Subsidiaries. Except as expressly provided in this Agreement and the
other Loan Documents, the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information concerning the business, prospects, operations, properties,
financial or other condition or creditworthiness of the Borrower, its
Subsidiaries or any other Person that may at any time come into the possession
of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
8.6. Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default unless the Agent
shall have received written notice from the Borrower or a Lender referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event that the Agent receives such
a notice, the Agent will give notice thereof to the Lenders as soon as
reasonably practicable; provided, however, that if any such notice has also been
furnished to the Lenders, the Agent shall have no obligation to notify the
Lenders with respect thereto. The Agent shall (subject to Sections 8.4 and 9.6)
take such action with respect to such Default or Event of Default as shall
reasonably be directed by the Required Lenders; provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
8.7. Indemnification. To the extent the Agent is not reimbursed by or on
behalf of the Borrower, and without limiting the obligation of the Borrower to
do so, the Lenders agree (i) to indemnify the Agent and its officers, directors,
employees, agents, attorneys-in-fact and Affiliates, ratably in proportion to
their respective percentages as used in determining the Required Lenders as of
the date of determination, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, attorneys' fees and expenses) or
disbursements of any kind or nature whatsoever that may at any time (including,
without limitation, at any time following the repayment in full of the Loans) be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement or any other Loan Document or any documents
contemplated by or referred to herein or the transactions
-90-
<PAGE>
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing, and (ii) to reimburse the Agent upon
demand, ratably in proportion to their respective percentages as used in
determining the Required Lenders as of the date of determination, for any
expenses incurred by the Agent in connection with the preparation, negotiation,
execution, delivery, administration, amendment, modification, waiver or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
or any of the other Loan Documents (including, without limitation, reasonable
attorneys' fees and expenses and compensation of agents and employees paid for
services rendered on behalf of the Lenders); provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
to the extent resulting from the gross negligence or willful misconduct of the
party to be indemnified.
8.8. The Agent in its Individual Capacity. With respect to its Commitment,
the Loans made by it and the Term Note issued to it, the Agent in its individual
capacity and not as Agent shall have the same rights and powers under the Loan
Documents as any other Lender and may exercise the same as though it were not
performing the agency duties specified herein; and the terms "Lenders,"
"Required Lenders," and any similar terms shall, unless the context clearly
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, make investments in, and
generally engage in any kind of banking, trust, financial advisory or other
business with the Borrower, any of its Subsidiaries or any of their respective
Affiliates as if the Agent were not performing the agency duties specified
herein, and may accept fees and other consideration from any of them for
services in connection with this Agreement and otherwise without having to
account for the same to the Lenders.
8.9. Successor Agent. The Agent may resign at any time by giving ten (10)
days' prior written notice to the Borrower and the Lenders. Upon any such notice
of resignation, the Required Lenders will, with the prior written consent of the
Borrower (which consent shall not be unreasonably withheld), appoint from among
the Lenders a successor to the Agent (provided that the Borrower's consent shall
not be required in the event a Default or Event of Default shall have occurred
and be continuing). If no successor to the Agent shall have been so appointed by
the Required Lenders and shall have accepted such appointment within such
ten-day period, then the retiring Agent may, on behalf of the Lenders and after
consulting with the Lenders and the Borrower, appoint a successor Agent from
among the Lenders. Upon the acceptance of any appointment as Agent by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents. After any retiring Agent's
resignation as Agent, the provisions of this Article shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent. If no
successor to the Agent has accepted appointment as Agent by the thirtieth (30th)
day following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become
-91-
<PAGE>
effective, and the Lenders shall thereafter perform all of the duties of the
Agent hereunder and under the other Loan Documents until such time, if any, as
the Required Lenders appoint a successor Agent as provided for hereinabove.
8.10. Collateral Matters. (a) The Agent is hereby authorized on behalf of
the Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time (but without any obligation) to take any action with
respect to the Collateral and the Loan Documents that may be necessary to
perfect and maintain perfected the Liens upon the Collateral granted pursuant to
the Loan Documents.
(b) The Lenders hereby irrevocably authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all of
the Obligations, (ii) constituting property sold or to be sold or disposed of as
part of or in connection with any disposition expressly permitted hereunder or
under any other Loan Document or to which the Required Lenders have consented or
(iii) otherwise pursuant to and in accordance with the provisions of any
applicable Loan Document. Upon request by the Agent at any time, the Lenders
will confirm in writing the Agent's authority to release Collateral pursuant to
this subsection (b).
ARTICLE IX
MISCELLANEOUS
9.1. Fees and Expenses. The Borrower agrees (i) whether or not the
transactions contemplated by this Agreement shall be consummated, to pay upon
demand all reasonable out-of-pocket costs and expenses of the Agent (including,
without limitation, the reasonable fees and expenses of counsel to the Agent) in
connection with the examination, review and due diligence investigation in
connection with, the preparation, negotiation, execution, delivery and
syndication of, and any amendment, modification or waiver of or consent with
respect to, this Agreement and the other Loan Documents, (ii) to pay upon demand
all reasonable out-of-pocket costs and expenses of the Agent and each Lender
(including, without limitation, the reasonable fees and expenses of counsel to
the Agent or any Lender) in connection with (y) any restructuring of the credit
arrangement provided under this Agreement, whether in the nature of a
"work-out," in any insolvency or bankruptcy proceeding or otherwise and whether
or not consummated, and (z) the enforcement, attempted enforcement or
preservation of any rights or remedies under this Agreement or any of the other
Loan Documents, whether in any action, suit or proceeding (including any
bankruptcy or insolvency proceeding) or otherwise, and (iii) to pay and hold
harmless the Agent and each Lender from and against all liability for any
intangibles, documentary, stamp or other similar taxes, fees and excises, if
any, including any interest and penalties, and any finder's or brokerage fees,
commissions and expenses (other than any fees, commissions or expenses of
finders or brokers engaged by the Agent or any Lender), that may be payable in
-92-
<PAGE>
connection with the transactions contemplated by this Agreement and the other
Loan Documents.
9.2. Indemnification. The Borrower agrees, whether or not the transactions
contemplated by this Agreement shall be consummated, to indemnify and hold
harmless the Agent and each Lender and each of their respective directors,
officers, employees, agents and Affiliates (each, an "Indemnified Person") from
and against any and all claims, losses, damages, obligations, liabilities,
penalties, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) of any kind or nature whatsoever, whether direct,
indirect or consequential (collectively, "Indemnified Costs"), that may at any
time be imposed on, incurred by or asserted against any such Indemnified Person
as a result of, arising from or in any way relating to the performance or
enforcement of this Agreement, any of the other Loan Documents or any of the
other Transaction Documents, any of the transactions contemplated herein or
therein (including, without limitation, the Transactions) or any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the Loans, or any action, suit or proceeding (including any inquiry
or investigation) by any Person, whether threatened or initiated, related to any
of the foregoing, including, without limitation, the actual or alleged
generation, presence or release of any Hazardous Substances on or from, or the
transportation of Hazardous Substances to or from, any real property owned or
leased by the Borrower or any of its Subsidiaries, and all other Environmental
Claims, and in any case whether or not such Indemnified Person is a party to any
such action, proceeding or suit or a subject of any such inquiry or
investigation; provided, however, that no Indemnified Person shall have the
right to be indemnified hereunder for any Indemnified Costs to the extent
resulting from the gross negligence or willful misconduct of such Indemnified
Person. All of the foregoing Indemnified Costs of any Indemnified Person shall
be paid or reimbursed by the Borrower, as and when incurred and upon demand.
9.3. Governing Law; Consent to Jurisdiction. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS HAVE BEEN EXECUTED, DELIVERED AND ACCEPTED IN, AND SHALL BE
DEEMED TO HAVE BEEN MADE IN, NORTH CAROLINA AND SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF). THE
BORROWER HEREBY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE COURT
WITHIN MECKLENBURG COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN
THE WESTERN DISTRICT OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING
INSTITUTED HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, OR ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
PROCEEDING TO WHICH THE AGENT OR ANY LENDER OR THE BORROWER IS A PARTY,
INCLUDING ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH, ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR
-93-
<PAGE>
ACTIONS OF THE AGENT OR ANY LENDER OR THE BORROWER. THE BORROWER IRREVOCABLY
AGREES TO BE BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT
RENDERED OR RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY
HAVE BASED ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY SUCH PROCEEDING. THE BORROWER CONSENTS THAT ALL SERVICE OF
PROCESS BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO IT AT ITS ADDRESS
SET FORTH HEREINBELOW, AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
UNITED STATES MAILS, PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED. NOTHING IN
THIS SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY PARTY TO BRING ANY ACTION OR
PROCEEDING AGAINST ANY OTHER PARTY IN THE COURTS OF ANY OTHER JURISDICTION.
9.4. Arbitration; Preservation and Limitation of Remedies. (a) Upon demand
of any party hereto whether made before or after institution of any judicial
proceeding, any dispute, claim or controversy arising out of, connected with or
relating to this Agreement or any other Loan Document ("Disputes") between or
among the Borrower, the Agent and the Lenders, or any of them, shall be resolved
by binding arbitration as provided herein. Institution of a judicial proceeding
by a party does not waive the right of that party to demand arbitration
hereunder. Disputes may include, without limitation, tort claims, counterclaims,
claims brought as class actions, claims arising from documents executed in the
future, or claims arising out of or connected with the transactions contemplated
by this Agreement and the other Loan Documents. Arbitration shall be conducted
under and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA"), as in
effect from time to time, and Title 9 of the U.S. Code, as amended. All
arbitration hearings shall be conducted in the city in which the principal
office of the Agent is located. The expedited procedures set forth in Rule 51 et
seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted. Notwithstanding the foregoing,
this arbitration provision does not apply to Disputes under or related to Hedge
Agreements.
(b) Notwithstanding the preceding binding arbitration provisions, the
parties hereto agree to preserve, without diminution, certain remedies that any
party hereto may employ or exercise freely, either alone, in conjunction with or
during a Dispute. Any party hereto shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose
-94-
<PAGE>
against any Collateral by exercising a power of sale granted pursuant to any of
the Loan Documents or under applicable law or by judicial foreclosure and sale,
including a proceeding to confirm the sale; (ii) all rights of self-help,
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies, including injunctive relief, sequestration, garnishment,
attachment, appointment of a receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute. The
parties hereto agree that no party shall have a remedy of punitive or exemplary
damages against any other party in any Dispute, and each party hereby waives any
right or claim to punitive or exemplary damages that it has now or that may
arise in the future in connection with any Dispute, whether such Dispute is
resolved by arbitration or judicially.
9.5. Notices. All notices and other communications provided for hereunder
shall be in writing (including facsimile transmission) and mailed, telecopied or
delivered to the party to be notified at the following addresses:
(a) if to the Borrower, to Front Royal, Inc., 2200 Gateway
Boulevard, Suite 205, Morrisville, North Carolina 2756O, Attention: Gregg
Davis, Telecopy No. (919) 469-3557; with a copy to, Kenneth L. Henderson,
Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the
Americas, New York, New York 10104, Telecopy No. (212) 541-4630;
(b) if to the Agent, to First Union National Bank of North Carolina,
One First Union Center, TOO-IO, 301 South College Street, Charlotte, North
Carolina 28288-0608, Attention: Syndication Agency Services, Telecopy No.
(704) 383-0288; and
(c) if to any Lender, to it at the address for notices set forth on
its signature page hereto (or if to any Lender not a party hereto as of
the date hereof, at the address for notices set forth in its Assignment
and Acceptance);
or in each case, to such other address as any party may designate for itself by
like notice to all other parties hereto. All such notices and communications
shall be deemed to have been given (i) if mailed by first class, certified or
registered mail, postage prepaid, on the fifth Business Day after deposit in the
mails, (ii) if telecopied, when transmitted by telecopier, or (iii) if delivered
by overnight courier or by hand, upon delivery; provided that notices and
communications to the Agent shall not be effective until received by the Agent.
9.6. Amendments, Waivers, etc. No amendment, modification, waiver or
discharge or termination of, or consent to any departure by the Borrower from,
any provision of this Agreement or any other Loan Document, shall be effective
unless in a writing signed by the Required Lenders (or by the Agent at the
direction or with the consent of the Required Lenders), and then the same shall
be effective only in the specific instance and for the
-95-
<PAGE>
specific purpose for which given; provided, however, that no such amendment,
modification, waiver, discharge, termination or consent shall:
(a) unless agreed to by each Lender directly affected thereby, (i)
reduce or forgive the principal amount of any Loan, reduce the rate of or
forgive any interest thereon, or reduce or forgive any fees or other
Obligations (other than fees payable to the Agent for its own account), or
(ii) extend the Maturity Date or any other date fixed for the payment of
any principal of or interest on any Loan (other than additional interest
payable under Section 2.8(b) at the election of the Required Lenders, as
provided therein), any fees (other than fees payable to the Agent for its
own account) or any other Obligations;
(b) unless agreed to by all of the Lenders, (i) increase or extend
the Commitment of any Lender (it being understood that a waiver of any
Event of Default, if agreed to by the requisite Lenders hereunder, shall
not constitute such an increase or extension), (ii) change the percentage
of the aggregate Commitments or of the aggregate unpaid principal amount
of the Loans, or the number or percentage of Lenders, that shall be
required for the Lenders or any of them to take or approve, or direct the
Agent to take or approve, any action hereunder (including as set forth in
the definition of "Required Lenders"), (iii) except as may be otherwise
specifically provided in this Agreement or in any other Loan Document,
release all or substantially all of the Collateral or release any
guarantor from the Subsidiaries Guaranty, or (iv) change any provision of
Section 2.15 or this Section 9.6; and
(c) unless agreed to by the Agent in addition to the Lenders
required as provided hereinabove to take such action, affect the rights or
obligations of the Agent hereunder or under any of the other Loan
Documents;
and provided further that the Fee Letter and any Hedge Agreement to which
any Lender is a party may be amended or modified, and any rights
thereunder waived, in a writing signed by the parties thereto.
9.7. Assignments, Participations. (a) Each Lender may assign to one or
more other Eligible Assignees (each, an "Assignee") all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment, the outstanding Loans made by it and the Term
Note or Term Notes held by it); provided, however, that (i) any such assignment
(other than an assignment to a Lender or an Affiliate of a Lender) shall not be
made without the prior written consent of the Agent and the Borrower (to be
evidenced by their counter-execution of the relevant Assignment and Acceptance),
which consents shall not be unreasonably withheld, provided that the Borrower's
consent shall not be required in the event a Default or Event of Default shall
have occurred and be continuing, (ii) except in the case of an assignment to a
Lender or an Affiliate of a Lender, no such assignment shall be in an aggregate
principal amount (determined as of the date of the Assignment and Acceptance
with respect to such assignment) less than $5,000,000 (or, if less, the full
amount of the assigning Lender's
-96-
<PAGE>
outstanding Loans), and (iii) the parties to each such assignment will execute
and deliver to the Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Term Note or Term Notes subject to
such assignment, and will pay a nonrefundable processing fee of $3,000 to the
Agent for its own account. Upon such execution, delivery, acceptance and
recording of the Assignment and Acceptance, from and after the effective date
specified therein, which effective date shall be at least five Business Days
after the execution thereof (unless the Agent shall otherwise agree), (A) the
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of the assigning Lender
hereunder with respect thereto and (B) the assigning Lender shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (other than rights under the
provisions of this Agreement and the other Loan Documents relating to
indemnification or payment of fees, costs and expenses, to the extent such
rights relate to the time prior to the effective date of such Assignment and
Acceptance) and be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of such assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto). The terms and provisions of each
Assignment and Acceptance shall, upon the effectiveness thereof, be incorporated
into and made a part of this Agreement, and the covenants, agreements and
obligations of each Lender set forth therein shall be deemed made to and for the
benefit of the Agent and the other parties hereto as if set forth at length
herein.
(b) The Agent will maintain at its address for notices referred to herein
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and each Lender at any reasonable time
and from time to time upon reasonable prior notice.
(c) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an Assignee and counter executed by the
Borrower and the Issuing Lender (if required), together with the Term Note or
Term Notes subject to such assignment and the processing fee referred to in
subsection (a) above, the Agent will (i) accept such Assignment and Acceptance,
(ii) on the effective date thereof, record the information contained therein in
the Register and (iii) give notice thereof to the Borrower and the Lenders.
Within five (5) Business Days after its receipt of such notice, the Borrower, at
its own expense, will execute and deliver to the Agent, in exchange for the
surrendered Term Note or Term Notes, a new Term Note or Term Notes to the order
of the Assignee (and, if the assigning Lender has retained any portion of its
rights and obligations hereunder, to the order of the assigning Lender),
prepared in accordance with the provisions of Section 2.4 as
-97-
<PAGE>
necessary to reflect, after giving effect to the assignment, the outstanding
Loans of the Assignee and (to the extent of any retained interests) the
assigning Lender, dated the date of the replaced Term Note or Term Notes and
otherwise in substantially the form of Exhibit A.
The Agent will return cancelled Term Notes to the Borrower.
(d) Each Lender may, without the consent of the Borrower, the Agent or any
other Lender, sell to one or more other Persons (each, a "Participant")
participations in any portion comprising less than all of its rights and
obligations under this Agreement (including, without limitation, a portion of
its Commitments, the outstanding Loans made by it and the Term Note or Term
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement shall remain unchanged and such Lender shall remain solely
responsible for the performance of such obligations, (ii) no Lender shall sell
any participation that, when taken together with all other participations, if
any, sold by such Lender, covers all of such Lender's rights and obligations
under this Agreement, (iii) the Borrower, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and no Lender shall permit
any Participant to have any voting rights or any right to control the vote of
such Lender with respect to any amendment, modification, waiver, consent or
other action hereunder or under any other Loan Document (except as to actions
that would (x) reduce or forgive the principal amount of any Loan, reduce the
rate of or forgive any interest thereon, or reduce or forgive any fees or other
Obligations, (y) extend the Maturity Date or any other date fixed for the
payment of any principal of or interest on any Loan, any fees or any other
Obligations, or (z) increase or extend the Commitment of any Lender), and (iv)
no Participant shall have any rights under this Agreement or any of the other
Loan Documents, each Participant's rights against the granting Lender in respect
of any participation to be those set forth in the participation agreement, and
all amounts payable by the Borrower hereunder shall be determined as if such
Lender had not granted such participation. Notwithstanding the foregoing, each
Participant shall have the rights of a Lender for purposes of Sections 2.16(a),
2.16(b), 2.17, 2.18 and 7.3, and shall be entitled to the benefits thereto, to
the extent that the Lender granting such participation would be entitled to such
benefits if the participation had not been made, provided that no Participant
shall be entitled to receive any greater amount pursuant to any of such Sections
than the Lender granting such participation would have been entitled to receive
in respect of the amount of the participation made by such Lender to such
Participant had such participation not been made.
(e) Nothing in this Agreement shall be construed to prohibit any Lender
from pledging or assigning all or any portion of its rights and interest
hereunder or under any Term Note or any of the other Loan Documents to any
Federal Reserve Bank as security for borrowings therefrom; provided, however,
that no such pledge or assignment shall release a Lender from any of its
obligations hereunder.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section, disclose to the
Assignee or
-98-
<PAGE>
Participant or proposed Assignee or Participant any information relating to the
Borrower and its Subsidiaries furnished to it by or on behalf of any other party
hereto, provided that such Assignee or Participant or proposed Assignee or
Participant agrees in writing to keep such information confidential to the same
extent required of the Lenders under Section 9.13.
9.8. No Waiver. The rights and remedies of the Agent and the Lenders
expressly set forth in this Agreement and the other Loan Documents are
cumulative and in addition to, and not exclusive of, all other rights and
remedies available at law, in equity or otherwise. No failure or delay on the
part of the Agent or any Lender in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege or be construed
to be a waiver of any Default or Event of Default. No course of dealing between
any of the Borrower and the Agent or the Lenders or their agents or employees
shall be effective to amend, modify or discharge any provision of this Agreement
or any other Loan Document or to constitute a waiver of any Default or Event of
Default. No notice to or demand upon the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Agent or any Lender to
exercise any right or remedy or take any other or further action in any
circumstances without notice or demand.
9.9. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, and all references herein to any party shall be deemed to
include its successors and assigns; provided, however, that (i) the Borrower
shall not sell, assign or transfer any of its rights, interests, duties or
obligations under this Agreement or any other Loan Document without the prior
written consent of all of the Lenders and (ii) any Assignees shall have such
rights and obligations with respect to this Agreement and the other Loan
Documents as are provided for under and pursuant to the provisions of Section
9.7.
9.10. Survival. All representations, warranties and agreements made by or
on behalf of the Borrower or any of its Subsidiaries in this Agreement and in
the other Loan Documents shall survive the execution and delivery hereof or
thereof and the making and repayment of the Loans. In addition, notwithstanding
anything herein or under applicable law to the contrary, the provisions of this
Agreement and the other Loan Documents relating to indemnification or payment of
fees, costs and expenses, including, without limitation, the provisions of
Sections 2.16(a), 2.16(b), 2.17, 2.18, 8.7, 9.1 and 9.2, shall survive the
payment in full of all Loans, the termination of the Commitments, and any
termination of this Agreement or any of the other Loan Documents.
9.11. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in such jurisdiction, without prohibiting or invalidating
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
-99-
<PAGE>
9.12. Construction. The headings of the various articles, sections and
subsections of this Agreement have been inserted for convenience only and shall
not in any way affect the meaning or construction of any of the provisions
hereof. Except as otherwise expressly provided herein and in the other Loan
Documents, in the event of any inconsistency or conflict between any provision
of this Agreement and any provision of any of the other Loan Documents, the
provision of this Agreement shall control.
9.13. Confidentiality. Each Lender agrees to keep confidential, pursuant
to its customary procedures for handling confidential information of a similar
nature and in accordance with safe and sound banking practices, all nonpublic
information provided to it by or on behalf of the Borrower or any of its
Subsidiaries in connection with this Agreement or any other Loan Document;
provided, however, that any Lender may disclose such information (i) to its
directors, employees and agents and to its auditors, counsel and other
professional advisors, (ii) at the demand or request of any bank regulatory
authority, court or other Governmental Authority having or asserting
jurisdiction over such Lender, as may be required pursuant to subpoena or other
legal process, or otherwise in order to comply with any applicable Requirement
of Law, (iii) in connection with any proceeding to enforce its rights hereunder
or under any other Loan Document or any other litigation or proceeding related
hereto or to which it is a party, (iv) to the Agent or any other Lender, (v) to
the extent the same has become publicly available other than as a result of a
breach of this Agreement and (vi) pursuant to and in accordance with the
provisions of Section 9.7(f).
9.14. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. This Agreement shall
become effective upon the execution of a counterpart hereof by each of the
parties hereto and receipt by the Agent and the Borrower of written or
telephonic notification of such execution and authorization of delivery thereof.
9.15. Entire Agreement. THIS AGREEMENT AND THE OTHER DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH (A) EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND THERETO RELATING TO
THE SUBJECT MATTER HEREOF AND THEREOF, (B) SUPERSEDE ANY AND ALL PRIOR
AGREEMENTS AND UNDERSTANDINGS OF SUCH PERSONS, ORAL OR WRITTEN, RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF, INCLUDING THE COMMITMENT LETTER FROM FIRST
UNION TO THE BORROWER DATED NOVEMBER 14, 1996, BUT SPECIFICALLY EXCLUDING THE
FEE LETTER, AND (C) MAY NOT BE AMENDED, SUPPLEMENTED, CONTRADICTED OR OTHERWISE
MODIFIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
-100-
<PAGE>
FRONT ROYAL, INC.
By:/s/J. Adam Abram
------------------------------
J. Adam Abram,
Chief Executive Officer
(signatures continued)
-101-
<PAGE>
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent and as a Lender
Commitment: By:/s/Gail M. Golightly
$38,000,000 ------------------------------
Gail M. Golightly,
Senior Vice President
Instructions for wire transfers to the Agent:
First Union National Bank of
North Carolina
ABA Routing No. 053000219
Charlotte, North Carolina
General Ledger No. 465906, RC No. 5007
Attention: Syndication Agency Services
Re: Front Royal, Inc.
Address for notices (as a Lender):
First Union National Bank of
North Carolina
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Jay S. Bullock
Telephone: (704) 383-3789
Telecopy: (704) 383-7611
Lending Office:
First Union National Bank of
North Carolina
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Jay S. Bullock
Telephone: (704) 383-3789
Telecopy: (704) 383-7611
-102-
<PAGE>
Exhibit A to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
_______________________________
Borrower's Taxpayer Identification No.__________
TERM NOTE
$ _________, 199__
Charlotte, North Carolina
FOR VALUE RECEIVED, FRONT ROYAL, INC., a North Carolina corporation (the
"Borrower"), hereby promises to pay to the order of ___________________ (the
"Lender"), at the offices of First Union National Bank of North Carolina (the
"Agent") located at One First Union Center, 301 South College Street, Charlotte,
North Carolina (or at such other place or places as the Agent may designate), at
the times and in the manner provided in the Credit Agreement, dated as of
December 18, 1996 (as amended, modified or supplemented from time to time, the
"Credit Agreement"), among the Borrower, the Lenders from time to time parties
thereto, and First Union National Bank of North Carolina, as Agent, the
principal sum of DOLLARS ($___________________ ), under the terms and conditions
of this promissory note (this "Term Note") and the Credit Agreement. The defined
terms in the Credit Agreement are used herein with the same meaning. The
Borrower also unconditionally promises to pay interest on the aggregate unpaid
principal amount of this Term Note at the rates applicable thereto from time to
time as provided in the Credit Agreement.
This Term Note is one of a series of Term Notes referred to in the Credit
Agreement and is issued to evidence the Loans made by the Lender pursuant to the
Credit Agreement. All of the terms, conditions and covenants of the Credit
Agreement are expressly made a part of this Term Note by reference in the same
manner and with the same effect as if set forth herein at length, and any holder
of this Term Note is entitled to the benefits of and remedies provided in the
Credit Agreement and the other Loan Documents. Reference is made to the Credit
Agreement for provisions relating to the interest rate, maturity, payment,
prepayment and acceleration of this Term Note.
In the event of an acceleration of the maturity of this Term Note, this
Term Note shall become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Borrower.
In the event this Term Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Term Note shall be governed by and construed in accordance with the
internal laws and judicial decisions of the State of North Carolina. The
Borrower hereby submits to the nonexclusive jurisdiction and venue of the
federal and state courts located in Mecklenburg County, North Carolina, although
the Lender shall not be limited to bringing an action in such courts.
IN WITNESS WHEREOF, the Borrower has caused this Term Note to be executed
under seal by its duly authorized corporate officer as of the date and year
first above written.
-103-
<PAGE>
FRONT ROYAL, INC.
By:________________________________
Title:_____________________________
-104-
<PAGE>
Exhibit B to Credit Agreement First
Union National Bank of North
Carolina, as Agent
Front Royal, Inc.
December 18, 1996/ $38,000,000
______________________________
EXCESS CASH FLOW CERTIFICATE
THIS CERTIFICATE is given pursuant to Section 2.6(f) of the Credit
Agreement, dated as of December 18, 1996 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), among FRONT ROYAL, INC. (the
"Borrower"), certain banks and other financial institutions from time to time
parties thereto (the "Lenders"), and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as agent to the Lenders (in such capacity, the "Agent").
The undersigned hereby certifies that:
1. He is the duly elected Chief Financial Officer of the Borrower.
2. Attached to this Certificate as Attachment A is a worksheet
reflecting the computation of the Borrower's Excess Cash Flow for the
fiscal year ended December 31, ____ and the amount required to be prepaid
in respect of the Loans pursuant to Section 2.6(f) of the Credit
Agreement.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the ____ day of ____, ____.
FRONT ROYAL, INC.
By:___________________________
Title: Chief Financial Officer
-105-
<PAGE>
ATTACHMENT A
EXCESS CASH FLOW WORKSHEET
======================================================================== =======
======================================================================== =======
(1) Borrower cash receipts for the fiscal year ended December 31,__:
- ------------------------------------------------------------------------ -------
(a) Available Dividend Amount of the Insurance Subsidiaries $
-----
- ------------------------------------------------------------------------ -------
(b) Combined Net Cash Flow of Non-Insurance Subsidiaries
(other then CMS)1
$
-----
- ------------------------------------------------------------------------ -------
(c) All tax refunds received. $
- ------------------------------------------------------------------------ -------
(d) Other monies received2 $
- ------------------------------------------------------------------------ -------
(e) Total gross cash receipts:
Add Lines (1)(a), (b), (c) and (d)
$
-----
- ------------------------------------------------------------------------ -------
(2) Borrower cash expenditures for such period:
- ------------------------------------------------------------------------ -------
(a) Debt Service $
-----
- ------------------------------------------------------------------------ -------
(b) Net Overhead $
-----
- ------------------------------------------------------------------------ -------
(c) Tax Payments $
-----
- ------------------------------------------------------------------------ -------
(d) Total Cash expenditures: $
Add Lines 2(a), (b) and (c) -----
- ------------------------------------------------------------------------ -------
(3) Total Excess Cash Flow:
Subtract Line (2)(d) from Line 1(e) $
=====
- ------------------------------------------------------------------------ -------
(4) Percentage of Excess Cash Flow required to be paid pursuant to
Section 2.6(f) 35%
-----
- ------------------------------------------------------------------------ -------
(5) Amount of excess Cash Flow prepayment:
Multiply Lines 3 and 4 $
=====
- ------------------------------------------------------------------------ -------
======================================================================== =======
- ----------
1 If negative, cannot exceed $(250,000).
2 Other than items already included and other than Excluded Items.
-106-
<PAGE>
Exhibit C to Credit Agreement First
Union National Bank of North
Carolina, as Agent
Front Royal, Inc.
December 18, 1996 $38,000,000
_____________________________
NOTICE OF CONVERSION/CONTINUATION
[Date]
First Union National Bank of
North Carolina, as Agent
One First Union Center, TW-10
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Syndication Agency Services
Ladies and Gentlemen:
The undersigned, Front Royal, Inc. (the "Borrower"), refers to the Credit
Agreement, dated as of December 18, 1996, (as amended, modified or supplemented
from time to time, the "Credit Agreement") among the Borrower, certain banks and
other financial institutions from time to time parties thereto (the "Lenders"),
and you, as agent for the Lenders (in such capacity, the "Agent"), and, pursuant
to Section 2.11(b) of the Credit Agreement, hereby gives you, as Agent,
irrevocable notice that the Borrower requests a [conversion] [continuation]1 of
Loans under the Credit Agreement, and to that end sets forth below the
information relating to such [conversion] [continuation] (the "Proposed
[Conversion] [Continuation]") as required by Section 2.11(b) of the Credit
Agreement:
(i) The Proposed [Conversion] [Continuation] is requested to be made on
______.2
(ii) The Proposed [Conversion] [Continuation] involves $_________ 3 in
aggregate principal amount of Loans, which Loans are presently
maintained as [Base Rate] [LIBOR] Loans and are proposed hereby to
be [converted into Base Rate Loans] [converted into LIBOR Loans]
[continued as LIBOR Loans].4
- ----------
1 Insert "conversion" or "continuation" throughout the notice, as
applicable.
2 Shall be a Business Day at least one Business Day after the date hereof
(in the case of any conversion of LIBOR Loans into Base Rate Loans) or at
least three Business Days after the date hereof (in the case of any
conversion of Base Rate Loans into, or continuation of, LIBOR Loans), and
additionally, in the case of any conversion of LIBOR Loans into Base Rate
Loans, or continuation of LIBOR Loans, shall be the last day of the
Interest Period applicable to such LIBOR Loans.
3 Shall be an amount not less than $1,000,000 or, if greater, an integral
multiple of $125,000 in excess thereof (in the case of any conversion of
LIBOR Loans into Base Rate Loans) or $2,000,000 or, if greater, an
integral multiple of $125,000 in excess thereof (in the case of any
conversion of Base Rate Loans into, or continuation of, LIBOR Loans).
4 Complete with the applicable bracketed language.
-107-
<PAGE>
[(iii) The initial Interest Period for the Loans being [converted into]
[continued as] LIBOR Loans pursuant to the Proposed
[Conversion][Continuation]shall be [one/two/three/six months].]5
The Borrower hereby certifies that the following statement is true both on
and as of the date hereof and on and as of the effective date of the Proposed
[Conversion] [Continuation]: no Default or Event of Default has or will have
occurred and is continuing or would result from the Proposed [Conversion]
[Continuation].
Very truly yours,
FRONT ROYAL, INC.
By:______________
Title:___________
- ----------
5 include this clause in the case of a proposed Conversion or Continuation
involving a conversion of Base Rate Loans into, or continuation of, LIBOR
Loans, and select the applicable Interest Period.
-108-
<PAGE>
Exhibit D to Credit Agreement First
Union National Bank of North
Carolina, as Agent
Front Royal, Inc.
December 18, 1996 /$38,000,000
______________________________
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT, dated as of the ____ day of December,
1996 (this "Agreement"), is made by FRONT ROYAL, INC., a North Carolina
corporation (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK OF NORTH
CAROLINA ("First Union"), as agent (in such capacity, the "Agent") for the
Lenders (as hereinafter defined) under the Credit Agreement referred to below,
for the benefit of the Agent and the Lenders (collectively, the "Secured
Parties"). Capitalized terms used herein and not defined elsewhere herein shall
have the meanings given to them in the Credit Agreement referred to below.
RECITALS
A. The Pledgor, certain banks and other financial institutions (the
"Lenders") and the Agent are parties to a Credit Agreement, dated as of December
18, 1996 (as amended, modified, supplemented or restated from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed to make Loans to
the Pledgor upon the terms and conditions set forth therein.
B. The Pledgor and the Agent have, as of the date hereof, entered into the
Escrow Agreement and established the Cash Collateral Account (as defined in the
Escrow Agreement) as security for the Obligations of the Pledgor.
C. It is a condition to the making of the Loans to the Pledgor under the
Credit Agreement that the Pledgor shall have agreed, by executing and delivering
this Agreement, to secure the payment in full of the Obligations.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Agent and the Lenders to enter into the Credit
Agreement and to induce the Lenders to make the Loans to the Pledgor thereunder,
the Pledgor hereby agrees as follows:
1. Pledge. The Pledgor hereby pledges and assigns to the Agent, for the
ratable benefit of the Secured Parties, and grants to the Agent, for the ratable
benefit of the Secured Parties, a security interest in, all of the Pledgor's
right, title and interest in and to the following property (collectively, the
"Collateral"):
(i) all of the issued and outstanding shares of capital stock of the
direct Subsidiaries of the Pledgor identified in Part I of Annex A, and
all additional shares of, all warrants, options and other rights to
acquire, and all securities convertible into, capital stock of the direct
Subsidiaries (whether now or hereafter existing) of the Pledgor at any
time owned by the Pledgor, including any securities described in clause
(iii) below, together with all certificates, instruments and entries upon
the books of financial intermediaries at any time evidencing any of the
foregoing (collectively, the "Pledged Stock");
(ii) all promissory notes and debentures of the Subsidiaries of the
Pledgor identified in Part II of Annex A, and all additional promissory
notes and debentures (including any surplus notes and debentures) and
similar instruments at any time issued to the Pledgor by any of its
Subsidiaries or other Affiliates, together with all amendments,
modifications and supplements to, restatements, extensions and renewals
of,
-109-
<PAGE>
substitutions for, and documents and instruments at any time evidencing,
any of the foregoing (collectively, the "Pledged Notes"; and the Pledged
Notes, together with the Pledged Stock, the "Pledged Investments");
(iii) subject to the provisions of Section 7, and as described more
fully therein, all interest, dividends, distributions and other amounts,
and all additional stock, warrants, options, securities and other
property, paid or payable or distributed or distributable in respect of
any Pledged Investments;
(iv) the Escrow Agreement and the funds, investments and securities
maintained and held from time to time in the Cash Collateral Account
established thereunder; and
(v) all proceeds of any of the foregoing. For purposes of this
Agreement, the term "proceeds" shall mean and include all cash, securities
and other property of any nature received or receivable upon the sale,
exchange or other disposition of or realization upon any Collateral,
together with all distributions in respect of any Collateral, including
pursuant to any liquidation, reorganization or similar proceeding with
respect to the Pledgor or any issuer of or obligor on any Collateral.
2. Security for Obligations. This Agreement and the Collateral secure the
full and prompt payment, at any time and from time to time as and when due
(whether at the stated maturity, by acceleration or otherwise), of all
Obligations of the Pledgor, including, without limitation, all principal of and
interest on the Loans and all fees, expenses, indemnities and other amounts
payable by the Pledgor hereunder, under the Credit Agreement or under any other
Loan Document (including interest accruing after the filing of a petition or
commencement of a case by or with respect to the Pledgor seeking relief under
any bankruptcy or insolvency laws, whether or not the claim for such interest is
allowed in such proceeding), and all Obligations that, but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, would become
due, in each case whether now existing or hereafter created or arising and
whether direct or indirect, absolute or contingent, due or to become due.
3. Delivery of Collateral. All certificates or instruments representing or
evidencing any Collateral shall be delivered to the Agent and held by the Agent
on behalf of the Secured Parties pursuant hereto, shall be in form suitable for
transfer by delivery and shall be delivered together with the endorsement of the
Pledgor (in the case of Pledged Notes), undated stock powers (in the case of
Pledged Stock) or other necessary instruments of transfer or assignment, duly
executed in blank and in form and substance satisfactory to the Agent.
4. Representations and Warranties. The Pledgor represents and warrants as
follows:
(a) As of the date hereof, and after giving effect to the
Acquisition, (i) Part I of Annex A contains a true and complete listing of
all direct Subsidiaries of the Pledgor, (ii) the Pledged Stock consists of
the number and type of shares of the capital stock of the direct
Subsidiaries of the Pledgor as described in Part I of Annex A and, as to
each such Subsidiary, constitutes 100% of the issued and outstanding
capital stock of such Subsidiary, and (iii) the Pledged Notes consist of
the promissory notes described in Part II of Annex A.
(b) As to any Pledged Investments required to be pledged at any time
after the date hereof, as of the date so pledged, (i) the Pledged Stock
shall consist of the number and type of shares of the capital stock of the
direct Subsidiaries of the Pledgor as described in Part I of Annex A to
the relevant Pledge Amendment (as hereinafter defined) and, as to each
such Subsidiary, shall, together with all other Pledged Stock of such
Subsidiary, constitute 100% of the issued and outstanding capital stock
and other equity securities of such Subsidiary, and (ii) the Pledged Notes
shall consist of the promissory notes described in Part II of such Annex
A.
(c) The Pledgor is, or at the time when pledged hereunder will be,
the sole legal, record and beneficial owner of, and has, or at the time
pledged hereunder will have, good and marketable title to, all Pledged
Investments pledged hereunder, free and clear of any Lien whatsoever other
than the security interest created by this Agreement (other than the Liens
in favor of First Union with respect to Existing Senior Debt).
-110-
<PAGE>
(d) All shares of Pledged Stock are, or at the time when pledged
hereunder will be, duly and validly issued, fully paid and nonassessable
and not subject to any preemptive rights, warrants, options or similar
rights or restrictions in favor of third parties or any contractual or
other restrictions upon transfer, whether pursuant to any shareholders'
agreement or otherwise.
(e) Each of the Pledged Notes has been, or at the time when pledged
hereunder will have been, duly authorized, issued, executed and delivered
and to the knowledge of the Pledgor is, or at the time when pledged
hereunder will be, the legal, valid and binding obligation of the issuer
thereof, enforceable in accordance with its terms.
(f) No consent, approval, authorization, exemption or other action
by, notice to, or filing with, any Governmental Authority is required in
connection with the due execution, delivery and performance by the Pledgor
of this Agreement, the pledge of the Collateral hereunder or the exercise
by the Agent of the voting or other rights and remedies in respect of the
Collateral provided for herein, except for (i) the financing statements
described in subsection (g) below, (ii) such filings and approvals as have
been made or obtained as required in accordance with the Credit Agreement,
(iii) with respect to the exercise by the Agent of its rights and remedies
hereunder, such approvals and consents of Departments or other
Governmental Authorities as may be required after the date hereof in any
particular instance, and (iv) such approvals and consents as may be
required in connection with a disposition of any Collateral by laws
affecting the offering and sale of securities generally.
(g) Assuming (i) in the case of Pledged Investments evidenced by
certificates or instruments, continuous possession by the Agent of such
certificates and instruments, (ii) the possession by the Escrow Agent, for
the benefit of the Secured Parties, of the funds and certificated
investments and securities maintained and held from time to time in, and
the registration by the issuer of the Agent as pledgee of any
uncertificated securities constituting part of, the Cash Collateral
Account, all in accordance with the terms of the Escrow Agreement, and
(iii) in the case of all other Collateral, proper filing of appropriately
completed financing statements in all filing locations required for the
perfection of a security interest therein under the applicable Uniform
Commercial Code, the pledge of the Collateral pursuant to this Agreement
is effective to create in favor of the Agent a valid and perfected first
priority security interest in and Lien upon the Collateral, securing the
payment and performance of the Obligations.
5. Additional Investments. (a) The Pledgor will cause the Pledged Stock to
constitute at all times 100% of the capital stock and other equity securities of
each of its direct Subsidiaries then outstanding, and will not cause or permit
any of its direct Subsidiaries to issue or sell any new shares of its capital
stock or any warrants, options or rights to acquire its capital stock to any
Person other than the Pledgor.
(b) If the Pledgor shall, at any time and from time to time after the date
hereof, acquire any additional Pledged Investments or certificates or
instruments representing or evidencing the same, whether from Subsidiaries
existing as of the date hereof or created or acquired hereafter, the Pledgor
will forthwith pledge and deposit such Pledged Investments with the Agent and
deliver to the Agent any certificates or instruments therefor, together with the
endorsement of the Pledgor (in the case of Pledged Notes), undated stock powers
(in the case of Pledged Stock) or other necessary instruments of transfer or
assignment, duly executed in blank and in form and substance satisfactory to the
Agent, and will promptly thereafter deliver to the Agent a fully completed and
duly executed amendment to this Agreement in the form of Exhibit A (each, a
"Pledge Amendment") in respect of such additional Pledged Investments. The
Pledgor hereby authorizes the Agent to attach each Pledge Amendment to this
Agreement, and agrees that all such Pledged Investments listed on any Pledge
Amendment shall for all purposes be deemed Pledged Investments hereunder and
shall be subject to the provisions hereof; provided that the failure of the
Pledgor to execute and deliver any Pledge Amendment with respect to any such
additional Pledged Investments as required hereinabove shall not impair the
security interest of the Agent in such Pledged Investments or otherwise
adversely affect the rights and remedies of the Agent hereunder with respect
thereto.
-111-
<PAGE>
(c) Notwithstanding anything to the contrary contained herein, if any
Pledged Investments (whether now owned or hereafter acquired) are
"uncertificated securities" within the meaning of the applicable Uniform
Commercial Code or are otherwise not evidenced by any stock certificate or
similar certificate or instrument, the Pledgor will promptly notify the Agent
thereof and will promptly take and cause to be taken all actions required under
applicable law, including, as applicable, under Article 8 or 9 of the applicable
Uniform Commercial Code, to perfect the security interest of the Agent therein.
6. Voting Rights. So long as no Event of Default shall have occurred and
be continuing, the Pledgor shall be entitled to exercise all voting and other
consensual rights pertaining to the Pledged Investments (subject to its
obligations under Section 5(b)), and for that purpose the Agent will execute and
deliver or cause to be executed and delivered to the Pledgor all such proxies
and other instruments as the Pledgor may reasonably request in writing to enable
the Pledgor to exercise such voting and other consensual rights; provided,
however, that the Pledgor will not cast any vote, give any consent, waiver or
ratification, or take or fail to take any action, in any manner that would, or
could reasonably be expected to, violate or be inconsistent with any of the
terms of this Agreement, the Credit Agreement or any other Loan Document, or
have the effect of impairing the position or interests of the Agent or any
Lender.
7. Dividends and Other Distributions. So long as no Event of Default shall
have occurred and be continuing (or would occur as a result thereof), and except
as provided otherwise herein, all interest, dividends, distributions and other
amounts payable in cash in respect of the Pledged Investments may be paid to and
retained by the Pledgor; provided, however, that all such interest, dividends,
distributions and other amounts shall, at all times after the occurrence and
during the continuance of an Event of Default, be paid to the Agent and retained
by it as part of the Collateral (except to the extent applied upon receipt to
the repayment of the Obligations). The Agent shall also be entitled at all times
(whether or not during the continuance of an Event of Default) to receive, and
to retain as part of the Collateral, all interest, dividends, distributions or
other amounts paid or payable in cash or other property in respect of any
Pledged Investments in connection with the dissolution, liquidation,
recapitalization or reclassification of the capital of any Subsidiary of the
Pledgor to the extent representing an extraordinary, liquidating or other
distribution in return of capital, and all additional stock, warrants, options
or other securities or property (including cash, unless applied upon receipt to
the repayment of the Obligations) paid or payable or distributed or
distributable in respect of any Pledged Investments in connection with any
noncash dividend, stock split, spin-off, split-up, reclassification, combination
of shares or similar rearrangement, or (without affecting any restrictions
against such actions contained in the Credit Agreement) any consolidation,
merger, exchange of stock, liquidation or other reorganization; provided,
however, that the payment of dividends, distributions or other amounts, to the
extent expressly provided for in the Credit Agreement and made in such manner,
shall not be limited hereby. All interest, dividends, distributions or other
amounts that are received by the Pledgor in violation of the provisions of this
Section shall be received in trust for the benefit of the Agent, shall be
segregated from other property or funds of the Pledgor and shall be forthwith
delivered to the Agent as Collateral in the same form as so received (with any
necessary endorsements).
8. Remedies. (a) If an Event of Default shall have occurred and be
continuing, subject to the limitations under applicable law, the Agent may:
(i) notify the parties obligated on any of the Collateral to make
payment to the Agent of any amount due or to become due thereunder and
receive all such amounts;
(ii) transfer to or register in its name or the name of any of its
agents or nominees all or any part of the Collateral, without notice to
the Pledgor and with or without disclosing that such Collateral is subject
to the security interest created hereunder;
(iii) accelerate any Pledged Note that may be accelerated in
accordance with its terms, and take any other lawful action to collect
upon any Pledged Note; and
-112-
<PAGE>
(iv) exercise all voting, consensual and other rights and powers
pertaining to the Pledged Investments (whether or not transferred into the
name of the Agent), and for that purpose the Pledgor will promptly execute
and deliver or cause to be executed and delivered to the Agent, upon
request, all such proxies and other instruments as the Agent may
reasonably request to enable the Agent to exercise such rights and powers;
AND IN FURTHERANCE OF THE FOREGOING AND WITHOUT LIMITATION THEREOF BUT
SUBJECT TO APPLICABLE LAW, THE PLEDGOR HEREBY IRREVOCABLY CONSTITUTES AND
APPOINTS THE AGENT AS THE TRUE AND LAWFUL PROXY AND ATTORNEY-IN-FACT OF
THE PLEDGOR, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES, TO EXERCISE,
AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT,
ALL SUCH VOTING, CONSENSUAL AND OTHER RIGHTS AND POWERS TO WHICH ANY
HOLDER OF THE PLEDGED INVESTMENTS WOULD BE ENTITLED BY VIRTUE OF HOLDING
THE SAME, WHICH PROXY AND POWER OF ATTORNEY, BEING COUPLED WITH AN
INTEREST, ARE IRREVOCABLE, SHALL COMMENCE ON THE DATE HEREOF AND SHALL
REMAIN IN EFFECT FOR SO LONG AS THIS AGREEMENT SHALL BE IN EFFECT; and
(v) exercise in respect of the Collateral, in addition to all other
rights and remedies provided for herein (including, without limitation,
under clauses (i) through (iv) above and Sections 12(b) and (d)) or
otherwise available to it (whether under any other Loan Document, by law,
in equity or otherwise), all rights and remedies of a secured party under
the Uniform Commercial Code as in effect in each relevant jurisdiction,
and may sell, resell, assign and deliver, in its sole discretion, all or
any of the Collateral, in one or more parcels, on any securities exchange
on which the Pledged Securities may be listed, or at public or private
sale, for cash, upon credit or for future delivery, at such time or times
and at such price or prices and upon such other terms as the Agent may
deem satisfactory. If any of the Collateral is sold by the Agent upon
credit or for future delivery, the Agent shall not be liable for the
failure of the purchaser to purchase or pay for the same and, in the event
of any such failure, the Agent may resell such Collateral. In no event
shall the Pledgor be credited with any part of the proceeds of sale of any
Collateral until and to the extent cash payment in respect thereof has
actually been received by the Agent. Each purchaser at any such sale shall
hold the property sold absolutely, free from any claim or right of
whatsoever kind, including any equity or right of redemption of the
Pledgor, and, to the greatest extent permitted by applicable law, the
Pledgor hereby expressly waives all rights of redemption, stay (other than
the automatic stay under Section 362 of the Bankruptcy Code) or appraisal
that it has or may have under any rule of law or statute now existing or
hereafter adopted. No demand, advertisement or notice, all of which are
hereby expressly waived by the Pledgor to the greatest extent permitted by
applicable law, shall be required in connection with any sale or other
disposition of any part of the Collateral that threatens to decline
speedily in value or that is of a type customarily sold in a recognized
market; otherwise, the Agent shall give the Pledgor at least ten (10)
days' prior notice of the time and place of any public sale and of the
time after which any private sale or other disposition is to be made,
which notice the Pledgor agrees is commercially reasonable, the Pledgor
hereby expressly waiving all other demands, advertisements and notices.
The Agent shall not be obligated to make any sale of Collateral if it
shall determine not to do so, regardless of the fact that notice of sale
may have been given. The Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to
time by announcement at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which the
same was so adjourned. The Agent shall promptly notify the Assignor (in
advance if reasonably possible) of the adjournment of any public or
private sale; provided, however, that the failure of the Agent to provide
the Assignor with any such notice shall neither affect any obligations of
the Assignor hereunder or under any of the Loan Documents nor result in
any liability of the Agent to the Assignor or any Lender. Upon each
private sale of Collateral of a type customarily sold in a recognized
market and upon each public sale, the Agent may purchase all or any of the
Collateral being sold, free from any equity, right of redemption or other
claim or demand, and may make payment therefor by endorsement and
application (without recourse) of the Obligations in lieu of cash as a
credit on account of the purchase price for such Collateral.
-113-
<PAGE>
(b) If the Agent determines to exercise its rights to sell any Collateral,
subject to the limitations under applicable law, the Pledgor will, and will
cause each of its Subsidiaries to, furnish promptly to the Agent all such
information as the Agent may reasonably request in order to determine the number
of shares and other instruments comprising such Collateral that may be sold in
transactions exempt under the Securities Act of 1933, as amended from time to
time, and the rules and regulations promulgated thereunder (the "Securities
Act"), and applicable state securities laws as in effect from time to time.
9. Private Sale. The Pledgor recognizes that, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws as in effect from time to time, the Agent may be compelled, with respect to
any sale of all or any part of the Collateral conducted without registration or
qualification under the Securities Act and such state securities laws, to limit
purchasers to any one or more Persons who will represent and agree, among other
things, to acquire such Collateral for their own account, for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges that
any such private sales may be made in such manner and under such circumstances
as the Agent may deem necessary or advisable in its sole and absolute
discretion, including at prices and on terms less favorable than those
obtainable through a public sale without such restrictions (including, without
limitation, a public offering made pursuant to a registration statement under
the Securities Act), and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner and agrees that the Agent shall have no obligation to conduct any public
sales and no obligation to delay the sale of any Collateral for the period of
time necessary to permit its registration for public sale under the Securities
Act and applicable state securities laws, and shall not have any responsibility
or liability as a result of its election so not to conduct any such public sales
or delay the sale of any Collateral, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after such registration. The Pledgor hereby waives any claims against the Agent
or any Lender arising by reason of the fact that the price at which any
Collateral may have been sold at any private sale was less than the price that
might have been obtained at a public sale or was less than the aggregate amount
of the Obligations, even if the Agent accepts the first offer received and does
not offer the Collateral to more than one offeree.
10. Indemnity and Expenses. The Pledgor agrees:
(a) To indemnify and hold harmless the Agent and each Lender from
and against any and all claims, demands, losses, judgments and liabilities
in any way arising out of or in connection with this Agreement and the
transactions contemplated hereby, except to the extent the same shall
arise as a result of the gross negligence or willful misconduct of the
Agent or such Lender as finally determined by a court of competent
jurisdiction and not subject to any further appeal or pursuant to
arbitration as provided in Section 9.4 of the Credit Agreement; and
(b) To pay and reimburse the Agent upon demand for all reasonable
costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) that the Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, use or preservation
of, or the sale of, collection from or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any rights or remedies
granted hereunder (including, without limitation, under Sections 12(b) and
(d)) or under the other Loan Documents, or otherwise available to it
(whether at law, in equity or otherwise), or (iv) the failure by the
Pledgor to perform or observe any of the provisions hereof.
11. Application of Proceeds. (a) All proceeds collected by the Agent upon
any sale, other disposition of or realization upon any of the Collateral,
together with all other moneys received by the Agent hereunder, shall be applied
as follows:
(i) first, to the payment of all costs and expenses of such sale,
disposition or other realization, including the reasonable costs and
expenses of the Agent and the reasonable fees and expenses of its agents
and counsel, all amounts advanced by the Agent for the account of the
Pledgor, and all other amounts payable under Section 10;
-114-
<PAGE>
(ii) second, after payment in full of the amounts specified in
clause (i) above, to the ratable payment of all other Obligations owing to
the Secured Parties, in such order and manner as the Agent may elect; and
(iii) third, after payment in full of the amounts specified in
clauses (i) and (ii) above, and following the termination of this
Agreement, to the Pledgor or any other Person lawfully entitled to receive
such surplus.
(b) The Pledgor shall remain liable to the extent of any deficiency
between the amount of all proceeds of the Collateral and the aggregate amount of
the sums referred to in clauses (i) and (ii) of subsection (a) above.
12. Further Assurances, etc, (a) The Pledgor agrees that it will, at any
time and from time to time and at its own expense, file and maintain in effect
under each applicable Uniform Commercial Code such financing statements,
continuation statements and other documents and instruments as the Agent may
reasonably deem necessary or advisable in order to perfect and preserve the
Agent's security interest in the Collateral granted or purported to be granted
hereby, and agrees to do such further acts and things and to execute and deliver
to the Agent such additional conveyances, assignments, proxies, agreements and
instruments as the Agent may reasonably deem necessary or advisable to carry out
the purposes of this Agreement or to further assure and confirm unto the Agent
its rights, powers and remedies hereunder, including, without limitation, to use
its best efforts to obtain any approvals and consents of Governmental
Authorities that may be necessary in order to permit the Agent to exercise any
of its rights and remedies hereunder.
(b) The Pledgor hereby irrevocably appoints the Agent its lawful
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor, the Agent or otherwise, and with full power of
substitution in the premises (which power of attorney, being coupled with an
interest, is irrevocable for so long as this Agreement shall be in effect), from
time to time in the Agent's reasonable discretion to take any action and to
execute any instruments that the Agent may deem necessary or advisable to
accomplish the purpose of this Agreement, including, without limitation:
(i) to sign the name of the Pledgor on any financing statement,
notice or other similar document that, in the Agent's opinion, should be
made or filed in order to perfect or continue perfected the security
interest granted under this Agreement;
(ii) after the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) after the occurrence and during the continuance of an Event of
Default, to receive, endorse and collect any checks, drafts, instruments
and other orders for the payment of money made payable to the Pledgor
representing any interest, dividend, distribution or other amount payable
in respect of any of the Collateral and to give full discharge for the
same; and
(iv) after the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or advisable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Agent with respect to any of the Collateral.
(c) The Pledgor agrees that it will warrant and defend the right, title
and interest of the Secured Parties in and to the Collateral against the claims
and demands of all other Persons.
(d) If the Pledgor fails to perform any covenant or agreement contained in
this Agreement after written request to do so by the Agent (provided that no
such request shall be necessary at any time after the occurrence and during the
continuance of an Event of Default), the Agent may itself perform, or cause the
performance of, such
-115-
<PAGE>
covenant or agreement and may take any other action that it deems necessary and
appropriate for the maintenance and preservation of the Collateral or its
security interest therein, and the reasonable expenses so incurred in connection
therewith shall be payable by the Pledgor under Section 10.
13. Reasonable Care. The obligations of the Agent as holder of Collateral
and interests therein and with respect to the disposition thereof, and otherwise
under this Agreement and the other Loan Documents, are only those expressly set
forth in this Agreement and the other Loan Documents. The powers conferred on
the Agent hereunder are solely to protect the Agent's interest, on behalf of the
Secured Parties, in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for treatment of the Collateral in its
possession in a manner substantially equivalent to that which the Agent, in its
individual capacity, accords its own property of a similar nature, and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to the Collateral.
Neither the Agent nor any Lender, nor any of their respective officers,
directors, employees or agents, shall be liable for any action taken or omitted
to be taken by it or them hereunder or in connection herewith, except to the
extent arising out of its or their own gross negligence or willful misconduct.
14. Certain Actions. The Pledgor will not (i) sell or otherwise dispose
of, grant any options, warrants or other rights with respect to, or mortgage,
pledge, grant any Lien with respect to or otherwise encumber, any Collateral or
any interest therein, except for the security interest created by this
Agreement, (ii) amend, modify, supplement or waive any provision of any Pledged
Note, or compromise, release or extend the time for payment of any obligation of
the maker thereunder, in a manner that would, or could reasonably be expected
to, have the effect of impairing the position or interests of the Agent or any
Lender, (iii) invoke or assert the benefit of any rule of law or statute now or
hereafter in effect, including, without limitation, any right to prior notice or
judicial hearing or marshalling of assets in connection with the Agent's
possession, custody or disposition of any Collateral and any appraisal,
valuation, stay (other than the automatic stay under Section 362 of the
Bankruptcy Code), extension, moratorium or redemption law, or take or fail to
take any other action, that would, or could reasonably be expected to, have the
effect of delaying, impeding or preventing the exercise of any rights and
remedies in respect of any Collateral, the absolute sale of any Collateral or
the possession thereof by any purchaser at any sale thereof, and the Pledgor
hereby waives the benefit of all such laws, or (iv) agree to do or cause to be
done any of the foregoing; provided, however, that the foregoing shall not limit
the Pledgor's ability to take those actions expressly permitted in Section 6.8
of the Credit Agreement.
15. Security Interest Absolute. The Pledgor agrees that its obligations,
and the security interest granted to and all rights of the Agent, hereunder are
irrevocable, absolute and unconditional and shall not be discharged, limited or
otherwise affected by reason of any of the following, whether or not the Pledgor
has notice or knowledge thereof:
(i) any change in the time, manner or place of payment of, or in any
other term of, any Obligations, or any amendment, modification or
supplement to, restatement of, or consent to any rescission or waiver of
or departure from, any provisions of the Credit Agreement, any other Loan
Document or any agreement or instrument delivered pursuant thereto;
(ii) the invalidity or unenforceability of any particular
Obligations or any provisions of the Credit Agreement, any other Loan
Document or any agreement or instrument delivered pursuant thereto;
(iii) the obtaining of any guaranty or other liability in respect of
any Obligations; any sale, exchange, release, substitution, compromise,
nonperfection or other action or inaction in respect of any Collateral or
other collateral pledged as direct or indirect security for any
Obligations (including the taking of a security interest in any property
as security for the Obligations or for any guaranty or other liability in
respect thereof); or any discharge, modification, settlement, compromise,
extension or other action or inaction in respect of any guaranty or other
direct or indirect liability for any Obligations;
-116-
<PAGE>
(iv) the proceeding against or resorting to the Collateral for
payment on any Obligations, whether or not the Agent shall have proceeded
against or resorted to any other collateral pledged as direct or indirect
security for any Obligations or shall have proceeded against any other
Person primarily or secondarily liable with respect to the Obligations; or
(v) any other circumstance that might otherwise constitute a legal
or equitable discharge of, or a defense, set-off or counterclaim available
to, the Pledgor, other than the indefeasible payment in full of the
Obligations.
16. No Waiver. The rights and remedies of the Secured Parties expressly
set forth in this Agreement and the other Loan Documents are cumulative and in
addition to, and not exclusive of, all other rights and remedies available at
law, in equity or otherwise. No delay or failure to take action on the part of
any Secured Party in exercising any right, power or privilege shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or the exercise of
any other right, power or privilege or be construed to be a waiver of any
Default or Event of Default. No course of dealing between the Pledgor and the
Secured Parties or their agents or employees shall be effective to change,
modify or discharge any provision of this Agreement or any other Loan Document
or to constitute a waiver of any Default or Event of Default. No notice to or
demand upon the Pledgor in any case shall entitle the Pledgor to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of any Secured Party to exercise any right or remedy or take
any other or further action in any circumstances without notice or demand.
17. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by the Pledgor from,
any provision of this Agreement, shall be effective unless in a writing signed
by the Agent and executed and delivered in accordance with Section 9.6 of the
Credit Agreement, and then the same shall be effective only in the specific
instance and for the specific purpose for which given.
18. Continuing Security Interest; Term; Successors and Assigns;
Assignment; Termination; Survival. This Agreement shall create a continuing
security interest in the Collateral and shall secure the payment and performance
of all of the Obligations as the same may arise and be outstanding at any time
and from time to time from and after the date hereof, and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon and enforceable against the Pledgor and its successors and
assigns (provided, however, that the Pledgor may not sell, assign or transfer
any of its rights, interests, duties or obligations hereunder without the prior
written consent of the Lenders) and (iii) inure to the benefit of and be
enforceable by each Secured Party and its successors and assigns. Upon the
indefeasible payment in full of the Obligations, this Agreement shall terminate,
and the Agent, at the request and expense of the Pledgor, will execute and
deliver to the Pledgor such documents and instruments evidencing such
termination as the Pledgor may reasonably request and will assign, transfer and
deliver to the Pledgor, without recourse and without representation or warranty
(other than that the Collateral is free and clear of Liens incurred by the Agent
or Lenders), such of the Collateral as may then be in the possession of the
Agent together with any moneys then held by the Agent hereunder. All
representations, warranties, covenants and agreements herein shall survive the
execution and delivery of this Agreement and any Pledge Amendment.
19. Notices. All notices and other communications provided for hereunder
shall be given to the parties in the manner, at the addresses and subject to the
other notice provisions set forth in the Credit Agreement.
20. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).
21. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in any such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Agreement in any jurisdiction.
-117-
<PAGE>
22. Construction. The headings of the various sections and subsections of
this Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof. Unless the
context otherwise requires, words in the singular include the plural and words
in the plural include the singular. For purposes of this Agreement, in addition
to the terms defined elsewhere herein, all terms used herein without definition
shall have the meanings accorded to them by the Uniform Commercial Code to the
extent the same are used or defined therein.
23. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the pledgor has caused this Agreement to be executed
under seal by its duly authorized officer as of the date first above written.
FRONT ROYAL, INC.
By:____________________
Title:_________________
Accepted and agreed to:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Agent
By:_________________________
Title:
-118-
<PAGE>
Annex A to Pledge and Security Agreement
First Union National Bank of
North Carolina, as Agent
Front Royal, Inc.
December 18, 1996/ $38,000,000
______________________________
Part I. Pledged Stock
<TABLE>
<CAPTION>
Percentage of
Outstanding
Name of Type of Number of Certificate Shares of
Issuing Corporation Shares Shares Number Capital Stock
- ------------------- ------ ------ ------ -------------
<S> <C> <C> <C> <C>
Colony Management Common 100 _____ 100%
Services, Inc.
Front Royal Environmental
Insurance Management, Inc. Common 60,000 _____ 100%
Front Royal Environmental
Services, Inc. Common 11,875 _____ 100%
Front Royal ETS, Inc. Common 100 _____ 100%
Colony Insurance Company Common 200,000 _____ 100%
Rockwood Insurance Company Class A Common 500,000 _____ 100%
Class B Common 571,961 _____ 100%
Part II. Pledged Notes
<CAPTION>
Original
Principal
Date Lender Borrower Amount
---- ------ -------- ------
<S> <C> <C> <C>
</TABLE>
-119-
<PAGE>
PLEDGE AMENDMENT
THIS PLEDGE AMENDMENT, dated as of _________, 19__, is delivered by FRONT
ROYAL, INC. (the "Pledgor") pursuant to Section 5(b) of the Pledge Agreement
referred to hereinbelow. The Pledgor hereby agrees that this Pledge Amendment
may be attached to the Pledge Agreement, dated as of December 18, 1996, made by
the Pledgor in favor of First Union National Bank of North Carolina, as Agent
(as amended, modified, supplemented or restated from time to time, the "Pledge
Agreement," capitalized terms defined therein being used herein as therein
defined), and that the Pledged Investments listed on Annex A to this Pledge
Amendment shall be deemed to be part of the Pledged Investments within the
meaning of the Pledge Agreement and shall become part of the Collateral and
shall secure all of the Obligations as provided in the Pledge Agreement. This
Pledge Amendment and its attachments are hereby incorporated into the Pledge
Agreement and made a part thereof.
FRONT ROYAL, INC.
By:________________________________
Title:_____________________________
-120-
<PAGE>
Exhibit A to Pledge and Security Agreement
First Union National Bank of
North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
Part I. Pledged Stock
<TABLE>
<CAPTION>
Name of Type of Number of Certificate Shares of
Issuing Corporation Shares Shares Number Capital Stock
- ------------------- ------ ------ ------ -------------
<S> <C> <C> <C>
Part II. Pledged Notes
<CAPTION>
Original
Principal
Date Lender Borrower Amount
---- ------ -------- ------
<S> <C> <C> <C>
</TABLE>
-121-
<PAGE>
Exhibit E to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996/$38,000,000
SUBSIDIARIES GUARANTY
THIS SUBSIDIARIES GUARANTY, dated as of the _____ day of December, 1996
(this "Guaranty"), is made by each of the undersigned Non-Insurance Subsidiaries
of FRONT ROYAL, INC., a North Carolina corporation (the "Borrower"), and each
other Non-Insurance Subsidiary of the Borrower that, after the date hereof,
executes an instrument of accession hereto substantially in the form of Exhibit
A (a "Guarantor Accession"; the undersigned and such other Non-Insurance
Subsidiaries of the Borrower, collectively, the "Guarantors"), in favor of the
Guaranteed Parties (as hereinafter defined). Capitalized terms used herein
without definition shall have the meanings given to them in the Credit Agreement
referred to below.
RECITALS
A. The Borrower, certain banks and other financial institutions
(collectively, the "Lenders"), and First Union National Bank of North Carolina,
as agent for the Lenders (in such capacity, the "Agent"), are parties to a
Credit Agreement, dated as of December 18, 1996 (as amended, modified,
supplemented or restated from time to time, the "Credit Agreement"), pursuant to
which the Lenders have agreed to make Loans to the Borrower upon the terms and
conditions set forth therein (the Lenders and the Agent, collectively, the
"Guaranteed Parties").
B. It is a condition to the making of the Loans to the Borrower under the
Credit Agreement that each Guarantor shall have agreed, by executing and
delivering this Guaranty, to guarantee to the Guaranteed Parties the payment in
full of the Guaranteed Obligations (as hereinafter defined). The Guaranteed
Parties are relying on this Guaranty in their decision to make the Loans to the
Borrower under the Credit Agreement, and would not enter into the Credit
Agreement without this Guaranty.
C. The Borrower and the Guarantors are engaged in related businesses and
undertake certain activities and operations on an integrated basis. As part of
such integrated operations, the Borrower, among other things, will advance to
the Guarantors from time to time certain proceeds of the Loans made to the
Borrower by the Lenders under the Credit Agreement. Each Guarantor will obtain
benefits as a result of the making of the Loans to the Borrower under the Credit
Agreement, which benefits are hereby acknowledged, and, accordingly, desires to
execute and deliver this Guaranty.
<PAGE>
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Guaranteed Parties to enter into the Credit
Agreement and to induce the Lenders to make the Loans to the Borrower
thereunder, each Guarantor hereby agrees as follows:
1. Guaranty. (a) Each guarantor hereby irrevocably, absolutely and
unconditionally, and jointly and severally:
(i) guarantees to the Guaranteed Parties the full and prompt
payment, at any time and from time to time as and when due (whether at the
stated maturity, by acceleration or otherwise), of all Obligations of the
Borrower under the Credit Agreement and the other Loan Documents,
including, without limitation, all principal of and interest on the Loans,
all fees, expenses, indemnities and other amounts payable by the Borrower
under the Credit Agreement or any other Loan Document (including interest
accruing after the filing of a petition or commencement of a case by or
with respect to the Borrower seeking relief under any Insolvency Laws (as
hereinafter defined), whether or not the claim for such interest is
allowed in such proceeding), and all Obligations that, but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, would become due, in each case whether now existing or hereafter
created or arising and whether direct or indirect, absolute or contingent,
due or due to become due (all liabilities and obligations described in
this clause (i), collectively, the "Guaranteed Obligations"); and
(ii) agrees to pay or reimburse upon demand all reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred or paid by (y) any Guaranteed Party in connection with
any suit, action or proceeding to enforce or protect any rights of the
Guaranteed Parties hereunder, and (z) the Agent in connection with any
amendment, modification or waiver hereof or consent pursuant hereto (all
liabilities and obligations described in this clause (ii), collectively,
the "Other Obligations"; and the Other Obligations, together with the
Guaranteed Obligations, the "Total Obligations").
(b) Notwithstanding the provisions of subsection (a) above and
notwithstanding any other provisions contained herein or in any other Loan
Document:
(i) no provision of this Guaranty shall require or permit the
collection from any Guarantor of interest in excess of the maximum rate or
amount that such Guarantor may be required or permitted to pay pursuant to
applicable law; and
-2-
<PAGE>
(ii) the liability of each Guarantor under this Guaranty as of any
date shall be limited to a maximum aggregate amount (the "Maximum
Guaranteed Amount") equal to the greatest amount that would not render
such Guarantor's obligations under this Guaranty subject to avoidance,
discharge or reduction as of such date as a fraudulent transfer or
conveyance under applicable federal and state laws pertaining to
bankruptcy, reorganization, arrangement, moratorium, readjustment of
debts, dissolution, liquidation or other debtor relief, specifically
including, without limitation, the Bankruptcy Code and any fraudulent
transfer and fraudulent conveyance laws (collectively, "Insolvency Laws"),
in each instance after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under applicable
Insolvency Laws (specifically excluding, however, any liabilities of such
Guarantor in respect of intercompany indebtedness to the Borrower or any
of its Affiliates to the extent that such indebtedness would be discharged
in an amount equal to the amount paid by such Guarantor hereunder, and
after giving effect as assets to the value (as determined under applicable
Insolvency Laws) of any rights to subrogation, contribution,
reimbursement, indemnity or similar rights of such Guarantor pursuant to
(y) applicable law or (z) any agreement (including this Guaranty)
providing for an equitable allocation among such Guarantor and other
Affiliates of the Borrower of obligations arising under guaranties by such
parties).
(c) The Guarantors desire to allocate among themselves, in a fair and
equitable manner, their obligations arising under this Guaranty. Accordingly, in
the event any payment or distribution is made hereunder on any date by a
Guarantor (a "Funding Guarantor") that exceeds its Fair Share (as hereinafter
defined) as of such date, that Funding Guarantor shall be entitled to a
contribution from each of the other Guarantors in the amount of such other
Guarantor's Fair Share Shortfall (as hereinafter defined) as of such date, with
the result that all such contributions will cause each Guarantor's Aggregate
Payments (as hereinafter defined) to equal its Fair Share as of such date. "Fair
Share" means, with respect to a Guarantor as of any date of determination, an
amount equal to (i) the ratio of (x) the Adjusted Maximum Guaranteed Amount (as
hereinafter defined) with respect to such Guarantor to (y) the aggregate of the
Adjusted Maximum Guaranteed Amounts with respect to all Guarantors, multiplied
by (ii) the aggregate amount paid or distributed on or before such date by all
Funding Guarantors hereunder in respect of the obligations guaranteed. "Fair
Share Shortfall" means, with respect to a Guarantor as of any date of
determination, the excess, if any, of the Fair Share of such Guarantor over the
Aggregate Payments of such Guarantor. "Adjusted Maximum Guaranteed Amount"
means, with respect to a Guarantor as of any date of determination, the Maximum
Guaranteed Amount of such Guarantor, determined in accordance with the
provisions of subsection (b) above; provided that, solely for purposes of
calculating the "Adjusted Maximum Guaranteed Amount" with respect to any
Guarantor for purposes of this subsection (c), any assets or liabilities arising
by virtue of any rights to subrogation, reimbursement or indemnity or any rights
to or obligations of contribution hereunder shall not be considered as assets or
liabilities of such Guarantor.
-3-
<PAGE>
"Aggregate Payments" means, with respect to a Guarantor as of any date of
determination, the aggregate amount of all payments and distributions made on or
before such date by such Guarantor in respect of this Guaranty (including,
without limitation, in respect of this subsection (c)). The amounts payable as
contributions hereunder shall be determined as of the date on which the related
payment or distribution is made by the applicable Funding Guarantor. Each
Funding Guarantor's right of contribution under this subsection (c) shall be
subject to the Provisions of Section 4. The allocation among Guarantors of their
obligations as set forth in this subsection (c) shall not be construed in any
way to limit the liability of any Guarantor hereunder to the Guaranteed Parties.
(d) The guaranty of each Guarantor set forth in this Section is a guaranty
of payment as a primary obligor, and not a guaranty of collection. Each
Guarantor hereby acknowledges and agrees that the Guaranteed Obligations, at any
time and from time to time, may exceed the Maximum Guaranteed Amount of such
Guarantor and may exceed the aggregate of the Maximum Guaranteed Amounts of all
Guarantors, in each case without discharging, limiting or otherwise affecting
the obligations of any Guarantor hereunder or the rights, powers and remedies of
any Guaranteed Party hereunder or under any other Loan Document.
2. Guaranty Absolute. Each Guarantor agrees that its obligations hereunder
are irrevocable, absolute and unconditional, are independent of the Guaranteed
Obligations and any Collateral or other security therefor or other guaranty or
liability in respect thereof, whether given by such Guarantor or any other
Person, and shall not be discharged, limited or otherwise affected by reason of
any of the following, whether or not such Guarantor has notice or knowledge
thereof:
(i) any change in the time, manner or place of payment of, or in any
other term of, any Guaranteed Obligations or any guaranty or other
liability in respect thereof, or any amendment, modification or supplement
to, restatement of, or consent to any rescission or waiver of or departure
from, any provisions of the Credit Agreement, any other Loan Document or
any agreement or instrument delivered pursuant to any of the foregoing;
(ii) the invalidity or unenforceability of any Guaranteed
Obligations, any guaranty or other liability in respect thereof or any
provisions of the Credit Agreement, any other Loan Document or any
agreement or instrument delivered pursuant to any of the foregoing;
(iii) the addition or release of Guarantors hereunder or the taking,
acceptance or release of other guarantees of any Guaranteed Obligations or
additional Collateral or other security for any Guaranteed Obligations or
for any guaranty or other liability in respect thereof;
-4-
<PAGE>
(iv) any discharge, modification, settlement, compromise or other
action in respect of any Guaranteed Obligations or any guaranty or other
liability in respect thereof, including any acceptance or refusal of any
offer or performance with respect to the same or the subordination of the
same to the payment of any other obligations;
(v) any agreement not to pursue or enforce or any failure to pursue
or enforce (whether voluntarily or involuntarily as a result of operation
of law, court order or otherwise) any right or remedy in respect of any
Guaranteed Obligations, any guaranty or other liability in respect thereof
or any Collateral or other security for any of the foregoing; any sale,
exchange, release, substitution, compromise or other action in respect of
any such Collateral or other security; or any failure to create, protect,
perfect, secure, insure, continue or maintain any Liens in any such
Collateral or other security;
(vi) the exercise of any right or remedy available under the Loan
Documents, at law, in equity or otherwise in respect of any Collateral or
other security for any Guaranteed Obligations or for any guaranty or other
liability in respect thereof, in any order and by any manner thereby
permitted, including, without limitation, foreclosure on any such
Collateral or other security by any manner of sale thereby permitted,
whether or not every aspect of such sale is commercially reasonable;
(vii) any bankruptcy, reorganization, arrangement, liquidation,
insolvency, dissolution, termination, reorganization or like change in the
corporate structure or existence of the Borrower or any other Person
directly or indirectly liable for any Guaranteed Obligations;
(viii) any manner of application of any payments by or amounts
received or collected from any Person, by whomsoever paid and howsoever
realized, whether in reduction of any Guaranteed Obligations or any other
obligations of the Borrower or any other Person directly or indirectly
liable for any Guaranteed Obligations, regardless of what Guaranteed
Obligations may remain unpaid after any such application; or
(ix) any other circumstance that might otherwise constitute a legal
or equitable discharge of, or a defense, set-off or counterclaim available
to, the Borrower, any Guarantor or a surety or guarantor generally, other
than the payment in full of the Total Obligations (such payment in full,
the "Termination Requirement").
-5-
<PAGE>
3. Certain Waivers. Each Guarantor hereby knowingly, voluntarily and
expressly waives:
(i) presentment, demand for payment, demand for performance, protest
and notice of any other kind, including, without limitation, notice of
nonpayment or other nonperformance (including notice of default under any
Loan Document with respect to any Guaranteed Obligations), protest,
dishonor, acceptance hereof, extension of additional credit to the
Borrower and of any of the matters referred to in Section 2 and of any
rights to consent thereto;
(ii) any right to require the Guaranteed Parties or any of them, as
a condition of payment or performance by such Guarantor hereunder, to
proceed against, or to exhaust or have resort to any Collateral or other
security from or any deposit balance or other credit in favor of, the
Borrower, any other Guarantor or any other Person directly or indirectly
liable for any Guaranteed Obligations, or to pursue any other remedy or
enforce any other right; and any other defense based on an election of
remedies with respect to any Collateral or other security for any
Guaranteed Obligations or for any guaranty or other liability in respect
thereof, notwithstanding that any such election (including any failure to
pursue or enforce any rights or remedies) may impair or extinguish any
right of indemnification, contribution, reimbursement or subrogation or
other right or remedy of any Guarantor against the Borrower, any other
Guarantor or any other Person directly or indirectly liable for any
Guaranteed Obligations or any such Collateral or other security; and,
without limiting the generality of the foregoing, each Guarantor hereby
specifically waives the benefits of Sections 26-7 through 26-9, inclusive,
of the General Statutes of North Carolina, as amended from time to time,
and any similar statute or law of any other jurisdiction, as the same may
be amended from time to time;
(iii) any right or defense based on or arising by reason of any
right or defense of the Borrower or any other Person, including, without
limitation, any defense based on or arising from a lack of authority or
other disability of the Borrower or any other Person, the invalidity or
unenforceability of any Guaranteed Obligations, any Collateral or other
security therefor or any Loan Document or other agreement or instrument
delivered pursuant thereto, or the cessation of the liability of the
Borrower for any reason other than the satisfaction of the Termination
Requirements;
(iv) any defense based on any Guaranteed Party's acts or omissions
in the administration of the Obligations, any guaranty or other liability
in respect thereof or any Collateral or other security for any of the
foregoing, and promptness, diligence or any requirement that any
Guaranteed
-6-
<PAGE>
Party create, protect, perfect, secure, insure, continue or maintain any
Liens in any such Collateral or other security;
(v) any right to assert against any Guaranteed Party, as a defense,
counterclaim, crossclaim or set-off, any defense, counterclaim, claim,
right of recoupment or set-off that it may at any time have against any
Guaranteed Party (including, without limitation, failure of consideration,
statute of limitations, payment, accord and satisfaction and usury), other
than compulsory counterclaims; and
(vi) any defense based on or afforded by any applicable law that
limits the liability of or exonerates guarantors or sureties or that may
in any other way conflict with the terms of this Guaranty.
4. Waiver of Subrogation; Subordination. Each Guarantor hereby knowingly,
voluntarily and expressly waives all claims and rights that it may have against
the Borrower at any time as a result of any payment made under or in connection
with this Guaranty or the performance or enforcement hereof, including all
rights of subrogation to the rights of any of the Guaranteed Parties against the
Borrower, all rights of indemnity, contribution or reimbursement against the
Borrower (including rights of contribution as set forth in Section 1(c)), all
rights to enforce any remedies of any Guaranteed Party to secure payment of the
Guaranteed Obligations, in each case whether such claims or rights arise by
contract, statute (including without limitation the Bankruptcy Code), common law
or otherwise. Each Guarantor agrees that all indebtedness and other obligations,
whether now or hereafter existing, of the Borrower or any other Affiliate of the
Borrower to any Guarantor, including, without limitation, any such indebtedness
in any proceeding under the Bankruptcy Code and any intercompany receivables,
together with any interest thereon, shall be, and hereby are, subordinated and
made junior in right of payment to the Total Obligations. Each Guarantor further
agrees that if any amount shall be paid to or any distribution received by any
Guarantor (i) on account of any such indebtedness at any time after the
occurrence and during the continuance of an Event of Default, or (ii) on account
of any such rights of subrogation, indemnity, contribution or reimbursement at
any time prior to the satisfaction of the Termination Requirements, such amount
or distribution shall be deemed to have been received and to be held in trust
for the benefit of the Guaranteed Parties, and shall forthwith be delivered to
the Agent in the form received (with any necessary endorsements in the case of
written instruments), to be applied against the Guaranteed Obligations, whether
or not matured, in accordance with the terms of the applicable Loan Documents
and without in any way discharging, limiting or otherwise affecting the
liability of such Guarantor under any other provision of this Guaranty.
Additionally, in the event the Borrower or any Subsidiary of the Borrower
becomes a "debtor" within the meaning of the Bankruptcy Code, the Agent shall be
entitled, at its option, on behalf of the Guaranteed Parties and as
attorney-in-fact for each Guarantor, and is hereby authorized and appointed by
each Guarantor, to file proofs of claim on behalf of each relevant Guarantor and
vote the rights of each such Guarantor in any plan of reorganization, and to
demand, sue for, collect and receive every payment and
-7-
<PAGE>
distribution on any indebtedness of the Borrower or such Subsidiary to any
Guarantor in any such proceeding, each Guarantor hereby assigning to the Agent
all of its rights in respect of any such claim, including the right to receive
payments and distributions in respect thereof.
5. Representations and Warranties. Each Guarantor hereby represents and
warrants to the Guaranteed Parties as follows:
(a) Such Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation and has the full corporate power and authority to execute,
deliver and perform this Guaranty and the other Loan Documents to which it
is or will be a party, to own and hold its property and to engage in its
business as presently conducted.
(b) Such Guarantor has taken all necessary corporate action to
execute, deliver and perform this Guaranty and each of the other Loan
Documents to which it is or will be a party, and has, or on any later date
of execution and delivery will have, validly executed and delivered each
of the Loan Documents to which it is or will be a party. This Guaranty
constitutes, and each of such other Loan Documents upon execution and
delivery will constitute, the legal, valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally or by general equitable principles.
(c) The execution, delivery and performance by such Guarantor of
this Guaranty and the other Loan Documents to which it is a party, and
compliance by it with the terms hereof and thereof, do not and will not
(i) violate any provision of its articles or certificate of incorporation
or bylaws, (ii) contravene any Requirement of Law applicable to it, (iii)
conflict with, result in a breach of or constitute (with notice, lapse of
time or both) a default under any indenture, loan agreement, mortgage,
deed of trust, lease or other agreement or instrument to which it is a
party, by which it or any of its properties is bound or to which it is
subject, or (iv) result in or require the creation or imposition of any
Lien upon any of its properties, other than Liens created pursuant to the
Loan Documents.
(d) No consent, approval, authorization or other action by, notice
to, or registration or filing with, any Governmental Authority is or will
be required as a condition to or otherwise in connection with the due
execution, delivery and performance by such Guarantor of this Guaranty and
the other Loan Documents to which it is a party or the legality, validity
or enforceability hereof or thereof, other than the filing of financing
statements as provided in the Subsidiaries Collateral Assignment of
Agreements.
(e) Except as may be disclosed in Schedule 4.5 to the Credit
Agreement, there are no actions, investigations, suits or proceedings
pending or, to the knowledge of such Guarantor, threatened, at law, in
equity or in arbitration, before any court, other Governmental Authority
or other Person, (i) against or affecting such Guarantor
-8-
<PAGE>
or any of its properties that would, if adversely determined, be
reasonably likely to have a Material Adverse Effect or (ii) with respect
to this Guaranty or any of the other Loan Documents to which such
Guarantor is a party.
(f) Such Guarantor has been provided with a true and complete copy
of the executed Credit Agreement, as in effect as of the date it became a
party hereto, and its principal officers are familiar with the contents
thereof, particularly insofar as the contents thereof relate or apply to
such Guarantor.
6. Financial Condition of Borrower. Each Guarantor represents that it has
knowledge of the Borrower's financial condition and affairs and that it has
adequate means to obtain from the Borrower on an ongoing basis information
relating thereto and to the Borrower's ability to pay and perform the Guaranteed
Obligations, and agrees to assume the responsibility for keeping, and to keep,
so informed for so long as this Guaranty is in effect with respect to such
Guarantor. Each Guarantor agrees that the Guaranteed Parties shall have no
obligation to investigate the financial condition or affairs of the Borrower for
the benefit of any Guarantor nor to advise any Guarantor of any fact respecting,
or any change in, the financial condition or affairs of the Borrower that might
become known to any Guaranteed Party at any time, whether or not such Guaranteed
Party knows or believes or has reason to know or believe that any such fact or
change is unknown to any Guarantor, or might (or does) materially increase the
risk of any Guarantor as guarantor, or might (or would) affect the willingness
of any Guarantor to continue as a guarantor of the Guaranteed Obligations.
7. Payments; Application; Set-Off. (a) Each Guarantor agrees that, upon
the failure of the Borrower to pay any Guaranteed Obligations when and as the
same shall become due (whether at the stated maturity, by acceleration or
otherwise), and without limitation of any other right or remedy that any
Guaranteed Party may have at law, in equity or otherwise against such Guarantor,
such Guarantor will, subject to the provisions of Section 1(b), forthwith pay or
cause to be paid to the Agent, for the benefit of the Guaranteed Parties, an
amount equal to the amount of the Guaranteed Obligations then due and owing as
aforesaid.
(b) All payments made by each Guarantor hereunder will be made in Dollars
to the Agent, without set-off, counterclaim or other defense and, in accordance
with Section 2.17 of the Credit Agreement, free and clear of and without
deduction for any Taxes, each Guarantor hereby agreeing to comply with and be
bound by the provisions of Section 2.17 of the Credit Agreement in respect of
all payments made by it hereunder and the provisions of which Section are hereby
incorporated into and made a part of this Guaranty by this reference as if set
forth herein at length.
(c) All payments made hereunder shall be applied upon receipt as follows:
-9-
<PAGE>
(i) first, to the payment of all Other Obligations owing to the
Agent;
(ii) second, after payment in full of the amounts specified in
clause (i) above, to the ratable payment of all other Total Obligations
owing to the Guaranteed Parties; and
(iii) third, after payment in full of the amounts specified in
clauses (i) and (ii) above, and following the termination of this
Guaranty, to the Guarantors or any other Person lawfully entitled to
receive such surplus.
(d) The Guarantors shall remain jointly and severally liable to the extent
of any deficiency between the amount of all payments made hereunder and the
aggregate amount of the sums referred to in clauses (i) and (ii) of subsection
(c) above.
(e) In addition to all other rights and remedies available under the Loan
Documents or applicable law or otherwise, upon and at any time after the
occurrence and during the continuance of any Event of Default, each Guaranteed
Party may, and is hereby authorized by each Guarantor, at any such time and from
time to time, to the fullest extent permitted by applicable law, without
presentment, demand, protest or other notice of any kind, all of which are
hereby knowingly and expressly waived by each Guarantor, to set off and to apply
any and all deposits (general or special, time or demand, provisional or final)
and any other property at any time held (including at any branches or agencies,
wherever located), and any other indebtedness at any time owing, by such
Guaranteed Party to or for the credit or the account of such Guarantor against
any or all of the obligations of such Guarantor to such Guaranteed Party
hereunder now or hereafter existing, whether or not such obligations may be
contingent or unmatured, each Guarantor hereby granting to each Guaranteed Party
a continuing security interest in and Lien upon all such deposits and other
property as security for such obligations. Each Guaranteed Party agrees promptly
to give notice to any affected Guarantor after any such set-off and application;
provided, however, that the failure to give such notice shall not affect the
validity of such set-off and application.
8. No Waiver. The rights and remedies of the Guaranteed Parties expressly
set forth in this Guaranty and the other Loan Documents are cumulative and in
addition to, and not exclusive of, all other rights and remedies available at
law, in equity or otherwise. No failure or delay on the part of any Guaranteed
Party in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege or be construed to be a waiver of any Default or
Event of Default. No course of dealing between any of the Guarantors and the
Guaranteed Parties or their agents or employees shall be effective to amend,
modify or discharge any provision of this Guaranty or any other Loan Document or
to constitute a waiver of any Default or Event of Default. No notice to or
demand upon any Guarantor in
-10-
<PAGE>
any case shall entitle such Guarantor or any other Guarantor to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of any Guaranteed Party to exercise any right or remedy or
take any other or further action in any circumstances without notice or demand.
9. Enforcement. The Guaranteed Parties agree that, except as provided in
Section 7(e), this Guaranty may be enforced only by the Agent, acting upon the
instructions or with the consent of the Required Lenders as provided for in the
Credit Agreement, and that no Guaranteed Party shall have any right individually
to enforce or seek to enforce this Guaranty or to realize upon any Collateral or
other security given to secure the payment and performance of the Guarantors'
obligations hereunder. The obligations of each Guarantor hereunder are
independent of the Guaranteed Obligations, and a separate action or actions may
be brought against each Guarantor whether or not action is brought against the
Borrower or any other Guarantor and whether or not the Borrower or any other
Guarantor is joined in any such action. Each Guarantor agrees that to the extent
all or part of any payment of the Guaranteed Obligations made by any Person is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid by or on behalf of any Guaranteed Party to a trustee,
receiver or any other party under any Insolvency Laws (the amount of any such
payment, a "Reclaimed Amount"), then, to the extent of such Reclaimed Amount,
this Guaranty shall continue in full force and effect or be revived and
reinstated, as the case may be, as to the Guaranteed Obligations intended to be
satisfied as if such payment had not been received; and each Guarantor
acknowledges that the term "Guaranteed Obligations" includes all Reclaimed
Amounts that may arise from time to time.
10. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by any Guarantor from,
any provision of this Guaranty, shall be effective unless in a writing signed by
the Agent and such of the Lenders as may be required under the provisions of the
Credit Agreement to concur in the action then being taken, and then the same
shall be effective only in the specific instance and for the specific purpose
for which given.
11. Addition, Release of Guarantors. Each Guarantor recognizes that the
provisions of the Credit Agreement require Persons that become Non-Insurance
Subsidiaries of the Borrower and that are not already parties hereto to become
Guarantors hereunder by executing a Guarantor Accession, and agrees that its
obligations hereunder shall not be discharged, limited or otherwise affected by
reason of the same, or by reason of the Agent's action in effecting the same or
in releasing any Guarantor hereunder, in each case without the necessity of
giving notice to or obtaining the consent of any other Guarantor.
12. Continuing Guaranty; Term; Successors and Assigns; Assignment;
Survival. This Guaranty is a continuing guaranty and covers all of the
Guaranteed Obligations as the same may arise and be outstanding at any time and
from time to time from and after the date hereof, and shall (i) remain in full
force and effect until the satisfaction of all of the Termination Requirements,
(ii) be binding upon and enforceable against each
-11-
<PAGE>
Guarantor and its successors and assigns (provided, however, that no Guarantor
may sell, assign or transfer any of its rights, interests, duties or obligations
hereunder without the prior written consent of the Lenders) and (iii) inure to
the benefit of and be enforceable by each Guaranteed Party and its successors
and assigns. Without limiting the generality of clause (iii) above, any
Guaranteed Party may, in connection with an assignment pursuant to Section 9.7
of the Credit Agreement, assign all or a portion of the Guaranteed Obligations
held by it (including by the sale of participations), whereupon each Person that
becomes the holder of any such Guaranteed Obligations shall (except as may be
otherwise agreed between such Guaranteed Party and such Person) have and may
exercise all of the rights and benefits in respect thereof granted to such
Guaranteed Party under this Guaranty or otherwise; provided, however, that,
except as may be otherwise permitted by the Credit Agreement, no participant in
any Guaranteed Obligations shall be entitled to exercise any rights under
Section 7(e). Each Guarantor irrevocably waives notice of and consents in
advance to the assignment as provided above from time to time by any Guaranteed
Party of all or any portion of the Guaranteed Obligations held by it and of the
corresponding rights and interests of such Guaranteed Party hereunder in
connection therewith. All representations, warranties, covenants and agreements
herein shall survive the execution and delivery of this Guaranty and any
Guarantor Accession.
13. Governing Law; Consent to Jurisdiction; Appointment of Borrower as
Representative; Process Agent; Attorney-in-fact. (a) THIS GUARANTY HAS BEEN
EXECUTED, DELIVERED AND ACCEPTED AT, AND SHALL BE DEEMED TO HAVE BEEN MADE IN,
NORTH CAROLINA AND SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE
GUARANTEED PARTIES AND THE GUARANTORS DETERMINED, IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NORTH
CAROLINA. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, EACH
GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE COURT WITHIN
MECKLENBURG COUNTY, NORTH CAROLINA OR ANY FEDERAL COURT LOCATED WITHIN THE
WESTERN DISTRICT OF THE STATE OF NORTH CAROLINA FOR ANY PROCEEDING INSTITUTED
HEREUNDER OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, OR ARISING OUT OF OR IN
CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY
PROCEEDING TO WHICH ANY GUARANTEED PARTY OR SUCH GUARANTOR IS A PARTY, INCLUDING
ANY ACTIONS BASED UPON, ARISING OUT OF, OR IN CONNECTION WITH ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ANY GUARANTEED PARTY OR SUCH GUARANTOR. EACH GUARANTOR IRREVOCABLY AGREES TO BE
BOUND (SUBJECT TO ANY AVAILABLE RIGHT OF APPEAL) BY ANY JUDGMENT RENDERED OR
RELIEF GRANTED THEREBY AND FURTHER WAIVES ANY OBJECTION THAT IT MAY HAVE BASED
ON LACK OF JURISDICTION OR IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT
OF ANY SUCH PROCEEDING.
-12-
<PAGE>
(b) EACH GUARANTOR HEREBY IRREVOCABLY DESIGNATES AND APPOINTS THE BORROWER
AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE ON ITS BEHALF ALL SERVICE OF
PROCESS IN ANY ACTION OR PROCEEDING ANY OTHER NOTICE OR COMMUNICATION HEREUNDER,
CONSENTS THAT ALL SERVICE OF PROCESS UPON IT MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL DIRECTED TO THE BORROWER AT ITS ADDRESS SET FORTH HEREINABOVE
(AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OR ACTUAL
RECEIPT THEREOF OR THREE (3) BUSINESS DAYS AFTER DEPOSIT IN THE UNITED STATES
MAILS, PROPER POSTAGE PREPAID AND PROPERLY ADDRESSED, AND AGREES THAT SERVICE SO
MADE SHALL BE EFFECTIVE AND BINDING UPON SUCH GUARANTOR IN EVERY RESPECT AND
THAT ANY OTHER NOTICE OR COMMUNICATION GIVEN TO THE BORROWER AT THE ADDRESS AND
IN THE MANNER SPECIFIED HEREIN SHALL BE EFFECTIVE NOTICE TO SUCH GUARANTOR.
FURTHER, EACH GUARANTOR DOES HEREBY IRREVOCABLY MAKE, CONSTITUTE AND APPOINT THE
BORROWER AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT, WITH FULL AUTHORITY IN ITS
PLACE AND STEAD AND IN ITS NAME, THE BORROWER'S NAME OR OTHERWISE, AND WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES, FROM TIME TO TIME IN THE BORROWER'S
DISCRETION TO AGREE ON BEHALF OF, AND SIGN THE NAME OF, SUCH GUARANTOR TO ANY
AMENDMENT, MODIFICATION OR SUPPLEMENT TO, RESTATEMENT OF, OR WAIVER OR CONSENT
IN CONNECTION WITH, THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR ANY DOCUMENT OR
INSTRUMENT PURSUANT HERETO OR THERETO, AND TO TAKE ANY OTHER ACTION AND DO ALL
OTHER THINGS ON BEHALF OF SUCH GUARANTOR THAT THE BORROWER MAY DEEM NECESSARY OR
ADVISABLE TO CARRY OUT AND ACCOMPLISH THE PURPOSES OF THIS GUARANTY AND THE
OTHER LOAN DOCUMENTS. THE BORROWER WILL NOT BE LIABLE FOR ANY ACT OR OMISSION
NOR FOR ANY ERROR OF JUDGMENT OR MISTAKE OF FACT UNLESS THE SAME SHALL OCCUR AS
A RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BORROWER. THIS
POWER, BEING COUPLED WITH AN INTEREST, IS IRREVOCABLE BY ANY GUARANTOR FOR SO
LONG AS THIS GUARANTY SHALL BE IN EFFECT WITH RESPECT TO SUCH GUARANTOR. BY ITS
SIGNATURE HERETO, THE BORROWER CONSENTS TO ITS APPOINTMENT AS PROVIDED FOR
HEREIN AND AGREES PROMPTLY TO DISTRIBUTE ALL PROCESS, NOTICES AND OTHER
COMMUNICATIONS TO EACH GUARANTOR.
(c) NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY GUARANTEED PARTY
TO BRING ANY ACTION OR PROCEEDING AGAINST ANY GUARANTOR IN THE COURTS OF ANY
OTHER JURISDICTION.
-13-
<PAGE>
14. Arbitration; Preservation and Limitation of Remedies. (i) Upon demand
of any party hereto, whether made before or after institution of any judicial
proceeding, any dispute, claim or controversy arising out of, connected with or
relating to this Agreement or any other Loan Document ("Disputes") between or
among any Guarantor, the Agent and the Lenders, or any of them, shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, claims brought as class actions, claims arising from documents
executed in the future, or claims arising out of or connected with the
transactions contemplated by this Agreement and the other Loan Documents.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA"), as in effect from time to time, and Title 9 of the U.S.
Code, as amended. All arbitration hearings shall be conducted in the city in
which the principal office of the Agent is located. The expedited procedures set
forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims
of less than $1,000,000. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. Notwithstanding the foregoing, this arbitration provision does not
apply to Disputes under or related to Hedge Agreements.
(ii) Notwithstanding the preceding binding arbitration provisions, the
parties hereto agree to preserve, without diminution, certain remedies that any
party hereto may employ or exercise freely, either alone, in conjunction with or
during a Dispute. Any party hereto shall have the right to proceed in any court
of proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any Collateral by
exercising a power of sale granted pursuant to any of the Loan Documents or
under applicable law or by judicial foreclosure and sale, including a proceeding
to confirm the sale; (ii) all rights of self-help, including peaceful occupation
of real property and collection of rents, set-off, and peaceful possession of
personal property; (iii) obtaining provisional or ancillary remedies, including
injunctive relief, sequestration, garnishment, attachment, appointment of a
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Preservation of these remedies
does not limit the power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute. The parties hereto agree that no party shall
have a remedy of punitive or exemplary damages against any other party in any
Dispute, and each party hereby waives any right or claim to punitive or
exemplary damages that it has now or that may arise in the future in connection
with any Dispute, whether such Dispute is resolved by arbitration or judicially.
15. Notices. All notices and other communications provided for hereunder
shall be in writing (including facsimile transmission) and mailed, telecopied,
or delivered (a)
-14-
<PAGE>
if to any Guarantor, in care of the Borrower and at the Borrower's address for
notices set forth in the Credit Agreement and (b) if to any Guaranteed Party, at
its address for notices set forth in the Credit Agreement; or to such other
address as any of the Persons listed above may designate for itself by like
notice to the other Persons listed above; and in each case, with copies to such
other Persons as may be specified under the provisions of the Credit Agreement.
All such notices and communications shall be deemed to have been given (i) if
mailed by first class, certified or registered mail, postage prepaid, on the
fifth Business Day after deposit in the mails, (ii) if telecopied, when
transmitted by telecopier or (iii) if delivered by overnight courier or by hand,
upon delivery; provided that notices and communications to the Agent shall not
be effective until received by the Agent.
16. Severability; Savings Provisions. (a) To the extent any provision of
this Guaranty is prohibited by or invalid under the applicable law of any
jurisdiction, such provision shall be ineffective only to the extent of such
prohibition or invalidity and only in such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Guaranty in any jurisdiction.
(b) It is the intent of the parties hereto that in no event shall the
incurrence or enforcement of any Guarantor's obligations hereunder constitute or
result in a violation of any Insolvency Laws of any relevant jurisdiction. In
furtherance of the foregoing, it is noted that the obligations of the Guarantors
hereunder have been limited as set forth in clause (ii) of Section 1(b). To that
end, but only to the extent that the obligations of any Guarantor would be
reduced to an amount less than the Maximum Guaranteed Amount of such Guarantor
as a result of the application of Insolvency Laws (including, pursuant to any
applicable fraudulent transfer or fraudulent conveyance laws or statutes, if
such Guarantor is deemed not to have received valuable consideration, fair value
or reasonably equivalent value in exchange for its obligations hereunder, or if
such Guarantor's obligations hereunder would render such Guarantor insolvent,
leave such Guarantor with an unreasonably small capital with which to conduct
its business, or cause such Guarantor to have incurred debts (or to have
intended to have incurred such debts) beyond its ability to pay such debts as
they mature), in each case as of the time such obligations are deemed to have
been incurred under Insolvency Laws, then the obligations of such Guarantor
hereunder shall be reduced to the maximum amount that, after giving full effect
to the application of such Insolvency Laws, would not be subject to any further
reduction, avoidance, discharge or other limitation thereunder. The provisions
of this subsection (b) are intended solely to preserve the rights of the
Guaranteed Parties hereunder to the maximum extent that would cause or permit
the obligations of any Guarantor hereunder not to be subject to reduction,
avoidance, discharge or other limitation under Insolvency Laws, and no Guarantor
or any other Person shall have any right or claim under this subsection (b) as
against the Secured Parties or any of them that would not otherwise be available
to such Guarantor or other Person under applicable Insolvency Laws.
17. Construction. The headings of the various sections and subsections of
this Guaranty have been inserted for convenience only and shall not in any way
affect the
-15-
<PAGE>
meaning or construction of any of the provisions hereof. Unless the context
otherwise requires, words in the singular include the plural and words in the
plural include the singular.
18. Covenants of FRESI. During the term of this Guaranty, FRESI will not
sell, transfer or otherwise dispose of, or pledge, encumber or otherwise permit
or cause any Lien to be created or to exist upon or with respect to, any of the
outstanding capital stock of Triangle Engineering, Inc.
19. Counterparts; Effectiveness. This Guaranty may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. This Guaranty shall
become effective, as to any Guarantor, upon the execution and delivery by such
Guarantor of a counterpart hereof or a Guarantor Accession.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed
by its duly authorized officer as of the date first above written.
THE SIGNATURES OF THE GUARANTORS EXECUTING THIS GUARANTY
AS OF THE DATE FIRST ABOVE WRITTEN ARE ON THE FOLLOWING
SEQUENTIALLY NUMBERED SIGNATURE PAGES.
The Borrower hereby joins in this Guaranty for purposes of evidencing its
consent to, and agreement to perform, the provisions of Section 13(b).
FRONT ROYAL, INC.
By:________________________________
Title:______________________________
-16-
<PAGE>
Accepted and agreed to:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Agent
By:___________________________
Title:________________________
Subsidiaries Guaranty
Front Royal, Inc.
First Union National Bank of North Carolina
-17-
<PAGE>
COLONY MANAGEMENT SERVICES, INC.
By:_______________________________
Title:_____________________________
Address for notices:
1063 Technology Park Drive
Glen Allen, Virginia 23060
Attention:________________
Telecopy: (804)___________
Subsidiaries Guaranty
Front Royal, Inc.
First Union National Bank of North Carolina
-18-
<PAGE>
` FRONT ROYAL ENVIRONMENTAL
INSURANCE MANAGEMENT, INC.
By:_________________________________
Title:______________________________
Address for notices:
45615 Willow Pond Plaza
Sterling, Virginia 20164
Attention:_________________
Telecopy: (__)____________
Subsidiaries Guaranty
Front Royal, Inc.
First Union National Bank of North Carolina
-19-
<PAGE>
FRONT ROYAL ENVIRONMENTAL
SERVICES, INC.
By:__________________________________
Title:_______________________________
Address for notices:
2200 Gateway Boulevard
Suite 205
Raleigh, North Carolina 27612
Attention: J. Adam Abram
Telecopy: (919)______________
Subsidiaries Guaranty
Front Royal, Inc.
First Union National Bank of North Carolina
-20-
<PAGE>
FRONT ROYALETS, INC.
By:___________________________________
Title:________________________________
Address for notices:
___________________________
___________________________
Attention:___________________
Telecopy: (__)_______________
Subsidiaries Guaranty
Front Royal, Inc.
First Union National Bank of North Carolina
-21-
<PAGE>
Exhibit A to Subsidiaries Guaranty
First Union National Bank of North
Carolina, as Agent
Front Royal, Inc.
December 18, 1996/ $38,000,000
GUARANTOR ACCESSION
THIS GUARANTOR ACCESSION, dated as of __________, 19__, is delivered by
[NAME OF NEW GUARANTOR] (the "Guarantor") pursuant to Section 11 of the Guaranty
referred to hereinbelow.
Reference is hereby made to the Subsidiaries Guaranty, dated as of
December __, 1996, made by the Guarantors (as defined therein) party thereto (as
amended, modified, supplemented or restated from time to time, the "Guaranty,"
capitalized terms defined therein being used herein as therein defined).
The undersigned is a Non-Insurance Subsidiary of Front Royal, Inc. (the
"Borrower") and is required to guarantee the Guaranteed Obligations. The
undersigned hereby adopts and makes for itself all of the representations and
warranties set forth in Section 5 of the Guaranty as if such representations and
warranties were set forth herein at length.
The undersigned hereby acknowledges that, upon the execution and delivery
of this Guarantor Accession, it will become a party to the Guaranty as a
Guarantor thereunder. The undersigned hereby adopts the terms and provisions of
the Guaranty and agrees to be bound thereby. This Guarantor Accession and its
attachments are hereby incorporated into the Guaranty and made a part thereof.
[NAME OF NEW GUARANTOR]
By:__________________________________
Title:_______________________________
Address for notices:
___________________________
___________________________
___________________________
Subsidiaries Guaranty
Front Royal, Inc.
First Union National Bank of North Carolina
-22-
<PAGE>
Exhibit F-1 to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-------------------------------
COLLATERAL ASSIGNMENT OF AGREEMENTS
(Front Royal, Inc.)
THIS COLLATERAL ASSIGNMENT OF AGREEMENTS, dated as of the __ day of
December, 1996 (this "Agreement"), is made by FRONT ROYAL, INC., a North
Carolina corporation (the "Assignor"), in favor of FIRST UNION NATIONAL BANK OF
NORTH CAROLINA ("First Union"), as agent (in such capacity, the "Agent") for the
Lenders (as hereinafter defined) under the Credit Agreement referred to below,
for the benefit of the Agent and the Lenders (collectively, the "Secured
Parties"). Capitalized terms used herein and not defined elsewhere herein shall
have the meanings given to them in the Credit Agreement referred to below.
RECITALS
A. The Assignor, certain banks and other financial institutions (the
"Lenders") and the Agent are parties to a Credit Agreement, dated as of December
18, 1996 (as amended, modified, supplemented or restated from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed to make Loans to
the Assignor upon the terms and conditions set forth therein.
B. It is a condition to the making of the Loans to the Assignor under the
Credit Agreement that the Assignor shall have agreed, by executing and
delivering this Agreement, to secure the payment in full of the Obligations.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Agent and the Lenders to enter into the Credit
Agreement and to induce the Lenders to makes the Loans to the Assignor
thereunder, the Assignor hereby agrees as follows:
1. Assignment and Security Interest. The Assignor hereby pledges and
assigns to the Agent, for the ratable benefit of the Secured Parties, and grants
to the Agent, for the ratable benefit of the Secured Parties, a security
interest in, all of the Assignor's right, title and interest in and to the
agreements and contracts listed on Schedule 1, together with any and all
amendments, modifications, renewals, extensions and restatements thereof and
supplements thereto (collectively, the "Contracts"), all records relating
thereto, and any and all proceeds of the foregoing (collectively, the
"Collateral"). For purposes of this Agreement, the term "proceeds" shall mean
and include all cash, securities and other property of any
<PAGE>
nature received or receivable upon the sale, exchange or other disposition of or
realization upon any Collateral, together with all distributions in respect of
any Collateral, including pursuant to any liquidation, reorganization or similar
proceeding with respect to the Assignor.
2. Security for Obligations. This Agreement and the Collateral secure the
full and prompt payment, at any time and from time to time as and when due
(whether at the stated maturity, by acceleration or otherwise), of all
Obligations of the Assignor, including, without limitation, all principal of and
interest on the Loans and all fees, expenses, indemnities and other amounts
payable by the Assignor hereunder, under the Credit Agreement or under any other
Loan Document (including interest accruing after the filing of a petition or
commencement of a case by or with respect to the Assignor seeking relief under
any bankruptcy or insolvency laws, whether or not the claim for such interest is
allowed in such proceeding), and all Obligations that, but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, would become
due, in each case whether now existing or hereafter created or arising and
whether direct or indirect, absolute or contingent, due or to become due.
3. Representations and Warranties. The Assignor represents and warrants as
follows:
(a) The Assignor has heretofore delivered to the Agent a true,
complete and correct copy of each of the Contracts currently in effect,
together with all schedules and exhibits thereto and amendments and
modifications thereof. Each such Contract sets forth the entire agreement
and understanding of the parties thereto relating to the subject matter
thereof, and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby.
(b) The Assignor's right, title and interest in and to each Contract
is free and clear of any Lien whatsoever other than the security interest
created by this Agreement (and other than the Liens in favor of First
Union with respect to the Existing Senior Debt).
(c) Each of the Contracts has been duly authorized, executed and
delivered and is the legal, valid and binding obligation of the Assignor
(and, to the knowledge of the Assignor, each other party thereto),
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally or by general equitable
principles, and no defense, offset, deduction or counterclaim exists
thereunder in favor of any party.
(d) The Assignor is not in breach of or default under any of the
Contracts, and, to the knowledge of the Assignor, no other party to any of
the Contracts is in breach thereof or default thereunder.
-2-
<PAGE>
(e) Except as specifically provided by the transactions contemplated
by the Credit Agreement and the other Loan Documents, the Assignor has not
performed any act that might prevent the Assignor from performing its
undertakings hereunder or that might prevent the Agent from operating
under or enforcing any of the terms and conditions hereof or that would
limit the Agent in such operation or enforcement.
(f) No consent, approval, authorization, exemption or other action
by, notice to, or filing with, any Governmental Authority or other Person
is required in connection with the due execution, delivery and performance
by the Assignor of this Agreement, the pledge of the Collateral hereunder
or the exercise by the Agent of the rights and remedies in respect of the
Collateral provided for herein, except for the financing statements
described in subsection (g) below and except for such consents of parties
to the Contracts as have been obtained and true and complete copies of
which have been delivered to the Agent, on behalf of the Secured Parties.
(g) Assuming proper filing of appropriately completed financing
statements in the locations listed on Schedule 2 and termination by First
Union of its Liens with respect to the Existing Senior Debt, the
assignment of the Collateral pursuant to this Agreement is effective to
create in favor of the Secured Parties a valid and perfected first
priority security interest in and Lien upon the Collateral, securing the
payment and performance of the Obligations and subject only to Permitted
Liens.
4. Covenants of the Assignor. (a) The Assignor will, for so long as this
Agreement shall be in effect, (i) observe and perform all of its obligations
under each of the Contracts and enforce the performance by each other party
thereto of all of such party's obligations thereunder, in accordance with the
terms and conditions thereof, (ii) keep original copies of all Contracts and all
records relating thereto at its principal offices, and (iii) notify the Agent in
writing promptly upon obtaining knowledge of the occurrence of any breach or
violation of or default under any of the Contracts by any party thereto.
(b) In the event the Assignor shall, at any time and from time to time
after the date hereof, enter into any new Service Agreement, all of the
Assignor's right, title and interest in and to such new Contract, all records
relating thereto and any and all proceeds of the foregoing shall, immediately
and automatically upon the Assignor's execution thereof, and without the
necessity of any further action by the Assignor or the Lender, be pledged to the
Lender as additional Collateral hereunder and shall be subject to the security
interest created hereby, and in such event the Assignor will forthwith (and in
any event within fifteen (15) days after its execution of any such new Service
Agreement) notify the Agent and furnish to the Agent true, correct and complete
copies thereof, and the Assignor will take any and all such further action that
the Agent may reasonably deem necessary and advisable to perfect the security
interest of the Agent created hereby as to such additional Collateral,
including, without limitation, the obtaining, in form and substance satisfactory
to the Agent, of any necessary consents of third parties to the pledge and
assignment hereunder. In the event that any such new Contract or the assignment
thereof as contemplated herein would,
-3-
<PAGE>
absent any such consent, be voidable by any party as a result of such
assignment, such assignment shall be void ab initio, and in such event the
Assignor will exercise all of its rights and remedies under such Contract at the
direction of and for the benefit of the Secured Parties and will be deemed to
hold all such rights and remedies in trust for the Secured Parties until such
time as such consent shall have been obtained, at which time the pledge and
assignment of such Contract provided for hereinabove shall automatically be
remade and reaffirmed.
5. Remedies. If an Event of Default shall have occurred and be continuing,
the Agent may:
(i) notify the parties obligated on any of the Contracts to make
payment to the Agent of any amount due or to become due thereunder and
receive all such amounts (and each of such parties, upon written notice
from the Agent of the occurrence of an Event of Default, shall be and is
hereby authorized by the Assignor to perform the relevant Contracts for
the benefit of the Secured Parties in accordance with the terms and
conditions thereof, without any obligation to determine whether an Event
of Default has in fact occurred);
(ii) transfer to or register in its name or the name of any of its
agents or nominees all or any part of the Collateral, without notice to
the Assignor and with or without disclosing that such Collateral is
subject to the security interest created hereunder; and
(iii) exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein (including, without
limitation, under clauses (i) and (ii) above and Sections 8(b) and (d)) or
otherwise available to it (whether under any other Loan Document, by law,
in equity or otherwise), all rights and remedies of a secured party under
the Uniform Commercial Code as in effect in each relevant jurisdiction,
and may, without limitation of the foregoing, set off and apply to the
payment of any or all of the Obligations, any or all of the Contracts, in
such manner as the Agent shall in its sole discretion determine, enforce
payment of any of the Contracts, settle, compromise or release, in whole
or in part, any amounts owing on the Contracts, prosecute any action, suit
or proceeding with respect to the Contracts, extend the time of payment
under any of the Contracts, make allowances and adjustment with respect
thereto, and enforce any and all of the terms and provisions thereof in
the place and stead of the Assignor, and may sell, resell, assign and
deliver, in its sole discretion, all or any of the Collateral, in one or
more parcels, at public or private sale, for cash, upon credit or for
future delivery, at such time or times and at such price or prices and
upon such other terms as the Agent may deem satisfactory. If any of the
Collateral is sold by the Agent upon credit or for future delivery, the
Agent
-4-
<PAGE>
shall not be liable for the failure of the purchaser to purchase or pay
for the same and, in the event of any such failure, the Agent may resell
such Collateral. In no event shall the Assignor be credited with any part
of the proceeds of sale of any Collateral until and to the extent cash
payment in respect thereof has actually been received by the Agent. Each
purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right of whatsoever kind, including any equity or right
of redemption of the Assignor, and, to the greatest extent permitted by
applicable law, the Assignor hereby expressly waives all rights of
redemption, stay (other than the automatic stay under Section 362 of the
Bankruptcy Code) or appraisal that it has or may have under any rule of
law or statute now existing or hereafter adopted. No demand, advertisement
or notice, all of which are hereby expressly waived by the Assignor to the
greatest extent permitted by applicable law, shall be required in
connection with any sale or other disposition of any part of the
Collateral that threatens to decline speedily in value or that is of a
type customarily sold in a recognized market; otherwise, the Agent shall
give the Assignor at least ten (10) days' prior notice of the time and
place of any public sale and of the time after which any private sale or
other disposition is to be made, which notice the Assignor agrees is
commercially reasonable, the Assignor hereby expressly waiving all other
demands, advertisements and notices. The Agent shall not be obligated to
make any sale of Collateral if it shall determine not to do so, regardless
of the fact that notice of sale may have been given. The Agent may,
without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and
place fixed for sale, and such sale may, without further notice, be made
at the time and place to which the same was so adjourned. The Agent shall
promptly notify the Assignor (in advance if reasonably possible) of the
adjournment of any public or private sale; provided, however, that the
failure of the Agent to provide the Assignor with any such notice shall
neither affect any obligations of the Assignor hereunder or under any of
the Loan Documents nor result in any liability of the Agent to the
Assignor or any Lender. Upon each private sale of Collateral of a type
customarily sold in a recognized market and upon each public sale, the
Agent may purchase all or any of the Collateral being sold, free from any
equity, right of redemption or other claim or demand, and may make payment
therefor by endorsement and application (without recourse) of the
Obligations in lieu of cash as a credit on account of the purchase price
for such Collateral.
6. Indemnity and Expenses. The Assignor agrees:
(a) To indemnify and hold harmless the Agent and each Lender from
and against any and all claims, demands, losses, judgments and liabilities
in any way arising out of or in connection with this Agreement and the
transactions contemplated hereby, except to the extent the same shall
arise as a result of the gross negligence or willful
-5-
<PAGE>
misconduct of the Agent or such Lender as finally determined by a court of
competent jurisdiction and not subject to any further appeal or pursuant
to arbitration as provided in Section 9.4 of the Credit Agreement; and
(b) To pay and reimburse the Agent upon demand for all reasonable
costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) that the Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, use or preservation
of, or the sale of, collection from or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any rights or remedies
granted hereunder (including, without limitation, under Sections 8(b) and
(d)) or under the other Loan Documents, or otherwise available to it
(whether at law, in equity or otherwise), or (iv) the failure by the
Assignor to perform or observe any of the provisions hereof.
7. Application of Proceeds. (a) All proceeds collected by the Agent upon
any sale, other disposition of or realization upon any of the Collateral,
together with all other moneys received by the Agent hereunder, shall be applied
as follows:
(i) first, to the payment of all costs and expenses of such sale,
disposition or other realization, including the reasonable costs and
expenses of the Agent and the reasonable fees and expenses of its agents
and counsel, all amounts advanced by the Agent for the account of the
Assignor, and all other amounts payable under Section 6;
(ii) second, after payment in full of the amounts specified in
clause (i) above, to the ratable payment of all other Obligations owing to
the Secured Parties, in such order and manner as the Agent may elect; and
(iii) third, after payment in full of the amounts specified in
clauses (i) and (ii) above, and following the termination of this
Agreement, to the Assignor or any other Person lawfully entitled to
receive such surplus.
(b) The Assignor shall remain liable to the extent of any deficiency
between the amount of all proceeds of the Collateral and the aggregate amount of
the sums referred to in clauses (i) and (ii) of subsection (a) above.
8. Further Assurances, etc. (a) The Assignor agrees that it will, at any
time and from time to time and at its own expense, file and maintain in effect
under each applicable Uniform Commercial Code such financing statements,
continuation statements and other documents and instruments as the Agent may
reasonably deem necessary or advisable in order to perfect and preserve the
Agent's security interest in the Collateral granted or purported to be granted
hereby, and agrees to do such further acts and things and to execute and deliver
to the Agent such additional conveyances, assignments, proxies, agreements and
instruments as the Agent may reasonably deem necessary or advisable to carry out
the purposes of this Agreement or to further assure and confirm unto the Agent
its rights,
-6-
<PAGE>
powers and remedies hereunder, including, without limitation, to use its best
efforts to obtain any approvals and consents of Governmental Authorities that
may be necessary in order to permit the Agent to exercise any of its rights and
remedies hereunder.
(b) The Assignor hereby irrevocably appoints the Agent its lawful
attorney-in-fact, with full authority in the place and stead of the Assignor and
in the name of the Assignor, the Agent or otherwise, and with full power of
substitution in the premises (which power of attorney, being coupled with an
interest, is irrevocable for so long as this Agreement shall be in effect), from
time to time in the Agent's reasonable discretion to take any action and to
execute any instruments that the Agent may deem necessary or advisable to
accomplish the purpose of this Agreement, including, without limitation:
(i) to sign the name of the Assignor on any financing statement,
continuation statement, notice or other similar document that, in the
Agent's opinion, should be made or filed in order to perfect or continue
perfected the security interest granted under this Agreement;
(ii) after the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) after the occurrence and during the continuance of an Event of
Default, to receive, endorse and collect any checks, drafts, instruments
and other orders for the payment of money made payable to the Assignor
representing any interest, dividend, distribution or other amount payable
in respect of any of the Collateral and to give full discharge for the
same; and
(iv) after the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or advisable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Agent with respect to any of the Collateral.
(c) The Assignor agrees that it will warrant and defend the right, title
and interest of the Secured Parties in and to the Collateral against the claims
and demands of all other Persons.
(d) If the Assignor fails to perform any covenant or agreement contained
in this Agreement or in any of the Contracts after written request to do so by
the Agent (provided that no such request shall be necessary at any time after
the occurrence and during the continuance of an Event of Default), the Agent may
itself perform, or cause the performance of, such covenant or agreement and may
take any other action that it deems
-7-
<PAGE>
necessary and appropriate for the maintenance and preservation of the Collateral
or its security interest therein, and the reasonable expenses so incurred in
connection therewith shall be payable by the Assignor under Section 6.
9. Assignor to Remain Liable. Notwithstanding anything herein to the
contrary, the Assignor shall remain liable under each of the Contracts and shall
observe and perform all of its obligations thereunder, and shall enforce the
performance by each other party thereto of all of such party's obligations
thereunder, in accordance with the terms and conditions thereof. The exercise by
the Agent of any of its rights hereunder shall not release the Assignor from any
of its obligations under any of the Contracts, and the Agent shall not have any
obligation or liability under any of the Contracts by reason of or arising out
of the assignment thereof as provided for herein or the receipt by the Agent of
any payment relating to any of the Contracts; nor shall the Agent be obligated
to perform any of the obligations or duties of the Assignor thereunder, to make
any payment, to make any inquiry as to the nature or sufficiency of any payment
received by it or the sufficiency of any performance of any party thereunder, or
to take any action to collect or enforce any claim for payment assigned
hereunder or to which it may be entitled. The obligations of the Agent as holder
of Collateral and interests therein and with respect to the disposition thereof,
and otherwise under this Agreement and the other Loan Documents, are only those
expressly set forth in this Agreement and the other Loan Documents. The powers
conferred on the Agent hereunder are solely to protect the interests of the
Secured Parties in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for treatment of the Collateral in its
possession in a manner substantially equivalent to that which the Agent, in its
individual capacity, accords its own property of a similar nature, and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to the Collateral.
Neither the Agent nor any of its officers, directors, employees or agents shall
be liable for any action taken or omitted to be taken by it hereunder or in
connection herewith, except to the extent arising out of its own gross
negligence or willful misconduct.
10. Certain Actions. The Assignor will not (i) sell or otherwise dispose
of, mortgage, pledge, grant any Lien with respect to or otherwise encumber, any
Contract, any Collateral or any interest therein, except for the security
interest created by this Agreement, (ii) without the prior written consent of
the Agent (which consent shall not be unreasonably withheld or delayed), amend,
modify, supplement or waive any provision of any Contract, or compromise,
release or extend the time for payment of any obligation thereunder, (iii)
invoke or assert the benefit of any rule of law or statute now or hereafter in
effect, including, without limitation, any right to prior notice or judicial
hearing or marshalling of assets in connection with the Agent's possession,
custody or disposition of any Collateral and any appraisal, valuation, stay
(other than the automatic stay under Section 362 of the Bankruptcy Code),
extension, moratorium or redemption law, or take or fail to take any other
action, that would, or could reasonably be expected to, have the effect of
delaying, impeding or preventing the exercise of any rights and remedies in
respect of any Collateral, the absolute
-8-
<PAGE>
sale of any Collateral or the possession thereof by any purchaser at any sale
thereof, and, to the greatest extent permitted by applicable law, the Assignor
hereby waives the benefit of all such laws, or (iv) agree to do or cause to be
done any of the foregoing.
11. Security Interest Absolute. The Assignor agrees that its obligations,
and the security interest granted to and all rights of the Agent, hereunder are
irrevocable, absolute and unconditional and shall not be discharged, limited or
otherwise affected by reason of any of the following, whether or not the
Assignor has notice or knowledge thereof:
(i) any change in the time, manner or place of payment of, or in any
other term of, any Obligations, or any amendment, modification or
supplement to, restatement of, or consent to any rescission or waiver of
or departure from, any provisions of the Credit Agreement, any other Loan
Document or any agreement or instrument delivered pursuant thereto;
(ii) the invalidity or unenforceability of any particular
Obligations or any provisions of the Credit Agreement, any other Loan
Document or any agreement or instrument delivered pursuant thereto;
(iii) the obtaining of any guaranty or other liability in respect of
any Obligations; any sale, exchange, release, substitution, compromise,
nonperfection or other action or inaction in respect of any Collateral or
other collateral pledged as direct or indirect security for any
Obligations (including the taking of a security interest in any property
as security for the Obligations or for any guaranty or other liability in
respect thereof); or any discharge, modification, settlement, compromise,
extension or other action or inaction in respect of any guaranty or other
direct or indirect liability for any Obligations;
(iv) the proceeding against or resorting to the Collateral for
payment on any Obligations, whether or not the Agent shall have proceeded
against or resorted to any other collateral pledged as direct or indirect
security for any Obligations or shall have proceeded against any other
Person primarily or secondarily liable with respect to the Obligations; or
(v) any other circumstance that might otherwise constitute a legal
or equitable discharge of, or a defense, set-off or counterclaim available
to, the Assignor, other than the indefeasible payment in full of the
Obligations.
12. No Waiver. The rights and remedies of the Secured Parties expressly
set forth in this Agreement and the other Loan Documents are cumulative and in
addition to, and not exclusive of, all other rights and remedies available at
law, in equity or otherwise. No delay or failure to take action on the part of
any Secured Party in exercising any right, power or privilege shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or the
-9-
<PAGE>
exercise of any other right, power or privilege or be construed to be a waiver
of any Default or Event of Default. No course of dealing between the Assignor
and the Secured Parties or their agents or employees shall be effective to
change, modify or discharge any provision of this Agreement or any other Loan
Document or to constitute a waiver of any Default or Event of Default. No notice
to or demand upon the Assignor in any case shall entitle the Assignor to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of any Secured Party to exercise any right or
remedy or take any other or further action in any circumstances without notice
or demand.
13. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by the Assignor from,
any provision of this Agreement, shall be effective unless in a writing signed
by the Agent and executed and delivered in accordance with Section 9.6 of the
Credit Agreement, and then the same shall be effective only in the specific
instance and for the specific purpose for which given.
14. Continuing Security Interest; Term; Successors and Assigns;
Assignment; Termination; Survival. This Agreement shall create a continuing
security interest in the Collateral and shall secure the payment and performance
of all of the Obligations as the same may arise and be outstanding at any time
and from time to time from and after the date hereof, and shall (i) remain in
full force and effect until the indefeasible payment in full of the Obligations,
(ii) be binding upon and enforceable against the Assignor and its successors and
assigns (provided, however, that the Assignor may not sell, assign or transfer
any of its rights, interests, duties or obligations hereunder without the prior
written consent of the Lenders) and (iii) inure to the benefit of and be
enforceable by each Secured Party and its successors and assigns. Upon the
indefeasible payment in full of the Obligations, this Agreement shall terminate,
and the Agent, at the request and expense of the Assignor, will execute and
deliver to the Assignor such documents and instruments evidencing such
termination as the Assignor may reasonably request and will assign, transfer and
deliver to the Assignor, without recourse and without representation or warranty
(other than that the Collateral is free and clear of Liens incurred by the Agent
or Lenders), such of the Collateral as may then be in the possession of the
Agent together with any moneys then held by the Agent hereunder. All
representations, warranties, covenants and agreements herein shall survive the
execution and delivery of this Agreement.
15. Notices. All notices and other communications provided for hereunder
shall be given to the parties in the manner, at the addresses and subject to the
other notice provisions set forth in the Credit Agreement.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).
17. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be
-10-
<PAGE>
ineffective only to the extent of such prohibition or invalidity and only in any
such jurisdiction, without prohibiting or invalidating such provision in any
other jurisdiction or the remaining provisions of this Agreement in any
jurisdiction.
18. Construction. The headings of the various sections and subsections of
this Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof. Unless the
context otherwise requires, words in the singular include the plural and words
in the plural include the singular. For purposes of this Agreement, in addition
to the terms defined elsewhere herein, all terms used herein without definition
shall have the meanings accorded to them by the Uniform Commercial Code to the
extent the same are used or defined therein.
19. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the Assignor has caused this Agreement to be executed
under seal by its duly authorized officer as of the date first above written.
FRONT ROYAL, INC.
By:_________________________________
Title:_______________________________
Accepted and agreed to:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Agent
By:___________________________
Title:_____________________
-11-
<PAGE>
Schedule 1 to Collateral Assignment
of Agreements (Front Royal, Inc.)
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------------
CONTRACTS
1.
2.
3.
<PAGE>
Schedule 2 to Collateral Assignment
of Agreements (Front Royal, Inc.)
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------------
FILING LOCATIONS
1. Secretary of State of North Carolina
2. Wake County, North Carolina Register of Deeds
<PAGE>
Exhibit F-2 to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996/ $38,000,000
-----------------------------------
COLLATERAL ASSIGNMENT OF AGREEMENTS
(Non-Insurance Subsidiaries)
THIS COLLATERAL ASSIGNMENT OF AGREEMENTS, dated as of the ________ day of
December, 1996 (this "Agreement"), is made by each of the undersigned
non-insurance subsidiaries (the "Assignors") of Front Royal, Inc., a North
Carolina corporation, (the "Borrower"), in favor of FIRST UNION NATIONAL BANK OF
NORTH CAROLINA ("First Union"), as agent (in such capacity, the "Agent") for the
Lenders (as hereinafter defined) under the Credit Agreement referred to below,
for the benefit of the Agent and the Lenders (collectively, the "Secured
Parties"). Capitalized terms used herein and not defined elsewhere herein shall
have the meanings given to them in the Credit Agreement referred to below.
RECITALS
A. The Borrower, certain banks and other financial institutions (the
"Lenders") and the Agent are parties to a Credit Agreement, dated as of December
18, 1996 (as amended, modified, supplemented or restated from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed to make Loans to
the Borrower upon the terms and conditions set forth therein.
B. Each of the Assignors is a Non-Insurance Subsidiary of the Borrower and
is a party to a Subsidiaries Guaranty, dated as of the date hereof (as amended,
modified, supplemented or restated from time to time, the "Guaranty"), pursuant
to which the Assignor, together with all other Non-Insurance Subsidiaries of the
Borrower, has unconditionally guaranteed all of the Obligations of the Borrower
under the Loan Documents.
C. It is a condition to the making of the Loans to the Borrower under the
Credit Agreement that each of the Assignors shall have agreed, by executing and
delivering this Agreement, to secure the payment in full of its obligations to
the Agent and Lenders under the Guaranty. The Lenders are relying on this
Agreement in their decisions to make the Loans to the Borrower under the Credit
Agreement, and would not enter into the Credit Agreement without this Agreement.
D. Each Assignor will obtain benefits as a result of the making of the
Loans to the Borrower under the Credit Agreement, which benefits are hereby
acknowledged, and, accordingly, desires to execute and deliver this Agreement.
<PAGE>
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, to induce the Agent and the Lenders to enter into the Credit
Agreement and to induce the Lenders to makes the Loans to the Borrower
thereunder, each Assignor hereby agrees as follows:
1. Assignment and Security Interest. Each Assignor hereby pledges and
assigns to the Agent, for the ratable benefit of the Secured Parties, and grants
to the Agent, for the ratable benefit of the Secured Parties, a security
interest in, all of the Assignor's right, title and interest in and to the
agreements and contracts listed on Schedule 1, together with any and all
amendments, modifications, renewals, extensions and restatements thereof and
supplements thereto (collectively, the "Contracts"), all records relating
thereto, and any and all proceeds of the foregoing (collectively, the
"Collateral"). For purposes of this Agreement, the term "proceeds" shall mean
and include all cash, securities and other property of any nature received or
receivable upon the sale, exchange or other disposition of or realization upon
any Collateral, together with all distributions in respect of any Collateral,
including pursuant to any liquidation, reorganization or similar proceeding with
respect to any Assignor.
2. Security for Obligations. This Agreement and the Collateral secure the
full and prompt payment, at any time and from time to time as and when due
(whether at the stated maturity, by acceleration or otherwise), of the Total
Obligations (as defined in the Guaranty) and all fees, expenses, indemnities and
other amounts payable by any Assignor hereunder, (including interest accruing
after the filing of a petition or commencement of a case by or with respect to
any Assignor seeking relief under any bankruptcy or insolvency laws, whether or
not the claim for such interest is allowed in such proceeding), and all
obligations that, but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, would become due, in each case whether now
existing or hereafter created or arising and whether direct or indirect,
absolute or contingent, due or to become due (all obligations described in this
Section, collectively, the "Secured Obligations").
3. Representations and Warranties. Each Assignor represents and warrants
as follows, which representations and warranties shall be true and correct as of
the date hereof with respect to each of the Contracts listed on Schedule 1 and
shall be true and correct, and are hereby remade and reaffirmed, as of the date
of any new Service Agreement with respect to such Service Agreement:
(a) Each Assignor has heretofore delivered to the Agent a true,
complete and correct copy of each of the Contracts currently in effect,
together with all schedules and exhibits thereto and amendments and
modifications thereof. Each such Contract sets forth the entire agreement
and understanding of the parties thereto relating to the subject matter
thereof, and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby.
-2-
<PAGE>
(b) Each Assignor's right, title and interest in and to each
Contract is free and clear of any Lien whatsoever other than the security
interest created by this Agreement (and other than the Liens in favor of
First Union with respect to the Existing Senior Debt).
(c) Each of the Contracts has been duly authorized, executed and
delivered and is the legal, valid and binding obligation of the Assignor
(and, to the knowledge of the Assignor, each other party thereto),
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally or by general equitable
principles, and no defense, offset, deduction or counterclaim exists
thereunder in favor of any party.
(d) No Assignor is in breach of or default under any of the
Contracts, and, to the knowledge of the Assignors, no other party to any
of the Contracts is in breach thereof or default thereunder.
(e) Except as specifically provided by the transactions contemplated
by the Credit Agreement and the other Loan Documents, no Assignor has
performed any act that might prevent such Assignor from performing its
undertakings hereunder or that might prevent the Agent from operating
under or enforcing any of the terms and conditions hereof or that would
limit the Agent in such operation or enforcement.
(f) No consent, approval, authorization, exemption or other action
by, notice to, or filing with, any Governmental Authority or other Person
is required in connection with the due execution, delivery and performance
by each Assignor of this Agreement, the pledge of the Collateral hereunder
or the exercise by the Agent of the rights and remedies in respect of the
Collateral provided for herein, except for the financing statements
described in subsection (g) below and except for such consents of parties
to the Contracts as have been obtained and true and complete copies of
which have been delivered to the Agent, on behalf of the Secured Parties.
(g) Assuming proper filing of appropriately completed financing
statements in the locations listed on Schedule 2 and termination by First
Union of its Liens with respect to the Existing Senior Debt, the
assignment of the Collateral pursuant to this Agreement is effective to
create in favor of the Secured Parties a valid and perfected first
priority security interest in and Lien upon the Collateral, securing the
payment and performance of the Secured Obligations and subject only to
Permitted Liens.
4. Covenants of the Assignors. (a) Each Assignor will, for so long as this
Agreement shall be in effect, (i) observe and perform all of its obligations
under each of the Contracts and enforce the performance by each other party
thereto of all of such party's obligations thereunder, in accordance with the
terms and conditions thereof, (ii) keep original copies of all of its Contracts
and all records relating thereto at its principal offices, and (iii) notify the
Agent in writing promptly upon obtaining knowledge of the occurrence of any
breach or violation of or default under any of the Contracts by any party
thereto.
-3-
<PAGE>
(b) In the event any Assignor shall, at any time and from time to time
after the date hereof, enter into any new Service Agreement, all of such
Assignor's right, title and interest in and to such new Contract, all records
relating thereto and any and all proceeds of the foregoing shall, immediately
and automatically upon the Assignor's execution thereof, and without the
necessity of any further action by the Assignor or the Agent, be pledged to the
Agent as additional Collateral hereunder and shall be subject to the security
interest created hereby, and in such event the Assignor will forthwith (and in
any event within fifteen (15) days after its execution of any such new Service
Agreement) notify the Agent and furnish to the Agent true, correct and complete
copies thereof, and such Assignor will take any and all such further action that
the Agent may reasonably deem necessary and advisable to perfect the security
interest of the Agent created hereby as to such additional Collateral,
including, without limitation, the obtaining, in form and substance satisfactory
to the Agent, of any necessary consents of third parties to the pledge and
assignment hereunder. In the event that any such new Contract or the assignment
thereof as contemplated herein would, absent any such consent, be violable by
any party as a result of such assignment, such assignment shall be void ab
initio, and in such event the Assignor will exercise all of its rights and
remedies under such Contract at the direction of and for the benefit of the
Secured Parties and will be deemed to hold all such rights and remedies in trust
for the Secured Parties until such time as such consent shall have been
obtained, at which time the pledge and assignment of such Contract provided for
hereinabove shall automatically be remade and reaffirmed.
5. Remedies. If an Event of Default shall have occurred and be continuing,
the Agent may:
(i) notify the parties obligated on any of the Contracts to make
payment to the Agent of any amount due or to become due thereunder and
receive all such amounts (and each of such parties, upon written notice
from the Agent of the occurrence of an Event of Default, shall be and is
hereby authorized by each Assignor to perform the relevant Contracts for
the benefit of the Secured Parties in accordance with the terms and
conditions thereof, without any obligation to determine whether an Event
of Default has in fact occurred);
(ii) transfer to or register in its name or the name of any of its
agents or nominees all or any part of the Collateral, without notice to
any Assignor and with or without disclosing that such Collateral is
subject to the security interest created hereunder; and
(iii) exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein (including, without
limitation, under clauses (i) and (ii) above and Sections 8(b) and (d)) or
otherwise available to it (whether under any other Loan Document, by law,
in equity or otherwise), all rights and remedies of a secured party under
the Uniform
-4-
<PAGE>
Commercial Code as in effect in each relevant jurisdiction, and may,
without limitation of the foregoing, set off and apply to the payment of
any or all of the Secured Obligations, any or all of the Contracts, in
such manner as the Agent shall in its sole discretion determine, enforce
payment of any of the Contracts, settle, compromise or release, in whole
or in part, any amounts owing on the Contracts, prosecute any action, suit
or proceeding with respect to the Contracts, extend the time of payment
under any of the Contracts, make allowances and adjustment with respect
thereto, and enforce any and all of the terms and provisions thereof in
the place and stead of each of the Assignors, and may sell, resell, assign
and deliver, in its sole discretion, all or any of the Collateral, in one
or more parcels, at public or private sale, for cash, upon credit or for
future delivery, at such time or times and at such price or prices and
upon such other terms as the Agent may deem satisfactory. If any of the
Collateral is sold by the Agent upon credit or for future delivery, the
Agent shall not be liable for the failure of the purchaser to purchase or
pay for the same and, in the event of any such failure, the Agent may
resell such Collateral. In no event shall any Assignor be credited with
any part of the proceeds of sale of any Collateral until and to the extent
cash payment in respect thereof has actually been received by the Agent.
Each purchaser at any such sale shall hold the property sold absolutely,
free from any claim or right of whatsoever kind, including any equity or
right of redemption of the Assignor, and, to the greatest extent permitted
by applicable law, each Assignor hereby expressly waives all rights of
redemption, stay (other than the automatic stay under Section 362 of the
Bankruptcy Code) or appraisal that it has or may have under any rule of
law or statute now existing or hereafter adopted. No demand, advertisement
or notice, all of which are hereby expressly waived by each Assignor to
the greatest extent permitted by applicable law, shall be required in
connection with any sale or other disposition of any part of the
Collateral that threatens to decline speedily in value or that is of a
type customarily sold in a recognized market; otherwise, the Agent shall
give the relevant Assignor at least ten (10) days' prior notice of the
time and place of any public sale and of the time after which any private
sale or other disposition is to be made, which notice each Assignor agrees
is commercially reasonable, each Assignor hereby expressly waiving all
other demands, advertisements and notices. The Agent shall not be
obligated to make any sale of Collateral if it shall determine not to do
so, regardless of the fact that notice of sale may have been given. The
Agent may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further
notice, be made at the time and place to which the same was so adjourned.
The Agent shall promptly notify the relevant Assignor (in advance if
reasonably possible) of the adjournment of any public or private sale;
provided, however, that the failure of the Agent to provide such Assignor
with any such notice shall neither affect any obligations
-5-
<PAGE>
of the Assignors hereunder or under any of the Loan Documents nor result
in any liability of the Agent to any Assignor or any Secured Party. Upon
each private sale of Collateral of a type customarily sold in a recognized
market and upon each public sale, the Agent may purchase all or any of the
Collateral being sold, free from any equity, right of redemption or other
claim or demand, and may make payment therefor by endorsement and
application (without recourse) of the Secured Obligations in lieu of cash
as a credit on account of the purchase price for such Collateral.
6. Indemnity and Expenses. Each Assignor agrees:
(a) To indemnify and hold harmless the Agent and each Lender from
and against any and all claims, demands, losses, judgments and liabilities
in any way arising out of or in connection with this Agreement and the
transactions contemplated hereby, except to the extent the same shall
arise as a result of the gross negligence or willful misconduct of the
Agent or such Lender as finally determined by a court of competent
jurisdiction and not subject to any further appeal or pursuant to
arbitration as provided in Section 14 of the Guaranty; and
(b) To pay and reimburse the Agent upon demand for all reasonable
costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses) that the Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, use or preservation
of, or the sale of, collection from or other realization upon, any of the
Collateral, (iii) the exercise or enforcement of any rights or remedies
granted hereunder (including, without limitation, under Sections 8(b) and
(d)) or under the other Loan Documents, or otherwise available to it
(whether at law, in equity or otherwise), or (iv) the failure by any
Assignor to perform or observe any of the provisions hereof.
7. Application of Proceeds. (a) All proceeds collected by the Agent upon
any sale, other disposition of or realization upon any of the Collateral,
together with all other moneys received by the Agent hereunder, shall be applied
as follows:
(i) first, to the payment of all costs and expenses of such sale,
disposition or other realization, including the reasonable costs and
expenses of the Agent and the reasonable fees and expenses of its agents
and counsel, all amounts advanced by the Agent for the account of any
Assignor, and all other amounts payable under Section 6;
(ii) second, after payment in full of the amounts specified in
clause (i) above, to the ratable payment of all other Secured Obligations
owing to the Secured Parties, in such order and manner as the Agent may
elect; and
-6-
<PAGE>
(iii) third, after payment in full of the amounts specified in
clauses (i) and (ii) above, and following the termination of this
Agreement, to the Assignors or any other Person lawfully entitled to
receive such surplus.
(b) Each Assignor shall remain liable to the extent of any deficiency
between the amount of all proceeds of the Collateral and the aggregate amount of
the sums referred to in clauses (i) and (ii) of subsection (a) above.
8. Further Assurances, etc. (a) Each Assignor agrees that it will, at any
time and from time to time and at its own expense, file and maintain in effect
under each applicable Uniform Commercial Code such financing statements,
continuation statements and other documents and instruments as the Agent may
reasonably deem necessary or advisable in order to perfect and preserve the
Agent's security interest in the Collateral granted or purported to be granted
hereby, and agrees to do such further acts and things and to execute and deliver
to the Agent such additional conveyances, assignments, proxies, agreements and
instruments as the Agent may reasonably deem necessary or advisable to carry out
the purposes of this Agreement or to further assure and confirm unto the Agent
its rights, powers and remedies hereunder, including, without limitation, to use
its best efforts to obtain any approvals and consents of Governmental
Authorities that may be necessary in order to permit the Agent to exercise any
of its rights and remedies hereunder.
(b) Each Assignor hereby irrevocably appoints the Agent its lawful
attorney-in-fact, with full authority in the place and stead of the Assignor and
in the name of the Assignor, the Agent or otherwise, and with full power of
substitution in the premises (which power of attorney, being coupled with an
interest, is irrevocable for so long as this Agreement shall be in effect), from
time to time in the Agent's reasonable discretion to take any action and to
execute any instruments that the Agent may deem necessary or advisable to
accomplish the purpose of this Agreement, including, without limitation:
(i) to sign the name of the Assignor on any financing statement,
continuation statement, notice or other similar document that, in the
Agent's opinion, should be made or filed in order to perfect or continue
perfected the security interest granted under this Agreement;
(ii) after the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) after the occurrence and during the continuance of an Event of
Default, to receive, endorse and collect any checks, drafts, instruments
and other orders for the payment of money made payable to the Assignor
representing any interest, dividend, distribution or other amount
-7-
<PAGE>
payable in respect of any of the Collateral and to give full discharge for
the same; and
(iv) after the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any
proceedings that the Agent may deem necessary or advisable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Agent with respect to any of the Collateral.
(c) Each Assignor agrees that it will warrant and defend the right, title
and interest of the Secured Parties in and to the Collateral against the claims
and demands of all other Persons.
(d) If any Assignor fails to perform any covenant or agreement contained
in this Agreement or in any of the Contracts after written request to do so by
the Agent (provided that no such request shall be necessary at any time after
the occurrence and during the continuance of an Event of Default), the Agent may
itself perform, or cause the performance of, such covenant or agreement and may
take any other action that it deems necessary and appropriate for the
maintenance and preservation of the Collateral or its security interest therein,
and the reasonable expenses so incurred in connection therewith shall be payable
by the Assignors under Section 6.
9. Assignors to Remain Liable. Notwithstanding anything herein to the
contrary, each Assignor shall remain liable under each of the Contracts and
shall observe and perform all of its obligations thereunder, and shall enforce
the performance by each other party thereto of all of such party's obligations
thereunder, in accordance with the terms and conditions thereof. The exercise by
the Agent of any of its rights hereunder shall not release any Assignor from any
of its obligations under any of the Contracts, and the Agent shall not have any
obligation or liability under any of the Contracts by reason of or arising out
of the assignment thereof as provided for herein or the receipt by the Agent of
any payment relating to any of the Contracts; nor shall the Agent be obligated
to perform any of the obligations or duties of any Assignor thereunder, to make
any payment, to make any inquiry as to the nature or sufficiency of any payment
received by it or the sufficiency of any performance of any party thereunder, or
to take any action to collect or enforce any claim for payment assigned
hereunder or to which it may be entitled. The obligations of the Agent as holder
of Collateral and interests therein and with respect to the disposition thereof,
and otherwise under this Agreement and the other Loan Documents, are only those
expressly set forth in this Agreement and the other Loan Documents. The powers
conferred on the Agent hereunder are solely to protect the interests of the
Secured Parties in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for treatment of the Collateral in its
possession in a manner substantially equivalent to that which the Agent, in its
individual capacity, accords its own property of a similar nature, and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other
-8-
<PAGE>
rights pertaining to the Collateral. Neither the Agent nor any of its officers,
directors, employees or agents shall be liable for any action taken or omitted
to be taken by it hereunder or in connection herewith, except to the extent
arising out of its own gross negligence or willful misconduct.
10. Certain Actions. Each Assignor agrees that it will not (i) sell or
otherwise dispose of, mortgage, pledge, grant any Lien with respect to or
otherwise encumber, any Contract, any Collateral or any interest therein, except
for the security interest created by this Agreement, (ii) without the prior
written consent of the Agent (which consent shall not be unreasonably withheld
or delayed), amend, modify, supplement or waive any provision of any Contract,
or compromise, release or extend the time for payment of any obligation
thereunder, (iii) invoke or assert the benefit of any rule of law or statute now
or hereafter in effect, including, without limitation, any right to prior notice
or judicial hearing or marshalling of assets in connection with the Agent's
possession, custody or disposition of any Collateral and any appraisal,
valuation, stay (other than the automatic stay under Section 362 of the
Bankruptcy Code), extension, moratorium or redemption law, or take or fail to
take any other action, that would, or could reasonably be expected to, have the
effect of delaying, impeding or preventing the exercise of any rights and
remedies in respect of any Collateral, the absolute sale of any Collateral or
the possession thereof by any purchaser at any sale thereof, and, to the
greatest extent permitted by applicable law, the Assignor hereby waives the
benefit of all such laws, or (iv) agree to do or cause to be done any of the
foregoing.
11. Security Interest Absolute. Each Assignor agrees that its obligations,
and the security interest granted to and all rights of the Agent, hereunder are
irrevocable, absolute and unconditional and shall not be discharged, limited or
otherwise affected by reason of any of the following, whether or not the
Assignor has notice or knowledge thereof:
(i) any change in the time, manner or place of payment of, or in any
other term of, any Obligations or Secured Obligations, or any amendment,
modification or supplement to, restatement of, or consent to any
rescission or waiver of or departure from, any provisions of the Credit
Agreement, any other Loan Document or any agreement or instrument
delivered pursuant thereto;
(ii) the invalidity or unenforceability of any particular
Obligations or Secured Obligations or any provisions of the Credit
Agreement, any other Loan Document or any agreement or instrument
delivered pursuant thereto;
(iii) the obtaining of any guaranty or other liability in respect of
any Secured Obligations; any sale, exchange, release, substitution,
compromise, nonperfection or other action or inaction in respect of any
Collateral or other collateral pledged as direct or indirect security for
any Secured Obligations (including the taking of a security interest in
any property
-9-
<PAGE>
as security for the Secured Obligations or for any guaranty or other
liability in respect thereof); or any discharge, modification, settlement,
compromise, extension or other action or inaction in respect of any
guaranty or other direct or indirect liability for any Secured
Obligations;
(iv) the proceeding against or resorting to the Collateral for
payment on any Secured Obligations, whether or not the Agent shall have
proceeded against or resorted to any other collateral pledged as direct or
indirect security for any Secured Obligations or shall have proceeded
against any other Person primarily or secondarily liable with respect to
the Secured Obligations; or
(v) any other circumstance that might otherwise constitute a legal
or equitable discharge of, or a defense, set-off or counterclaim available
to, the Assignor, other than the indefeasible payment in full of the
Secured Obligations.
12. No Waiver. The rights and remedies of the Secured Parties expressly
set forth in this Agreement and the other Loan Documents are cumulative and in
addition to, and not exclusive of, all other rights and remedies available at
law, in equity or otherwise. No delay or failure to take action on the part of
any Secured Party in exercising any right, power or privilege shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or the exercise of
any other right, power or privilege or be construed to be a waiver of any
Default or Event of Default. No course of dealing between any Assignor and the
Secured Parties or their agents or employees shall be effective to change,
modify or discharge any provision of this Agreement or any other Loan Document
or to constitute a waiver of any Default or Event of Default. No notice to or
demand upon any Assignor in any case shall entitle the Assignors to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of any Secured Party to exercise any right or remedy or take
any other or further action in any circumstances without notice or demand.
13. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by any Assignor from,
any provision of this Agreement, shall be effective unless in a writing signed
by the Agent and executed and delivered in accordance with Section 15 of the
Guaranty, and then the same shall be effective only in the specific instance and
for the specific purpose for which given.
14. Continuing Security Interest; Term; Successors and Assigns;
Assignment; Termination; Survival. This Agreement shall create a continuing
security interest in the Collateral and shall secure the payment and performance
of all of the Secured Obligations as the same may arise and be outstanding at
any time and from time to time from and after the date hereof, and shall (i)
remain in full force and effect until the indefeasible payment in full of the
Secured Obligations, (ii) be binding upon and enforceable against the Assignors
and
-10-
<PAGE>
their successors and assigns (provided, however, that the Assignors may not
sell, assign or transfer any of their rights, interests, duties or obligations
hereunder without the prior written consent of the Lenders) and (iii) inure to
the benefit of and be enforceable by each Secured Party and its successors and
assigns. Upon the indefeasible payment in full of the Secured Obligations, this
Agreement shall terminate, and the Agent, at the request and expense of the
Assignors, will execute and deliver to the Assignors such documents and
instruments evidencing such termination as the Assignors may reasonably request
and will assign, transfer and deliver to the Assignors, without recourse and
without representation or warranty (other than that the Collateral is free and
clear of any Liens incurred by the Agent or Lenders), such of the Collateral as
may then be in the possession of the Agent together with any moneys then held by
the Agent hereunder. All representations, warranties, covenants and agreements
herein shall survive the execution and delivery of this Agreement.
15. Notices. All notices and other communications provided for hereunder
shall be given to the parties in the manner, at the addresses and subject to the
other notice provisions set forth in the Guaranty.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).
17. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in any such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Agreement in any jurisdiction.
18. Construction. The headings of the various sections and subsections of
this Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof. Unless the
context otherwise requires, words in the singular include the plural and words
in the plural include the singular. For purposes of this Agreement, in addition
to the terms defined elsewhere herein, all terms used herein without definition
shall have the meanings accorded to them by the Uniform Commercial Code to the
extent the same are used or defined therein.
19. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
-11-
<PAGE>
IN WITNESS WHEREOF, the Assignors have caused this Agreement to be
executed under seal by its duly authorized officer as of the date first above
written.
COLONY MANAGEMENT SERVICES, INC.
By:__________________________________
Title:_______________________________
FRONT ROYAL ENVIRONMENTAL
SERVICES, INC.
By:__________________________________
Title:_______________________________
Accepted and agreed to:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Agent
By:_______________________________
Title:____________________________
-12-
<PAGE>
Schedule 1 to Collateral Assignment
of Agreements (Subsidiaries)
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------------
CONTRACTS
1.
2.
3.
-13-
<PAGE>
Schedule 2 to Collateral Assignment
of Agreements (Subsidiaries)
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------------
FILING LOCATIONS
1. Secretary of State of North Carolina
2. Wake County, North Carolina Register of Deeds
3. [Virginia and other filing locations]
-14-
<PAGE>
Exhibit G to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of the ___ day of December, 1996 (this
"Agreement"), is made among FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as
agent (in such capacity, the "Agent") for the Lenders (as hereinafter defined)
under the Credit Agreement referred to below, FRONT ROYAL, INC., a North
Carolina corporation (the "Borrower"), and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, as escrow agent hereunder (in such capacity, the "Escrow Agent").
Capitalized terms used herein and not defined elsewhere herein shall have the
meanings given to them in the Credit Agreement referred to below.
RECITALS
A. The Borrower, certain banks and other financial institutions (the
"Lenders") and the Agent are parties to a Credit Agreement, dated as of December
18, 1996 (as amended, modified, supplemented or restated from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed to make Loans to
the Borrower upon the terms and conditions set forth therein.
B. The Borrower and the Agent have, as of the date hereof, entered into
the Pledge and Security Agreement, whereby the Borrower has granted to the
Agent, as security for its Obligations under the Credit Agreement and the other
Loan Documents, a first priority security interest in and Lien upon, among other
things, the funds to be maintained and held from time to time in the Cash
Collateral Account (as hereinafter defined).
C. It is a condition to the making of the Loans to the Borrower under the
Credit Agreement that the Borrower shall have agreed, by executing and
delivering this Agreement, to establish the Cash Collateral Account.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the payment by the
Borrower to the Escrow Agent of $1.00 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and to induce the
Lenders and the Agent to enter into the Credit Agreement and to induce the
Lenders to make the Loans to the Borrower thereunder, the parties hereby agree
as follows:
-15-
<PAGE>
1. Appointment of Escrow Agent. The Borrower and the Agent hereby
appoint the Escrow Agent to serve as escrow agent hereunder. The Escrow
Agent accepts such appointment and agrees to hold, invest and disburse the
funds maintained in the Cash Collateral Account in accordance with this
Agreement and as agent for the benefit of the Agent and the Lenders so
that the Agent shall have, pursuant to the Pledge and Security Agreement,
a valid and perfected first priority security interest in and Lien upon
all funds maintained and held in the Cash Collateral Account.
2. Creation of Cash Collateral Account; Initial Deposit. The
Borrower and the Agent hereby establish an escrow account to be maintained
from and after the date hereof by and in the name of the Escrow Agent and
designated the "Front Royal Cash Collateral Account" (the "Cash Collateral
Account"). Concurrently with the execution of this Agreement, the Borrower
is delivering to the Escrow Agent, for deposit into the Cash Collateral
Account as required under Section 3.01(k) of the Credit Agreement, cash in
the amount of $6,000,000, by wire transfer to First Union National Bank of
North Carolina, ABA # 053000219, Account No. 465946, Re: Front Royal,
Inc., Attention: Karen Atkinson, which delivery and receipt of which
amount is hereby confirmed by the Escrow Agent. All deposits of funds
into, investment of funds held in, and disbursements of funds from the
Cash Collateral Account shall be made on the terms and conditions set
forth herein.
3. Withdrawals; Disbursements; Deficits. (a) The Borrower shall not
be permitted to withdraw any funds from the Cash Collateral Account for
any purpose except as expressly provided in Sections 4 and 10 hereof.
(b) In the event the Borrower shall fail to pay any principal of or
interest on the Loans, any fees or any other Obligations when due (whether
at maturity, by acceleration or otherwise), the Agent shall have the right
immediately to instruct the Escrow Agent to disburse to the Agent, and the
Escrow Agent will disburse to the Agent upon receipt of such instructions,
funds held in the Cash Collateral Account (including any undisbursed
interest and income) in an amount sufficient to pay in full the
Obligations then due and owing; provided that, in the event such funds in
the Cash Collateral Account shall be insufficient to pay in full the
Obligations then due and owing, the Agent may instruct the Escrow Agent to
disburse to the Agent, and the Escrow Agent will so disburse to the Agent,
all of the funds then held in the Cash Collateral Account.
(c) The Borrower may, at any time and from time to time, by written
instruction or pursuant to telephone instruction confirmed promptly in
writing, direct the Escrow Agent to disburse to the Agent any amount of
the funds held in the Cash Collateral Account, subject to its obligations
under subsection (d) below.
(d) In the event that, as a result of a disbursement of funds from
the Cash Collateral Account pursuant to subsection (b) or (c) above, the
aggregate principal balance of funds (including investments, which shall
for purposes of this Section be valued on a cost basis) held in the Cash
Collateral Account (exclusive of any undisbursed interest and income
-16-
<PAGE>
not applied as provided in the following sentence) shall at any time be
less than $6,000,000 (a "Deficit"), the Borrower will, within thirty (30)
days after such disbursement, deliver to the Escrow Agent, for deposit
into the Cash Collateral Account, cash in an amount sufficient, together
with all interest and income applied from time to time as provided in the
following sentence, to eliminate such Deficit. At all times during which
any Deficit shall exist, all undisbursed interest and income on the funds
held in the Cash Collateral Account shall be deemed added, as and when
accrued, to the principal balance of such funds, to the maximum extent
possible or necessary to eliminate such Deficit, whereupon the same shall
be deemed part of such principal balance and shall constitute at all times
thereafter Collateral secured under the Borrower Pledge and Security
Agreement, all without affecting the Borrower's obligation to deposit any
additional amounts necessary to eliminate such Deficit within the 30-day
period described above. The failure of the Borrower to eliminate a Deficit
within the 30-day period described above shall constitute an Event of
Default under the Credit Agreement.
(e) Funds held in the Cash Collateral Account shall be disbursed in
same day available funds by the Escrow Agent on the Business Day next
following its receipt of instructions therefor as provided herein;
provided, however, that if such instructions are received by the Escrow
Agent on a day that is not a Business Day or after 1:00 p.m., Charlotte
time, on a Business Day, such funds shall be disbursed on the second
Business Day following receipt of such notice.
(f) In addition to disbursements permitted or required under
subsections (b) and (c) above, the Escrow Agent will disburse funds held
in the Cash Collateral Account at any time and from time to time in
accordance with the joint written directions of the Borrower and the
Agent.
4. Interest and Income. Except to the extent disbursed to the Agent at its
request pursuant to Section 3(b) or retained in the Cash Collateral Account and
applied to any Deficit pursuant to Section 3(d), interest and income earned
during any calendar quarter on funds maintained in the Cash Collateral Account
shall be disbursed by the Escrow Agent to the Borrower within thirty (30) days
after the end of such quarter, beginning with the quarter ending March 31, 1997.
5. Investment of Funds. The Escrow Agent shall invest and reinvest the
funds held in the Cash Collateral Account as the Borrower shall direct in
writing or pursuant to telephone instruction confirmed promptly in writing;
provided, however, that no investment or reinvestment may be made except in the
following:
(i) securities issued or unconditionally guaranteed by the United
States of America or any agency or instrumentality thereof, backed by the
full faith and credit of the United States of America and maturing within
five years from the date of acquisition;
-17-
<PAGE>
(ii) securities issued by any state of the United States of America
or any political subdivision or public instrumentality thereof, maturing
within five years from the date of acquisition and, at the time of
acquisition, having the highest rating obtainable from Standard & Poor's
Ratings Group and Moody's Investors Service, Inc.;
(iii) commercial paper issued by any Person organized under the laws
of the United States of America, maturing no more than five years from the
date of acquisition and, at the time of acquisition, having a rating of at
least A-1 or the equivalent thereof by Standard & Poor's Ratings Group and
at least P-1 or the equivalent thereof by Moody's Investors Service, Inc.;
(iv) time deposits and certificates of deposit that are insured by
the Federal Deposit Insurance Corporation (the "FDIC") or any successor
instrumentality of the government of the United States of America up to
the applicable limit on insurance granted by the FDIC or such other
instrumentality with respect to such instruments (it being understood that
the amount invested in such instrument may not exceed the limit on such
insurance), maturing within five years from the date of issuance and
issued by a bank or trust company organized under the laws of the United
States of America or any state thereof and having combined capital and
surplus of at least $500,000,000 (including First Union National Bank of
North Carolina and its Affiliates);
(v) repurchase obligations with a term not exceeding seven (7) days
with respect to underlying securities of the types described in clause (i)
above entered into with any bank or trust company meeting the
qualifications specified in clause (iv) above (including First Union
National Bank of North Carolina and its Affiliates); and
(vi) money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (v)
above.
Each of the foregoing investments shall be made in the name of the Escrow
Agent. If the Escrow Agent has not received investment direction from the
Borrower at any time at which an investment decision must be made, the Escrow
Agent shall invest the funds held in the Cash Collateral Account, or such
portion thereof as to which no direction has been received, in investments
described in clause (vi) above. Funds in the Cash Collateral Account in an
aggregate amount equal to or greater than the mandatory repayments of the Loans
required pursuant to Section 2.6(a) of the Credit Agreement for the 12 month
period following any date shall be maintained at all times in investments with
current maturities of less than one year. Notwithstanding anything to the
contrary contained herein, the Escrow Agent may, without notice to the Borrower,
sell or liquidate any of the foregoing investments at any time if the proceeds
thereof are required for any release of funds permitted or required
-18-
<PAGE>
hereunder, and the Escrow Agent shall not be liable or responsible for any loss,
expense or penalty resulting from any such sale or liquidation.
6. Resignation of Escrow Agent. The Escrow Agent may resign from the
performance of its duties hereunder at any time by giving thirty (30) days'
prior written notice to the Borrower and the Agent. Such resignation shall take
effect upon the appointment of a successor Escrow Agent as provided hereinbelow.
Upon any such notice of resignation, the Agent shall, with the consent of the
Borrower (which consent shall not be unreasonably withheld), appoint a successor
Escrow Agent hereunder, which shall be a commercial bank, trust company or other
financial institution with a combined capital and surplus in excess of
$100,000,000. Upon the acceptance of any appointment as Escrow Agent hereunder
by a successor Escrow Agent, such successor Escrow Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Escrow Agent, and the retiring Escrow Agent shall be discharged from
its duties and obligations under this Agreement. After any retiring Escrow
Agent's resignation hereunder as Escrow Agent, the provisions of this Agreement
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Escrow Agent under this Agreement.
7. Liability of Escrow Agent. The Escrow Agent shall have no liability or
obligation with respect to the Cash Collateral Account except for the Escrow
Agent's willful misconduct or gross negligence. The Escrow Agent's sole
responsibility shall be for the safekeeping, investment and disbursement of the
funds maintained in the Cash Collateral Account in accordance with the terms of
this Agreement. The Escrow Agent shall have no implied duties or obligations and
shall not be charged with knowledge or notice of any fact or circumstance not
specifically set forth herein. The Escrow Agent may rely upon any instrument,
not only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, that the Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the person or parties purporting to sign the same and to conform to the
provisions of this Agreement. In no event shall the Escrow Agent be liable for
incidental, indirect, special, consequential or punitive damages. The Escrow
Agent shall not be obligated to take any legal action or commence any proceeding
in connection with the Cash Collateral Account or the funds therein, this
Agreement or any other Loan Document, or to appear in, prosecute or defend any
such legal action or proceeding. The Escrow Agent may consult legal counsel
selected by it in the event of any dispute or question as to the construction of
any of the provisions hereof or of any other agreement or of its duties
hereunder, and shall incur no liability and shall be fully protected in acting
in accordance with the opinion or instruction of such counsel.
8. Indemnification. From and at all times after the date of this
Agreement, and in addition to the fees, costs and expenses payable under Section
9, the Borrower agrees to indemnify and hold harmless the Escrow Agent and each
of its directors, officers, employees, agents and Affiliates (each, an
"Indemnified Person") against any and all claims, losses, damages, liabilities,
costs and expenses of any kind or nature whatsoever, including, without
limitation, reasonable attorneys' fees and expenses (collectively, "Indemnified
-19-
<PAGE>
Costs"), incurred by or asserted against any such Indemnified Person from and
after the date hereof, whether direct, indirect or consequential, as a result of
or arising from or in any way relating to any action, suit or proceeding
(including any inquiry or investigation) by any Person, whether threatened or
initiated, arising from or in connection with the negotiation, preparation,
execution, performance or enforcement of this Agreement or any of the
transactions contemplated herein, in any case whether or not any such
Indemnified Person is a party to any such action, suit or proceeding or a
subject of any such inquiry or investigation; provided, however, that no
Indemnified Person shall have the right to be indemnified hereunder for any
Indemnified Costs to the extent resulting from the gross negligence or willful
misconduct of such Indemnified Person as finally determined by a court of
competent jurisdiction and not subject to any appeal. If any such action or
claim shall be brought or asserted against any Indemnified Party, such
Indemnified Party shall promptly notify the Borrower in writing, and the
Borrower shall assume the defense thereof, including the employment of counsel
and the payment of all expenses. Such Indemnified Party shall, in its sole
discretion, have the right to employ separate counsel (who may be selected by
such Indemnified Party in its sole discretion) in any such action and to
participate in the defense thereof, and the fees and expenses of such counsel
shall be paid by such Indemnified Party unless (a) the Borrower agrees to pay
such fees and expenses, (b) the Borrower shall fail to assume the defense of
such action or proceeding or shall fail, in the reasonable discretion of such
Indemnified Party, to employ counsel satisfactory to the Indemnified Party in
any such action or proceeding, or (c) the named parties to any such action or
proceeding (including any impleaded parties) include both such Indemnified Party
and the Borrower or any other Indemnified Party, and such Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Borrower or such other Indemnified Party. All of the foregoing Indemnified Costs
of any Indemnified Person shall be paid or reimbursed by the Borrower, as and
when incurred and upon demand.
9. Fees and Expenses of Escrow Agent. The Borrower (a) will pay to the
Escrow Agent an annual escrow fee of $1,500, payable in advance on the Closing
Date and on each anniversary of the Closing Date, (b) will pay the Escrow Agent
a handling fee of $25 per transaction associated with investments and $10 per
transaction associated with deposits and disbursements, for which handling fees
the Borrower shall be billed monthly with payment due within ten (10) days of
such invoice, and (c) will promptly reimburse the Escrow Agent upon demand for
all reasonable out-of-pocket costs and expenses incurred by the Escrow Agent.
10. Termination of Escrow. Upon the indefeasible payment in full of the
Obligations and receipt by the Escrow Agent of notice thereof from the Agent
(which notice the Agent agrees to give promptly thereupon), this Agreement shall
terminate, and the Escrow Agent shall forthwith disburse all funds held in the
Cash Collateral Account to the Borrower; provided, however, that the provisions
of Sections 7, 8 and 9 shall survive such termination.
-20-
<PAGE>
11. Disbursement Into Court. If, at any time, there shall exist any
dispute between the Borrower and the Agent with respect to the holding or
disposition of any portion of the funds held in the Cash Collateral Account or
any other obligations of the Escrow Agent hereunder, or if at any time the
Escrow Agent is unable to determine, to its sole satisfaction, the proper
disposition of any portion of such funds or Escrow Agent's proper actions with
respect to its obligations hereunder, or if the Agent has not, within thirty
(30) days of the furnishing by the Escrow Agent of a notice of resignation
pursuant to Section 6, appointed a successor Escrow Agent to act hereunder, then
the Escrow Agent may, in its sole discretion, take either or both or the
following actions:
(i) suspend the performance of any of its obligations under this
Agreement until such dispute or uncertainty shall be resolved to the sole
satisfaction of the Escrow Agent or until a successor Escrow Agent shall
have been appointed (as the case may be); provided, however, that the
Escrow Agent shall continue to invest the Escrow Funds in accordance with
Section 5; and/or
(ii) petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in Charlotte,
North Carolina, for instructions with respect to such dispute or
uncertainty, and pay into such court all funds held by it in the Cash
Collateral Account for holding and disposition in accordance with the
instructions of such court.
The Escrow Agent shall have no liability to the Borrower or any other Person
with respect to any such suspension of performance or disbursement into court,
specifically including any liability or claimed liability that may arise, or be
alleged to have arisen, out of or as a result of any delay in the disbursement
of funds held in the Cash Collateral Account or any delay in or with respect to
any other action required or requested of the Escrow Agent.
12. Tax Reporting. The Escrow Agent will provide to the Borrower a
statement of investment income and such other statements with respect to the
Cash Collateral Account as the Borrower may reasonably request from time to
time. The Borrower shall be responsible for all tax reporting with respect to
the Cash Collateral Account and the income therefrom.
13. Notices. All notices and other communications provided for hereunder
shall be in writing (including facsimile transmission) and mailed, telecopied or
delivered to the party to be notified at the following addresses:
-21-
<PAGE>
If to the Borrower: Front Royal, Inc.
2200 Gateway Boulevard
Suite 205
Morrisville, North Carolina 27560
Attention: Gregg Davis
Telephone: (919) 469-9795
Telecopy: (919) 469-3557
If to the Agent: First Union National Bank
of North Carolina
Specialized Industries/Financial
Institutions Lending Group
One First Union Center, 5th Floor
301 South College Street
Charlotte, North Carolina 28288-0735
Attention: Jay S. Bullock
Telephone: (704) 383-3789
Telecopy: (704) 383-7611
If to the Escrow Agent: First Union National Bank
of North Carolina
230 South Tryon Street, 8th Floor
Charlotte, North Carolina 28288-1179
Attention: Karen Atkinson
Telephone: (704) 374-2670
Telecopy: (704) 383-7316
or to such other address as any party may designate for itself by like notice to
all other parties hereto. All such notices and communications shall be deemed to
have been given (i) if mailed by first class, registered or certified mail,
postage prepaid, on the fifth Business Day after deposit in the mails, (ii) if
telecopied, when transmitted by telecopier, or (iii) if delivered by overnight
courier or by hand, upon delivery.
14. Amendments, Waivers, etc. No amendment, modification, waiver,
discharge or termination of, or consent to any departure by the Borrower from,
any provision of this Agreement, shall be effective unless in a writing signed
by the Agent and executed and delivered in accordance with Section 9.6 of the
Credit Agreement (and, in the event the same shall affect the rights or
obligations of the Escrow Agent under Sections 7, 8 or 9, the Escrow Agent), and
then the same shall be effective only in the specific instance and for the
specific purpose for which given.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina (without
regard to the conflicts of law provisions thereof).
-22-
<PAGE>
16. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under the applicable law of any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or
invalidity and only in any such jurisdiction, without prohibiting or
invalidating such provision in any other jurisdiction or the remaining
provisions of this Agreement in any jurisdiction.
17. Construction. The headings of the various sections and subsections of
this Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any of the provisions hereof. Unless the
context otherwise requires, words in the singular include the plural and words
in the plural include the singular.
18. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
19. Entire Agreement. This Agreement and the other documents and
instruments executed contemporaneously herewith constitute the entire agreement
between the parties hereto relating to the subject matter hereof.
20. Successors and Assigns. The provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the respective
successors and assigns of the Borrower, the Escrow Agent and the Agent.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized corporate officers as of the date first above
written.
FRONT ROYAL, INC.
By:_______________________________________
Title:____________________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent
By:______________________________________
Title:____________________________________
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, as Escrow Agent
By:______________________________________
Title:____________________________________
-24-
<PAGE>
Exhibit H to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------
Matters for Legal Opinion of Borrower's Counsel
All opinions should be addressed to the Agent, the Lenders under the
Credit Agreement and all Assignees pursuant to Section 9.7(a) of the Credit
Agreement. The preamble to the following opinions should include a recitation of
the documents reviewed. The term "Relevant Subsidiaries" shall include FRESI,
FREIM, FRETS, CMS, Colony, Hamilton, FRIC, and, except where specifically
excluded, Rockwood. Other capitalized terms shall have the meanings ascribed
thereto in the Credit Agreement.
1. Each of the Borrower and the Relevant Subsidiaries is a corporation
duly incorporated, validly existing and in good standing under the laws of its
state of incorporation, and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction listed on Schedule _ to
the opinion. "Comment: With respect to qualification and good standing, reliance
on good standing certificates is permitted. This opinion need not cover Rockwood
and its subsidiaries since those opinions will be given by Sellers' counsel, it
being understood that the Agent and Lenders will receive reliance letters from
such counsel.]
Loan Document-related Opinions.
2. Each of the Borrower and the Relevant Subsidiaries has the full
corporate power and authority to execute, deliver and perform its obligations
under the Loan Documents to which it is a party. Each of the Borrower and the
Relevant Subsidiaries has taken all necessary corporate action to execute,
deliver and perform each Loan Document to which it is a party, and each such
Loan Document has been validly executed and delivered by, and constitutes the
legal, valid and binding obligation of, each of the Borrower and its
Subsidiaries to the extent a party thereto, enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally or by general equitable principles. [Borrower's
counsel to give New York and Virginia enforceability opinion, Agent's counsel to
give North Carolina enforceability opinion.]
3. No consent, approval, authorization, exemption or other action by,
notice to, or declaration or fling with, any Governmental Authority or other
Person is required in connection with the due execution, delivery and
performance by each of the Borrower and its Subsidiaries of the Transaction
Documents to which it is a party, the legality, validity or enforceability
thereof or the consummation of the Loans, other than [set forth copies of such
consents, approvals and filings that have been obtained or made], which
approval(s) has/have been obtained and is/are in full force and effect.
4. The execution, delivery and performance by each of the Borrower and the
Relevant Subsidiaries of the Loan Documents to which it is a party, and
compliance by it
<PAGE>
therewith, do not and will not (i) violate any provision of its articles or
certificate of incorporation or bylaws, (ii) contravene any provisions of any
applicable law, rule or regulation or, to the best of our knowledge, any
judgment, order, writ, injunction or decree to which it is subject, (iii)
conflict with, result in a breach of or constitute (with notice, lapse of time
or both) a default under any indenture, loan agreement, mortgage, deed of trust,
lease or other agreement or instrument known to us and to which it is a party,
by which it or any of its properties is bound or to which it may be subject, or
(iv) result in the creation or imposition of any Lien (other than the Liens
created pursuant to the Loan Documents) arising under any of the documents or
instruments referred to in clause (iii), upon any property or assets of the
Borrower or any of the Relevant Subsidiaries.
5. To the best of our knowledge, except as may be identified on Schedule
4.5 to the Credit Agreement, there are no actions, investigations, suits or
proceedings pending or threatened in writing, at law, in equity or in
arbitration, before any court, other Governmental Authority or other Person, (i)
against or affecting the Borrower and its Subsidiaries or any of their
respective properties seeking damages in the aggregate in excess of $250,000
(other than normal claims made in the ordinary course of business pursuant to
written policies) or that would otherwise, if adversely determined, be
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect, or (ii) with respect to any of the Transaction Documents or any of the
Transactions.
6. The authorized capital stock of each of the Relevant Subsidiaries, the
par value per share, the number of shares issued and outstanding, and the owner
of such shares are as follows:
CMS: __________ shares of Common Stock, par value $_________ per share,
_____________ shares of which are issued and outstanding; the owner of all
issued and outstanding shares is the Borrower;
FREIM: __________ shares of Common Stock, par value $_________ per share,
________ shares of which are issued and outstanding; the owner of all issued and
outstanding shares is the Borrower;
FRESI: _________ shares of Common Stock, par value $_________ per share,
________ shares of which are issued and outstanding; the owner of all issued and
outstanding shares is the Borrower;
FRETS: __________ shares of Common Stock, par value $_________ per share,
________ shares of which are issued and outstanding; the owner of all issued and
outstanding shares is the Borrower:
Colony: __________ shares of Common Stock, par value $_________ per share,
________ shares of which are issued and outstanding; the owner of all issued and
outstanding shares is the Borrower;
-2-
<PAGE>
FRIC: ___________ shares of Common Stock, par value $_________ per share,
_________ shares of which are issued and outstanding; the owner of all issued
and outstanding shares is Colony;
Hamilton: ___________ shares of Common Stock, par value $_________ per
share, _________ shares of which are issued and outstanding; the owner of all
issued and outstanding shares is Colony;
Rockwood: __________ shares of Common Stock, par value $_________ per
share, _________ shares of which are issued and outstanding; the owners of all
issued and outstanding shares immediately prior to the Transactions are Trirock
and PIC [Borrower's counsel may rely upon seller's counsel's opinion] and
immediately after the Transactions will be the Borrower.
7. All of the issued and outstanding shares of capital stock of CMS,
FREIM, FRESI, FRETS, Colony, FRIC, Hamilton and Rockwood [Borrower's counsel may
rely upon seller's counsel's opinion on Rockwood] are duly authorized, validly
issued, fully paid and nonassessable and are owned of record and, to the best of
our knowledge, beneficially by the party set forth in opinion 6 above, to the
best of our knowledge, free and clear of any Liens or other adverse claims or
restrictions on transfer, other than the pledge of the shares of CMS, FREIM,
FRESI, and Colony to First Union to secure the Existing Senior Debt.
8. The Pledge and Security Agreement creates in favor of the Agent, for
the benefit of the Lenders, a valid security interest in all right, title and
interest of the Borrower in and to the Collateral (as defined therein). Upon (a)
the making of the Loans under the Credit Agreement, (b) delivery to the Escrow
Agent of cash for deposit in the Cash Collateral Account and (c) delivery to the
Agent of the certificates set forth on Part I of Annex A of the Pledge and
Security Agreement and evidencing the shares described in opinion 6 above, other
than the shares of FRIC and Hamilton (collectively, the "Pledged Shares"),
accompanied by undated stock powers and endorsements duly executed in blank, and
assuming continued possession of funds in the Cash Collateral Account by the
Escrow Agent pursuant to the Escrow Agreement and continued possession of the
Pledged Shares by the Agent, such security interest will constitute a fully
perfected security interest in all right, title and interest of the Borrower in
and to such Collateral. No filings or recordings are required in order to
perfect the security interest created in favor of the Lender under the Pledge
and Security Agreement.
9. The Borrower Collateral Assignment of Agreements creates in favor of
the Agent, for the benefit of the Lenders, a valid security interest in all
right, title and interest of the Borrower in and to the Collateral (as defined
therein), and upon the due recordation and indexing in the offices of the North
Carolina Secretary of State and the Wake County, North Carolina Register of
Deeds of Uniform Commercial Code financing statements in the form attached as
Exhibit __ hereto, such security interest will constitute a fully perfected
security interest in all right, title and interest of the Borrower in and to
such Collateral.
-3-
<PAGE>
10. The Subsidiaries Collateral Assignment of Agreements creates in favor
of the Agent, for the benefit of the Lenders, a valid security interest in all
right, title and interest of CMS and FRESI in and to the Collateral (as defined
therein), and upon the due recordation and indexing in the offices of the
Virginia Secretary of State and the __________ County, Virginia Register of
Deeds of Uniform Commercial Code financing statements in the form attached as
Exhibit __ hereto, such security interest will constitute a fully perfected
security interest in all right, title and interest of CMS and FRESI in and to
such Collateral.
11. Neither the Borrower nor any of its Subsidiaries is an "investment
company," a company "controlled" by an "investment company," or an "investment
advisor," within the meaning of the Investment Company Act of 1940, as amended.
12. Neither the Borrower nor any of its Subsidiaries is engaged in the
business of extending credit for the purpose of purchasing or carrying Margin
Stock, and the consummation of the transactions contemplated by the Credit
Agreement will not violate Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System.
13. With respect to each Loan Document to which the Borrower or its
Subsidiaries is a party, the courts of the States of Virginia and New York, if
properly presented with the question, will give effect to the choice of law
provisions contained in such Loan Documents, which by their terms are governed
by the laws of the State of North Carolina.
14. Such other matters reasonably requested by the Lender as a result of
its due diligence or negotiation of the Loan Documents.
Acquisition- and Equity-related Opinions.
[We expect the following opinions, among others, to be covered to our
satisfaction in opinions provided by buyer's or seller's counsel in connection
with the Acquisition, along with reliance letters in favor of the Agent and the
Lenders, including permitted assignees in accordance with Section 9.7(a) of the
Credit Agreement.]
15. Each of the [Borrower and its Subsidiaries/Sellers] has the full
corporate power and authority to execute, deliver and perform the Transaction
Documents to which it is a party, to own or lease its property and to operate
its business as presently conducted. Each of the [Borrower and its
Subsidiaries/Sellers] has taken all necessary corporate action to execute,
deliver and perform each Transaction Document to which it is a party, and each
such Transaction Document has been validly executed and delivered by, and
constitutes the legal, valid and binding obligation of, each of the [Borrower
and its Subsidiaries/Sellers] to the extent a party thereto, enforceable against
it in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
-4-
<PAGE>
16. The execution, delivery and performance by each of the [Borrower and
its Subsidiaries/Sellers] of the Transaction Documents to which it is a party,
and compliance by it therewith, do not and will not (i) violate any provision of
its articles or certificate of incorporation or bylaws, (ii) contravene any
provisions of any applicable law, rule or regulation or, to the best of our
knowledge, any judgment, order, writ, injunction or decree to which it is
subject, (iii) conflict with, result in a breach of or constitute (with notice,
lapse of time or both) a default under any indenture, loan agreement, mortgage,
deed of trust, lease or other agreement or instrument known to us and to which
it is a party, by which it or any of its properties is bound or to which it may
be subject, or (iv) result in the creation or imposition of any Lien (other than
the Liens created pursuant to the Loan Documents) arising under any of the
documents or instruments referred to in clause (iii), upon any property or
assets of the Borrower, Rockwood or any of their Subsidiaries.
17. To the best of our knowledge, there are no actions, investigations,
suits or proceedings pending or threatened, at law, in equity or in arbitration,
before any court, other Governmental Authority or other Person, (i) against or
affecting the Borrower, Rockwood and their Subsidiaries or any of their
respective properties that would, if adversely determined, be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect, or (ii)
with respect to any of the Transaction Documents or any of the Transactions.
-5-
<PAGE>
Exhibit I to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------
FINANCIAL CONDITION CERTIFICATE
THIS FINANCIAL CONDITION CERTIFICATE is delivered pursuant to Section
3.1(r) of the Credit Agreement, dated as of December 18, 1996 (the "Credit
Agreement"), among FRONT ROYAL, INC. (the "Borrower"), certain banks and
financial institutions from time to time parties thereto (the "Lenders") and
First Union National Bank of North Carolina as agent for the Lenders (in such
capacity, the "Agent"). Capitalized terms used herein without definition shall
have the meanings assigned to them in the Credit Agreement.
The undersigned, Gregg Davis, in his capacity as Chief Financial Officer
of the Borrower, hereby certifies that:
1. The undersigned is, and at all pertinent times mentioned herein has
been, the duly qualified and acting chief financial officer of the Borrower, and
in such capacity has responsibility for the oversight of the financial affairs
of the Borrower and its Subsidiaries. The undersigned has, together with other
officers of the Borrower, acted on behalf of the Borrower in connection with the
negotiation of the Credit Agreement and the consummation of the Transactions.
2. The undersigned has carefully reviewed the contents of this certificate
and has conferred with counsel for the Borrower for the purpose of discussing
the meaning of its contents. The statements made herein by the undersigned are
based upon the personal knowledge of the undersigned, or upon reports and other
information given to the undersigned by supervisory personnel of the Borrower
and its Subsidiaries having responsibility for the reports and information
given, and who in the opinion of the undersigned are reliable and entitled to be
relied upon. The statements are made in good faith and, to the best of the
knowledge and belief of the undersigned, and subject to the assumptions set
forth in Annexes A and B, are reasonable in all material respects.
3. In connection with preparation for the consummation of the
Transactions, the undersigned has caused or supervised the preparation of and
has reviewed projected financial statements consisting of balance sheets and
statements of income of the Borrower and its Subsidiaries, on a consolidated
basis, after giving effect to the Transactions, together with appropriate
supporting details and a statement of underlying assumptions, ranges and
limitations (collectively, the "Projections"). The Projections cover the period
from January 1, 1997 through December 31, 2003, and are attached hereto as Annex
A.
4. In the preparation of the Projections, the undersigned has relied on
historical financial and other information and upon information with respect to
operating revenues, costs and other data obtained in discussions with executive
officers of the Borrower and its Subsidiaries, and other officers and
supervisory personnel directly responsible for the various
-1-
<PAGE>
operations involved. The assumptions upon which the Projections are based are
deemed by the undersigned to be reasonable. Based thereon, the undersigned
believes that the Projections, taken as a whole, are reasonably attainable
although they cannot be guaranteed.
5. Attached hereto as Annex B is a true, correct and complete copy of a
pro forma balance sheet of the Borrower and its Subsidiaries, on a consolidated
basis, as of December 31, 1996, giving effect to the Transactions as if they
occurred on such date (the "Pro Forma Balance Sheet"). The Pro Forma Balance
Sheet sets forth on a pro forma basis the unaudited financial condition of the
Borrower and its Subsidiaries, on a consolidated basis, as of December 31, 1996,
and reflects on a pro forma basis the effect of the Transactions, including all
material fees and expenses in connection therewith.
6. All material accounts and other liabilities of the Borrower and its
Subsidiaries are current and not past due.
Based upon the foregoing, the undersigned has reached the following
conclusions:
1. Neither the Borrower nor any of its Subsidiaries is, nor will the
consummation of the Transactions and the incurrence by the Borrower and its
Subsidiaries of their respective obligations pursuant to the Credit Agreement
and the other Loan Documents render the Borrower or any of its Subsidiaries,
"insolvent" as defined below. The undersigned understands that, in this context,
"insolvent" means that the present fair value of assets is less than the amount
that will be required to pay the probable liability on existing debts as they
become absolute and matured. The undersigned understands that the term "debts"
includes any legal liability, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent, including any guaranty obligation.
In making this statement, the undersigned has included the value of intangible
assets that would not be assigned any value except as part of a going concern.
2. Neither the Borrower nor any of its Subsidiaries will, as a result of
the incurrence of its respective obligations pursuant to the Credit Agreement
and the other Loan Documents, incur debts beyond its ability to pay as they
mature. The foregoing conclusion is based in part on the Projections, which
demonstrate that the Borrower and its Subsidiaries will have positive cash flow
after paying all scheduled anticipated indebtedness (including scheduled
payments under the Credit Agreement).
3. The consummation of the Transactions will not leave the Borrower or any
of its Subsidiaries with "unreasonably small capital" within the meaning of
Section 548(a) of the Bankruptcy Code, or with remaining assets that are
unreasonably small. In reaching this conclusion, the undersigned understands
that "unreasonably small capital" depends upon the nature of the particular
business or businesses conducted or to be conducted, and he has reached this
conclusion based on the needs and anticipated needs for capital of the
businesses conducted or anticipated to be conducted by the Borrower and its
Subsidiaries in light of the Projections and the available credit capacity of
the Borrower and its Subsidiaries.
-2-
<PAGE>
4. Neither the Borrower nor, to the best knowledge of the undersigned, any
of its Subsidiaries, has executed any Credit Document, or made any transfer or
incurred any obligations thereunder, with intent to hinder, delay or defraud
either present or future creditors.
The undersigned understands that the Agent and Lenders have performed
their own review and analysis of the financial condition of the Borrower and its
Subsidiaries, but that the Agent and Lenders are relying on the foregoing
statements in connection with the extension of credit to the Borrower pursuant
to the Credit Agreement.
Executed this ___ day of December, 1996.
-------------------------------------
Chief Financial Officer,
Front Royal, Inc.
-3-
<PAGE>
Annex A to Financial Condition
Certificate
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------
FRONT ROYAL, INC. AND SUBSIDIARIES
Projections
[TO BE PROVIDED]
-1-
<PAGE>
Annex B to Financial Condition
Certificate
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------
FRONT ROYAL, INC. AND SUBSIDIARIES
Pro Forma Balance Sheet
[TO BE PROVIDED]
-1-
<PAGE>
Exhibit J-1 to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------
COMPLIANCE CERTIFICATE
(GAAP Financial Statements)
THIS CERTIFICATE is given pursuant to Section S.3(a) of the Credit
Agreement, dated as of December 18, 1996 (as amended, modified, supplemented or
restated from time to time, the "Credit Agreement"), among Front Royal, Inc.
(the "Borrower"), certain banks and financial institutions from time to time
parties thereto (the "Lenders"), and First Union National Bank of North
Carolina, as Agent for the Lenders (in such capacity, the "Agent"). Capitalized
terms used herein without definition shall have the meanings given to them in
the Credit Agreement.
The undersigned hereby certifies that:
1. He is the duly elected Chief Financial Officer of the Borrower.
2. Enclosed with this Certificate are copies of the financial statements
of the Borrower and its Subsidiaries as of __________, and for the [___-month
period] [year] then ended, required to be delivered under Section [5.1(a)]
[5.1(b)] of the Credit Agreement. Such financial statements have been prepared
in accordance with Generally Accepted Accounting Principles [(subject to the
absence of notes required by Generally Accepted Accounting Principles and
subject to normal year-end audit adjustments)]1 and fairly present the financial
condition of the Borrower and its Subsidiaries on a consolidated or
consolidating basis, as applicable, as of the date indicated and the results of
operations of the Borrower and its Subsidiaries on a consolidated or
consolidating basis, as applicable, for the period covered thereby.
3. The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under the supervision of the undersigned, a review in
reasonable detail of the transactions and condition of the Borrower and its
Subsidiaries during the accounting period covered by such financial statements.
4. The examination described in paragraph 3 above did not disclose, and
the undersigned has no knowledge of the existence of, any Default or Event of
Default during or
- ----------
1 Insert in the case of quarterly financial statements.
-1-
<PAGE>
at the end of the accounting period covered by such financial statements or as
of the date of this Certificate. [, except as set forth below.
Describe here or in a separate attachment any exceptions to paragraph 4
above by listing, in reasonable detail, the nature of the Default or Event of
Default, the period during which it existed and the action that the Borrower has
taken or proposes to take with respect thereto.]
5. Attached to this Certificate as Attachment A is a Covenant Compliance
Worksheet reflecting the computation of the financial covenants subject to
Generally Accepted Accounting Principles set forth in Article VI of the Credit
Agreement as of the last day of the period covered by the financial statements
enclosed herewith.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the _______ day of ______________, ____.
[Signature of CFO]
Name:________________________
Chief Financial Officer
-2-
<PAGE>
***** ATTACHMENT A
COVENANT COMPLIANCE WORKSHEET
Ratio of Consolidated Indebtedness to Total Capitalization
(Section 6.2 of the Credit Agreement); Not greater than 0.5 to 1.0
(1) Consolidated Indebtedness as of the measurement date $
======
(2) Total Capitalization:
(a) Consolidated Indebtedness as of the measurement date $
------
(b) Consolidated Net Work as of the measurement date $
------
(c) Total Capitalization: Add Lines 2(a) and 2(b) $
======
(3) Ratio of Consolidated Indebtedness to Total Capitalization:
Divide Line 1 by Line 2(c)
======
-i-
<PAGE>
Fixed Charge Coverage Ratio
(Section 6.4 of the Credit Agreement): Not less than:
1.25 to 1.0 through
12/31/98,
1.3 to 1.0 thereafter.
(1) Earnings:
(a) Available Dividend Amount with
Respect to the Measurement Period $
------
(b) Extraordinary Dividend Amount as of
the measurement date $
------
(c) Net Tax Payments of the Borrower
during the Measurement Period $
------
(d) Minus Projected Net Overhead for the four
fiscal quarters following
the measurement date $
------
(e) Combined Net Cash Flow of the Non-Insurance
Subsidiaries (other than CMS) for the
Measurement Period $
------
(f) Minus Excess Cash Flow prepayment required to
be made in respect of the Measurement Period1 ($ )
------
(g) Add Lines 1(a), 1(b), 1(c) and 1(e)
and subtract Lines 1(d) and 1(f) $
======
(2) Fixed Charges:
(a) Projected Debt Service for the four fiscal
quarters following the measurement date $
------
(b) Cash dividends or cash payments projected to be
paid in respect of the Series A Preferred Stock,
Class C Common Stock or rights for the four fiscal
quarters following the Measurement Period $
------
(c) Add Lines 2(a) and 2(b) $
======
- ----------
1 To be deducted only for Measurement Periods ending on December 31st of any
fiscal year.
-ii-
<PAGE>
(3) Fixed Charge Coverage Ratio:
Divide Line 1(g) by Line 2(c)
======
3
-iii-
<PAGE>
Earnings Coverage Ratio
(Section 6.5 of the Credit Agreement): Not less than:
1.15 to 1.0 through
12/31/98,
1.3 to 1.0 thereafter.
(1) Statutory Net Income of the Insurance
Subsidiaries for the fiscal period2 $
------
(2) Aggregate Net Income of the Non-Insurance
Subsidiaries (other than CMS) for the fiscal
period $
------
(3) Add Lines (l) and (2) $
======
(4) Debt Service for the fiscal period $
------
(5) Net Overhead for the fiscal period $
------
(6) Add Lines (4) and (5) $
======
(7) Earnings Coverage Ratio:
Divide Line (3) by Line (6)
======
Capital Expenditures
(Section 6.7 of the Credit Agreement): Not more than:
$1,500,000 for fiscal year
ending 12/31/97.
$1,000,000 for fiscal years
thereafter.
(1) Actual aggregate amount of Capital Expenditures
for fiscal year as of the measurement date $
======
- --------
2 The relevant fiscal period for the fiscal quarters ending 3/31/97, 6/30/97 and
9/30/97 are the periods of one, two and three fiscal quarters, respectively,
ending on such dates and, thereafter, the period of four fiscal quarters ending
on such date.
-iv-
<PAGE>
Exhibit J-2 to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-----------------------------
COMPLIANCE CERTIFICATE
(Statutory Financial Statements)
THIS CERTIFICATE is given pursuant to Section 5.3(a) of the Credit
Agreement, dated as of December 18, 1996 (as amended, modified, supplemented or
restated from time to time, the "Credit Agreement"), among Front Royal, Inc.
(the "Borrower"), certain banks and financial institutions from time to time
parties thereto (the "Lenders") and First Union National Bank of North Carolina,
as agent for the Lenders (in such capacity, the "Agent"). Capitalized terms used
herein without definition shall have the meanings given to them in the Credit
Agreement.
The undersigned hereby certifies that:
1. He is the duly elected Chief Financial Officer of the Borrower.
2. Enclosed with this Certificate are copies of the statutory financial
statements of each Insurance Subsidiary as of ____________, and for the
[__________-month period] [year] then ended, required to be delivered under
Section [5.2(a)] [5.2(b)] of the Credit Agreement. Such statutory financial
statements have been prepared in accordance with Statutory Accounting Principles
and fairly present the financial condition of each Insurance Subsidiary as of
the date indicated and the results of operations, changes in capital and surplus
and cash flow of each Insurance Subsidiary for the period covered thereby.
3. The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under the supervision of the undersigned, a review in
reasonable detail of the transactions and condition of the Borrower and its
Subsidiaries during the accounting period covered by such financial statements.
4. The examination described in paragraph 3 above did not disclose, and
the undersigned has no knowledge of the existence of, any Default or Event of
Default during or at the end of the accounting period covered by such financial
statements or as of the date of this Certificate. [, except as set forth below.
Describe here or in a separate attachment any exceptions to paragraph 4
above by listing, in reasonable detail, the nature of the Default or Event of
Default, the period during which it existed and the action that the Borrower has
taken or proposes to take with respect thereto.]
5. Attached to this Certificate as Attachment A is a Covenant Compliance
Worksheet reflecting the computation of the financial covenants subject to
Statutory Accounting Principles
-1-
<PAGE>
set forth in Article VI of the Credit Agreement as of the last day of the period
covered by the financial statements enclosed herewith.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Certificate as of the ______ day of ______________, ____.
Name:__________________________
Chief Financial Officer
-2-
<PAGE>
ATTACHMENT A
COVENANT COMPLIANCE WORKSHEET
Consolidated Statutory Surplus
(Section 6.1 of the Credit Agreement): Not less than the following:
(1) Required Consolidated Statutory Surplus as of $60,000,000
the measurement date ==========
(2) Actual Consolidated Statutory Surplus as of $
the measurement date ==========
Operating Leverage Ratios
(Section 6.3 of the Credit Agreement): Not greater than the following:
1. Consolidated New Written Premiums to Not greater than 2.5 to 1.0
Consolidated Statutory Surplus
(a) Consolidated Net Written Premiums
as of the measurement date: $
==========
(b) Consolidated Statutory Surplus as of
the measurement date: $
==========
(c) Operating Leverage Ratio: Divide Line
1(a) by Line 1(b)
==========
2. Consolidated Gross Written Premiums to Consolidated
Statutory Surplus Not greater than 5.0 to 1.0
(a) Consolidated Gross Written Premiums as of
the measurement date $
==========
(b) Consolidated Statutory Surplus as of the
measurement date $
==========
(c) Operating Leverage Ratio:
Divide Line 2(a) by Line 2(b) $
==========
-3-
<PAGE>
Risk - Based Capital
(Section 6.6 of the Credit Agreement): Not less than the following:
(1) Required minimum level of "total adjusted
capital"1
(a) Colony $
==========
(b) Hamilton $
==========
(c) FRIC $
==========
(d) Rockwood $
==========
(2) Actual "total adjusted capital" as of the measurement date
(a) Colony $
==========
(b) Hamilton $
==========
(c) FRIC $
==========
(d) Rockwood $
==========
- --------
1 (a) As of the last day of the fiscal year ending December 31, 1996, and as of
the last day of any fiscal year ending thereafter up to and including the fiscal
year ending December 31, 1998, 135% of the applicable Company Action Level RBC
for such Insurance Subsidiary at such time; and (b) as of the last day of any
fiscal year ending thereafter, 150% of the applicable Company Action Level RBC
for such subsidiary at such time.
-4-
<PAGE>
Insurance Subsidiary Investments Complete for each
(Section 6.11(ix) of the Credit Agreement): Insurance Subsidiary
Name of Insurance Subsidiary:___________________
(1) Investment Grade Securities
rated "A-" or lower as of the
measurement date
(a) Permitted amount: 10% of Admitted Assets $
==========
(b) Actual amount $
==========
(2) Investments in Non-Investment
Grade Securities1 as of the measurement
date
(a) Permitted amount: 2% of Admitted Assets $
==========
(b) Actual amount $
==========
(3) Investments in Equity Securities as of
the measurement date
(a) Permitted amount: 7% of Admitted Assets $
==========
(b) Actual amount $
==========
(4) Investments in Securities of any Issuer Group as of the measurement date
(a) Permitted amount: ____2 of Admitted Assets $
==========
(b) Investments in any Issuer Group in excess
of permitted amount? Yes __ No __
(Continued on Next Page)
- --------
1 Limited to non-equity securities rated no lower than "B" by Standard & Poor's,
Fitch or Duff & Phelps, "B3" by Moody's or "4" by the NAIC. 2 Fill in 2% for all
periods through December 31, 1998 and 1.5% for all periods thereafter.
-5-
<PAGE>
(c) If yes, identify the Issuer Group(s) and
the amount of investments.________________________________________
(5) Investments in any single equity security
as of the measurement date
(a) Permitted amount: ____3 of Admitted Assets $
==========
(b) Investment in any equity security in excess
of permitted amount? Yes __ No __
(c) If yes, identify the equity security(ies) and
the amount of investments.________________________________________
- --------
3 Fill in 1.25% for all periods through December 31, 1998 and 1.0% for all
periods thereafter.
-6-
<PAGE>
Exhibit K to Credit Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 / $38,000,000
-------------------------------
ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE (this "Assignment and Acceptance") is made
this _____ day of __________, ____, by and between (the "Assignor") and
_____________________ (the "Assignee"). Reference is made to the Credit
Agreement, dated as of December 18, 1996 (as amended, modified or supplemented
from time to time, the "Credit Agreement"), among Front Royal, Inc. (the
"Borrower"), certain banks and other financial institutions from time to time
parties thereto (the "Lenders"), and First Union National Bank of North
Carolina, as agent for the Lenders (in such capacity, the "Agent"). Capitalized
terms used herein without definition shall have the meanings given to them in
the Credit Agreement.
The Assignor and the Assignee hereby agree as follows:
1. Assignment and Assumption. Subject to the terms and conditions hereof,
the Assignor hereby sells and assigns to the Assignee, and the Assignee hereby
purchases and assumes from the Assignor, without recourse to the Assignor and,
except as expressly provided herein, without representation or warranty by the
Assignor, the interest as of the Effective Date (as hereinafter defined) in and
to all of the Assignor's rights and obligations under the Credit Agreement and
the other Loan Documents (in its capacity as a Lender thereunder) represented by
the percentage interest specified in Item 4 of Annex I (the "Assigned Share"),
including, without limitation, the Assigned Share of all rights and obligations
of the Assignor with respect to its Commitment (unless terminated), Term Note
and Loans.
2. The Assignor. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder, that
such interest is free and clear of any adverse claim, and that as of the date
hereof the amount of its Commitment (unless terminated) and outstanding Loans is
as set forth in Item 4 of Annex I, (ii) except as set forth in clause (i) above,
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement, any
other Loan Document or any other instrument or document furnished pursuant
thereto, and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any of
its Subsidiaries or the performance or observance by the Borrower or any of its
Subsidiaries of any of their respective obligations under the Credit Agreement,
any other Loan Document or any other instrument or document furnished pursuant
thereto.
-1-
<PAGE>
3. The Assignee. The Assignee (i) represents and warrants that it is
legally authorized to enter into this Assignment and Acceptance, (ii) confirms
that it has received a copy of the Credit Agreement, together with copies of the
financial statements most recently required to have been delivered under
Sections 5.1 and 5.2 of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance, (iii) agrees that it
will, independently and without reliance upon the Agent, the Assignor or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement, (iv) confirms that it is an
Eligible Assignee, (v) appoints and authorizes the Agent to take such actions as
agent on its behalf under the Credit Agreement and the other Loan Documents, and
to exercise such powers and to perform such duties, as are specifically
delegated to the Agent by the terms thereof, together with such other powers and
duties as are reasonably incidental thereto, and (vi) agrees that it will
perform in accordance with their respective terms all of the obligations that by
the terms of the Credit Agreement are required to be performed by it as a
Lender. [To the extent legally entitled to do so, the Assignee will deliver to
the Agent, as and when required to be delivered under the Credit Agreement, duly
completed and executed originals of the applicable tax withholding forms
described in Section 2.17(d) of the Credit Agreement].1
4. Effective Date. Following the execution of this Assignment and
Acceptance by the Assignor and the Assignee, an executed original hereof,
together with all attachments hereto, shall be delivered to each of the Agent
and the Borrower (and also to the Agent, the processing fee referred to in
Section 9.7(a) of the Credit Agreement). The effective date of this Assignment
and Acceptance (the "Effective Date") shall be the earlier of (i) the date of
acceptance hereof by the Agent and the Borrower or (ii) the date, if any,
designated as the Effective Date in Item 5 of Annex I (which date shall be not
less than five (5) Business Days after the date of execution hereof by the
Assignor and the Assignee). As of the Effective Date, and subject to the receipt
of the consents required pursuant to Section 9.7(a)(i) of the Credit Agreement,
(y) the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance, shall have the rights and
obligations of a Lender thereunder and under the other Loan Documents, and (z)
the Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights (other than rights under the provisions of the Credit
Agreement and the other Loan Documents relating to indemnification or payment of
fees, costs and expenses, to the extent such rights relate to the time prior to
the Effective Date) and be released from its obligations under the Credit
Agreement and the other Loan Documents.
5. Payments; Settlement. On or prior to the Effective Date, in
consideration of the sale and assignment provided for herein and as a condition
to the effectiveness of this Assignment and Acceptance, the Assignee will pay to
the Assignor an amount (to be confirmed between the Assignor and the Assignee)
that represents the Assigned Share of the principal amount of the Loans of the
Assignor outstanding on the Effective Date (together, if and to the extent the
Assignor and the Assignee so elect, with the Assigned Share of any related
accrued but unpaid interest, fees and other amounts). From and after the
Effective Date, the Agent will
- --------
1 Insert if the Assignee is organized under the laws of a jurisdiction outside
the United States.
-2-
<PAGE>
make all payments required to be made by it under the Credit Agreement in
respect of the interest assigned hereunder (including, without limitation, all
payments of principal, interest and fees in respect of the Assigned Share of the
Assignor's Loans assigned hereunder) directly to the Assignee. The Assignor and
the Assignee shall be responsible for making between themselves all appropriate
adjustments in payments due under the Credit Agreement in respect of the period
prior to the Effective Date. All payments required to be made hereunder or in
connection herewith shall be made in Dollars by wire transfer of immediately
available funds to the appropriate party at its address for payments designated
in Annex I.
6. Governing Law. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the internal laws of the State of North Carolina
(without regard to the conflicts of laws principles thereof).
7. Entire Agreement. This Assignment and Acceptance, together with the
Credit Agreement and the other Loan Documents, embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings of the parties, verbal or written, relating to the subject matter
hereof.
8. Successors and Assigns. This Assignment and Acceptance shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.
9. Counterparts. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Assignment and Acceptance
to be executed by their duly authorized officers as of the date first above
written.
ASSIGNOR:
____________________________________
By: ________________________________
Title: _____________________________
ASSIGNEE:
____________________________________
By: ________________________________
-3-
<PAGE>
Title: _____________________________
Accepted this __ day of
_____________, 19__:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent
By: ________________________________
Title: _____________________________
Consented and agreed to:
FRONT ROYAL, INC.
By: ________________________________
Title: _____________________________
-4-
<PAGE>
ANNEX I
1. Borrower: Front Royal, Inc.
2. Name and Date of Credit Agreement:
Credit Agreement, dated as of December 18, 1996, among Front Royal, Inc.,
certain Lenders from time to time parties thereto, and First Union
National Bank of North Carolina, as Agent.
3. Date of Assignment and Acceptance: _____________ , 19 __
4. Amounts:
Amount of
Aggregate for Assigned Assigned
Assignor Share2 Share
-------- ------ -----
(a) Commitment3 $ % $
---------- ------- ------
(b) Loans $ % $
---------- ------- ------
5. Effective Date: _____________________4
6. Addresses for Payments:
Assignor: _________________________________
_________________________________
_________________________________
Attention: ______________________
Telephone: ______________________
Telecopy: ______________________
Reference: ______________________
- --------
2 Percentage taken to up to ten decimal places, if necessary.
3 Applicable only to assignments made prior to the Closing Date.
4 Shall be a date not less than five Business Days after the date of the
Assignment and Acceptance.
-5-
<PAGE>
Assignee: _________________________________
_________________________________
_________________________________
Attention: ______________________
Telephone: ______________________
Telecopy: ______________________
Reference: ______________________
7. Addresses for Notices:
Assignor: _________________________________
_________________________________
_________________________________
Attention: ______________________
Telephone: ______________________
Telecopy: ______________________
Reference: ______________________
Assignee: _________________________________
_________________________________
_________________________________
Attention: ______________________
Telephone: ______________________
Telecopy: ______________________
Reference: ______________________
8. Lending Office of Assignee:
_________________________________
_________________________________
_________________________________
Attention: ______________________
Telephone: ______________________
Telecopy: ______________________
-6-
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of December 30, 1996
(this "First Amendment"), is made in respect of the Credit Agreement dated
December 18, 1996 (as amended hereby, the "Credit Agreement"), by and between
FRONT ROYAL, INC., a North Carolina corporation (the "Borrower"), the financial
institutions listed on the signature pages thereof or that become parties
thereto after the date thereof (collectively the "Lenders"), and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA, as agent for the Lenders (in such capacity, the
"Agent"). Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Credit Agreement.
RECITALS
A. The parties agree to amend Section 6.13 of the Credit Agreement to
permit the Borrower to pay accrued dividends on the Series A Preferred Stock out
of the proceeds of an IPO in accordance with the Amended Charter under certain
conditions specified in this First Amendment.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent and the
Lenders, for themselves and their successors and assigns, agree as follows:
ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT
1.1 Amendment to Section 6.13(a). Section 6.13(a) of the Credit Agreement
shall be amended by inserting the following subsection (iii) and renumbering
existing clauses (iii) and (iv) as new clauses (iv) and (v):
(iii) for so long as no Default shall have occurred and be
continuing or would result immediately following a payment otherwise
permitted under this clause (iii), the Borrower may, upon the occurrence
of an IPO in accordance with Section 6.24, make cash dividend payments in
respect of the Series A Preferred Stock in an amount equal to the accrued
and unpaid dividends on the Series A Preferred Stock in accordance with
the terms of the Amended Charter, provided that (y) no such dividend
payments shall be made unless prior thereto the Borrower shall have made a
prepayment of the Loans to the extent required under Section 2.6(d) and
(z) such dividend payments shall be made out of the net proceeds of the
IPO.
1.2. Amendment to add Section 6.24. Article VI of the Credit Agreement
shall be amended to add the following Section 6.24 at the end thereof:
-1-
<PAGE>
6.24. Restriction on IPO. The Borrower shall not undertake or
consummate an IPO unless, immediately upon the closing of the IPO, the
Borrower is able to comply with both the terms of this Agreement and the
terms of the Amended Charter.
ARTICLE II
GENERAL
2.1. Full Force and Effect. Except as expressly amended hereby, the Credit
Agreement shall continue in full force and effect in accordance with the
provisions thereof on the date hereof. As used in the Credit Agreement,
"hereinafter," "hereto," "hereof," and words of similar import shall, unless the
context otherwise requires, mean the Credit Agreement after amendment by this
First Amendment. Any reference to the Credit Agreement or any of the other
Credit Documents herein or in any such documents shall refer to the Credit
Agreement and Credit Documents as amended hereby.
2.2. Applicable Law. This First Amendment shall be governed by and
construed in accordance with the internal laws and judicial decisions of the
State of North Carolina.
2.3. Counterparts. This First Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
2.4. Headings. The headings of this First Amendment are for the purposes
of reference only and shall not affect the construction of this First Amendment.
2.5. Effectiveness. This First Amendment shall be deemed fully executed
and effective when executed by the Borrower, the Agent and the Lenders.
-2-
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have caused
this First Amendment to be executed by their duly authorized officers all as of
the day and year first above written.
FRONT ROYAL, INC.
By: ___________________________________
Name: _________________________________
Title: ________________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent
and as a Lender
By: ___________________________________
Name: _________________________________
Title: ________________________________
-3-
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT,
FIRST AMENDMENT TO PLEDGE AND SECURITY AGREEMENT
AND LIMITED WAIVER
THIS SECOND AMENDMENT TO CREDIT AGREEMENT, FIRST AMENDMENT TO PLEDGE AND
SECURITY AGREEMENT AND LIMITED WAIVER, dated as of April 11, 1997 (this
"Amendment"), is made in respect of (i) the Credit Agreement dated December 18,
1996 (as amended by the First Amendment to Credit Agreement, dated December 30,
1996 and as further amended hereby, the "Credit Agreement"), by and between
FRONT ROYAL, INC., a North Carolina corporation ("Front Royal"), as Borrower,
the financial institutions listed on the signature pages thereof or that become
parties thereto after the date thereof (collectively the "Lenders"), and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA ("First Union"), as agent for the Lenders
(in such capacity, the "Agent") and (ii) the Pledge and Security Agreement dated
December 31, 1996 (as amended hereby, the "Pledge Agreement"), by and between
Front Royal, as Pledgor, and the Agent for the benefit of the Agent and the
Lenders. Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Credit Agreement.
RECITALS
A. With respect to the Credit Agreement, the parties desire (i) to allow
Rockwood to retain as Investments certain Asset Backed Derivative Securities,
subject to the conditions set forth herein, and (ii) to amend the definition of
"Earnings Coverage Ratio" and (iii) to clarify the meaning of the term "equity
security" as used in Section 6.11 thereof.
B. With respect to the Credit Agreement, First Union, as the sole Lender
and as Agent, desires to grant to Borrower a limited waiver of certain
violations of the Credit Agreement that have occurred prior to the effective
date of this Amendment.
C. With respect to the Pledge Agreement, the parties agree that the
purported pledge of the capital stock of Front Royal ETS, Inc. ("FRETS")
pursuant to the Pledge Agreement was invalid in that such stock is owned of
record by Front Royal Environmental Services, Inc. ("FRESI") and not by Front
Royal (the Pledgor). Accordingly, the parties desire to amend the Pledge
Agreement to delete the purported pledge of FRETS stock and to provide for the
prompt dissolution of FRETS.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Front Royal, the Agent and the
Lenders, for themselves and their successors and assigns, agree as follows:
ARTICLE I
-1-
<PAGE>
AMENDMENT TO CREDIT AGREEMENT
1.1. Amendments relating to Asset Backed Derivative Securities.
a. Section 1.1 of the Credit Agreement shall be amended by adding
the following definition in appropriate alphabetical order:
"Adjusted Statutory Surplus" shall mean, at any time,
Consolidated Statutory Surplus at such time, less the net amount, if
any, by which the carrying value attributed to any Asset Backed
Derivative Securities in the determination of Consolidated Statutory
Surplus exceeds the market value (as provided by a reputable
investment dealer reasonably satisfactory to the Agent) of such
Asset Backed Derivative Securities at such time; provided that the
foregoing definition shall not be deemed to imply that the ownership
of Asset Backed Derivative Securities is permitted other than as
expressly permitted pursuant to this Agreement. "
b. Section 1.1 of the Credit Agreement shall be amended by adding
the following clauses to the definition of "Consolidated Net Worth"
immediately prior to the period at the end thereof:
", less the net amount, if any, by which the carrying value
attributed to any Asset Backed Derivative Securities in the
determination of such net worth exceeds the market value (as
provided by a reputable investment dealer reasonably satisfactory to
the Agent) of such Asset Backed Derivative Securities at such time;
provided that the foregoing definition shall not be deemed to imply
that the ownership of Asset Backed Derivative Securities is
permitted other than as expressly permitted pursuant to this
Agreement."
c. Section 6.1 of the Credit Agreement shall be amended by deleting
such section in its entirety and substituting in lieu thereof the
following:
"6.1 Adjusted Statutory Surplus. The Borrower will not permit
Adjusted Statutory Surplus to be less than $60,000,000 at any time
from and after the Closing Date."
d. Section 6.3 of the Credit Agreement shall be amended by deleting
the term "Consolidated Statutory Surplus" in each place where it appears
in such section and substituting in lieu thereof the term "Adjusted
Statutory Surplus. "
e. Section 6.11(i) of the Credit Agreement shall be amended by
adding the following parenthetical phrase immediately prior to the
semicolon at the end thereof:
"(except as expressly permitted by the provisions of clause
(ix)(h) below)"
-2-
<PAGE>
f. Section 6.11(ix) of the Credit Agreement shall be amended by
adding the following clause (h) immediately following clause (g) thereof:
"(h) The Investments by Rockwood in the Asset Backed
Derivative Securities described in Schedule 6.11; provided that (A)
such Asset Backed Derivative Securities may not be sold or
transferred to any other Insurance Subsidiary and (B) Rockwood shall
not acquire or own any other Asset Backed Derivative Securities."
g. Section 6.22(b) of the Credit Agreement shall be amended by
deleting the term "Consolidated Statutory Surplus" from clause (x) in the
proviso to such section and substituting in lieu thereof the term
"Adjusted Statutory Surplus."
h. The Covenant Compliance Worksheets shall be amended to reflect
the foregoing amendments to Sections 6.1 and 6.3 of the Credit Agreement
and to reflect the foregoing amendment to the definition of "Consolidated
Net Worth" as it affects the determination of the Capitalization Ratio as
required by Section 6.3 of the Credit Agreement, in each case as shown in
the Covenant Compliance Worksheets attached to this Amendment.
i. The Schedules of the Credit Agreement shall be amended by adding
thereto Schedule 6.11 as attached to this Amendment.
1.2. Amendment to definition of "Earnings Coverage Ratio". Section 1.1 of
the Credit Agreement shall be amended by deleting phrase (i)(A) in the
definition of Earnings Coverage Ratio and substituting in lieu thereof the
following:
"the aggregate Statutory Net Income of the Insurance Subsidiaries,
without duplication, and"
1.3. Amendment relating to the use of the term "equity securities".
Section 6.11(ix)(d) of the Credit Agreement shall be amended by deleting the
phrase following the final comma in such Section and substituting in lieu
thereof the following:
"in either case shall not be considered equity securities for
purposes of subsections (d), (e) or (f) of this Section 6.11(ix)."
ARTICLE II
AMENDMENT TO PLEDGE AGREEMENT
2.1. Amendment to Annex A. Annex A of the Pledge Agreement shall be
amended by replacing such annex with the amended Annex A ("Amended Annex A")
attached hereto. Amended Annex A is identical to Annex A except for the deletion
of the description of any capital stock of FRETS.
-3-
<PAGE>
ARTICLE III
LIMITED WAIVER
3.1. Events of Default. The Borrower has informed First Union of the
occurrence of certain Events of Default, as of December 31, 1996 and beyond the
60-day grace period allowed in the proviso to Section 6.11 of the Credit
Agreement, resulting from (i) Investments of Rockwood consisting of Asset Backed
Derivative Securities and (ii) Investments of Colony in a single equity security
in excess of 1.25% of Colony's Admitted Assets.
3.2. Limited Waiver. Subject to the compliance by the Borrower and
Insurance Subsidiaries with the provisions of Section 6.11 of the Credit
Agreement, as amended hereby, and the accuracy of the representations and
warranties of the Borrower in Section 4.1 below, First Union, as Agent and sole
Lender, hereby waives the Events of Default described in Section 3.1 above. This
Waiver is limited as specified and shall not constitute or be deemed to
constitute an amendment, modification or waiver of any provision of the Credit
Agreement or of any Default or Event of Default except as expressly set forth
herein.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1. Representations and Warranties of Front Royal. Front Royal, as
Borrower and Pledgor, hereby represents and warrants to the Agent and Lenders
that:
a. Front Royal has the requisite corporate power and authority, and
has been duly authorized, to execute, deliver and perform this Amendment;
b. Front Royal has no claims, counterclaims, offsets, or defenses to
the Loan Documents and the performance of its obligations thereunder;
c. The representations and warranties made by Front Royal in the
Credit Agreement and in the Pledge Agreement are true and correct on and
as of the date hereof as though made on and as of such date (except for
those that expressly relate to an earlier date), provided, that all
references to Annex A in the representations and warranties of the Pledge
Agreement shall be deemed to be references to Amended Annex A;
d. Except as expressly provided in Section 3.1 above, no Default or
Event of Default has occurred or is continuing under the Loan Documents;
e. Prior to the date hereof, Front Royal has caused Colony to divest
at least that portion of equity securities that caused the Event of
Default described in Section 3.1(ii) above and Colony is currently in full
compliance with Section 6.11 of the Credit Agreement;
-4-
<PAGE>
f. The Asset Backed Derivative Securities described on Schedule 6.11
attached hereto constitute all of the Asset Backed Derivative Securities
owned by the Borrower and its Subsidiaries; and
g. The assets of FRETS are de minimis.
4.2. Covenants of Front Royal. Front Royal, as Borrower and Pledgor,
hereby covenants and agrees that:
a. Within 60 days of the date hereof, it shall have caused FRETS to
be dissolved and shall provide the Agent with a filed copy of the articles
of dissolution of FRETS or equivalent documentation; and
b. At all times prior to the dissolution of FRETS its assets shall
be de minimis.
4.3. Covenant of Agent. Agent hereby covenants and agrees that promptly
upon the Borrower providing the documentation required by Section 4.2(a) above,
the Agent shall forward the original FRETS stock certificate and accompanying
stock power to Front Royal.
ARTICLE V
GENERAL
5.1. Acknowledgement of Guarantors. The Guarantors (as defined in the
Subsidiaries Guaranty, dated as of December 31, 1996, made by each of the
Non-Insurance Subsidiaries of the Borrower in favor of the Lenders and the Agent
(the "Guaranty")) acknowledge and consent to all of the terms and conditions of
this Amendment and agree that this Amendment, including the limited waiver, do
not operate to reduce or discharge the Guarantors' obligations under the
Guaranty.
5.2. Full Force and Effect. Except as expressly amended hereby, the Credit
Agreement and the Pledge Agreement shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. As used in the Credit
Agreement and Pledge Agreement, "hereinafter," "hereto," "hereof," and words of
similar import shall, unless the context otherwise requires, mean the Credit
Agreement and Pledge Agreement, respectively, after amendment by this Amendment.
5.3. Applicable Law. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
5.4. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
-5-
<PAGE>
5.5. Headings. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
5.6. Effectiveness. This Amendment shall be deemed fully executed and
effective when executed by Front Royal, the Guarantors, the Agent and the sole
Lender.
IN WITNESS WHEREOF, Front Royal, the Agent and the Lenders have caused
this Amendment to be executed by their duly authorized officers all as of the
day and year first above written.
FRONT ROYAL, INC., as Borrower and Pledgor
By: ___________________________________
Name: _________________________________
Title: ________________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Agent
and as sole Lender
By: ___________________________________
Gail M. Golightly,
Senior Vice President
-6-
<PAGE>
Acknowledged and consented to
pursuant to Section 5.1, as of
the day and year first above written.
FRONT ROYAL ENVIRONMENTAL SERVICES, INC.,
as Guarantor
By: _____________________________________
Title: __________________________________
FRONT ROYAL ENVIRONMENTAL INSURANCE
MANAGEMENT, INC., as Guarantor
By: _____________________________________
Title: __________________________________
COLONY MANAGEMENT SERVICES, INC.,
as Guarantor
By: _____________________________________
Title: __________________________________
-7-
<PAGE>
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996 (as amended to
April 11, 997)/$38,000,000
Asset Backed Derivative Securities Owned By
Rockwood as of April 11, 1997
Statement
Cusip # Description Estimated Value
Maturity @ 12/31/96
- --------------------------------------------------------------------------------
1. 31359FNBO FEDERAL NATL MTG ASSN 227-S 11/25/2000 1,002,850.71
2. 74434TUGO PRUDENTIAL HOME MTG SECS
SER 43 A-16 04/25/2009 123,672.22
3. 3133TOG24 FHLMC REMIC SER 1576-SB 08/15/2001 984,398.37
4. 74434TUC9 PRUDENTIAL HOME MTG SECS
SER 43 A-12 04/25/2009 125,877.73
5. 31359BGF8 FEDERAL NATL MTG ASSN CL 25-SI 05/25/2010 919,939.75
6. 31359AQA0 FEDERAL NATL MTG ASSN 1993-88 S 04/25/2000 916,883.86
7. 312912HJ0 FHLMC PARTN CTF SER 1386CL-H 07/15/2002 988,506.42
8. 312914WB6 FEDERAL HOME LOAN MTG 1474-S 10/15/2016 361,068.64
Total 5,423,197.70
------------
-8-
<PAGE>
ATTACHMENT A TO
COMPLIANCE CERTIFICATE (GAAP FINANCIAL STATEMENTS)
COVENANT COMPLIANCE WORKSHEET
(As amended by Second Amendment to Credit Agreement,
dated as of April 11, 1997)
Ratio of Consolidated Indebtedness to Total Capitalization
(Section 6.2 of the Credit Agreement): Not greater than 0.5 to 1.0
(1) Consolidated Indebtedness as of the measurement date $
======
(2) Total Capitalization:
(a) Consolidated Indebtedness as of
the measurement date $
------
(b) Consolidated Net Worth:
(i) consolidated net worth of Borrower
and Subsidiaries as of the measurement date $
------
(ii) Minus net amount by which carrying
value of Asset Backed Derivative Securities
exceeds market value as of the measurement
date (see attached Asset Backed Derivative
Securities Worksheet) $
------
(iii) Consolidated Net Worth as of
the measurement date $
------
(c) Total Capitalization: Add Lines 2(a) and 2(b)(iii) $
======
(3) Ratio of Consolidated Indebtedness to Total Capitalization:
Divide Line 1 by Line 2(c)
======
<PAGE>
Fixed Charge Coverage Ratio
(Section 6.4 of the Credit Agreement): Not less than:
1.25 to 1.0 through
12/31/98,
1.3 to 1.0 thereafter.
(1) Earnings:
(a) Available Dividend Amount with
respect to the Measurement Period $
------
(b) Extraordinary Dividend Amount as of
the measurement date $
------
(c) Net Tax Payments of the Borrower
during the Measurement Period $
------
(d) Minus Projected Net Overhead for the four
fiscal quarters following the measurement date $
------
(e) Combined Net Cash Flow of the Non-Insurance
Subsidiaries (other than CMS) for the
Measurement Period $
------
(f) Minus Excess Cash Flow prepayment required
to be made in respect of the Measurement Period1 $
------
(g) Add Lines 1(a), 1(b), 1(c) and 1(e)
and subtract Lines 1(d) and 1(f) $
======
(2) Fixed Charges:
(a) Projected Debt Service for the four fiscal
quarters following the measurement date $
------
(b) Cash dividends or cash payments projected to be
paid in respect of the Series A Preferred Stock,
Class C Common Stock or Rights for the four
fiscal quarters following the Measurement Period $
------
(c) Add Lines 2(a) and 2(b) $
======
(3) Fixed Charge Coverage Ratio:
Divide Line l(g) by Line 2(c)
======
- ----------
1 To be deducted only for Measurement Periods ending on December 31st of any
fiscal year
<PAGE>
Earnings Coverage Ratio
(Section 6.5 of the Credit Agreement): Not less than:
1.15 to 1.0 through
12/31/98,
1.3 to 1.0 thereafter.
(1) Statutory Net Income of the Insurance
Subsidiaries for the fiscal period2 $
------
(2) Aggregate Net Income of the Non-Insurance
Subsidiaries (other than CMS) for the fiscal
period $
------
(3) Add Lines (1) and (2) $
======
(4) Debt Service for the fiscal period $
------
(5) Net Overhead for the fiscal period $
------
(6) Add Lines (4) and (5) $
======
(7) Earnings Coverage Ratio:
Divide Line (3) by Line (6) $
======
Capital Expenditures
(Section 6.7 of the Credit Agreement): Not more than:
$1,500,000 for fiscal year ending
12/31/97.
$1,000,000 for fiscal years thereafter.
(1) Actual aggregate amount of Capital Expenditures
for fiscal year as of the measurement date $
======
- ----------
2 The relevant fiscal period for the fiscal quarters ending 3/31/97, 6/30/97
and 9/30/97 are the periods of one, two and three fiscal quarters,
respectively, ending on such dates and, thereafter, the period of four
fiscal quarters ending on such date.
<PAGE>
ATTACHMENT A TO
COMPLIANCE CERTIFICATE (STATUTORY FINANCIAL STATEMENTS)
COVENANT COMPLIANCE WORKSHEET
(As amended by Second Amendment to Credit Agreement,
dated as of April 11, 1997)
Adjusted Statutory Surplus
(Section 6.1 of the Credit Agreement): Not less than the following:
(1) Required Adjusted Statutory Surplus as of $60,000,000
the measurement date ===========
(2) Actual Adjusted Statutory Surplus:
(a) Consolidated Statutory Surplus
as of the measurement date $
---------
(b) Minus net amount by which carrying value
of Asset Backed Derivative Securities exceeds
market value as of the measurement date
(see attached Asset Backed Derivative
Securities Worksheet) $
---------
(c) Adjusted Statutory Surplus as of
the measurement date $
===========
<PAGE>
Operating Leverage Ratios
(Section 6.3 of the Credit Agreement): Not greater thana the following:
1. Consolidated Net Written Premiums to Not greater than 2.5 to 1.0
Adjusted Statutory Surplus
(a) Consolidated Net Written Premiums
as of the measurement date: $
=========
(b) Adjusted Statutory Surplus as of
the measurement date: $
=========
(c) Operating Leverage Ratio: Divide Line
1(a) by Line 1(b)
===========
2. Consolidated Gross Written Premiums to Adjusted
Statutory Surplus Not greater than 5.0 to 1.0
(a) Consolidated Gross Written Premiums as of
the measurement date $
=========
(b) Adjusted Statutory Surplus as of the
measurement date $
=========
(c) Operating Leverage Ratio:
Divide Line 2(a) by Line 2(b)
===========
<PAGE>
Risk - Based Capital
(Section 6.6 of the Credit Agreement Not less than the following:
(1) Required minimum level of "total adjusted
capital"1
(a) Colony $
=========
(b) Hamilton $
=========
(c) FRIC $
=========
(d) Rockwood $
=========
(2) Actual "total adjusted capital" as of the
measurement date
(a) Colony $
=========
(b) Hamilton $
=========
(c) FRIC $
=========
(d) Rockwood $
=========
- ----------
1 (a) As of the last day of the fiscal year ending December 31, 1996, and as of
the last day of any fiscal year ending thereafter up to and including the fiscal
year ending December 31, 1998, 135% of the applicable Company Action Level RBC
for such Insurance Subsidiary at such time; and (b) as of the last day of any
fiscal year ending thereafter, 150% of the applicable Company Action Level RBC
for such subsidiary at such time.
<PAGE>
Insurance Subsidiary Investments Complete for each
(Section 6.11(ix) of the Credit Agreement Insurance Subsidiary
Name of Insurance Subsidiary: __________________________
(1) Investment Grade Securities
rated "A-" or lower as of the
measurement date
(a) Permitted amount: 10% of Admitted Assets $
=========
(b) Actual amount $
=========
(2) Investments in Non-Investment
Grade Securities1 as of the measurement
date
(a) Permitted amount: 2% of Admitted Assets $
=========
(b) Actual amount $
=========
(3) Investments in Equity Securities as of the
measurement date
(a) Permitted amount: 7% of Admitted Assets $
=========
(b) Actual amount $
=========
(4) Investments in Securities of any
Issuer Group as of the measurement date
(a) Permitted amount: ___2 of Admitted Assets $
=========
(b) Investments in any Issuer Group in excess
of permitted amount? Yes __ No __
(Continued on Next Page)
- --------
1 Limited to non-equity securities rated no lower than "B" by Standard & Poor's,
Fitch or Duff & Phelps, "B3" by Moody's or "4" by the NAIC.
2 Fill in 2% for all periods through December 31, 1998 and 1.5% for all periods
thereafter.
<PAGE>
(c) If yes, identify the Issuer Group(s) and
the amount of investments._________________________________________
(5) Investments in any single equity security
as of the measurement date
(a) Permitted amount: ___3 of Admitted Assets $
=========
(b) Investment in any equity security in excess
of permitted amount? Yes __ No __
(c) If yes, identify the equity security(ies) and
the amount of investments._________________________________________
- ----------
3 Fill in 1.25% for all periods through December 31, 1998 and 1.0% for all
periods thereafter.
<PAGE>
Annex A to Pledge and Security
Agreement
First Union National Bank
of North Carolina, as Agent
Front Royal, Inc.
December 18, 1996/$38,000,000
-----------------------------
AS AMENDED BY SECOND AMENDMENT TO CREDIT AGREEMENT, FIRST AMENDMENT TO PLEDGE
AND SECURITY AGREEMENT AND LIMITED WAIVER, DATED AS OF APRIL 11, 1997.
Part I. Pledged Stock
Percentage of
Outstanding
Name of Type of Number of Certificate Shares of
Issuing Corporation Shares Shares Number Capital Stock
- ------------------- ------ ------ ------ -------------
Colony Management
Services, Inc. Common 100 1 100%
Front Royal Environmental
Insurance Management, Inc. Common 60,000 1 100%
Front Royal Environmental
Services, Inc. Common 11,875 1 100%
Colony Insurance Company Common 200,000 6 100%
Rockwood Insurance Company Class A Common 500,000 13 100%
Class B Common 571,961 2 100%
Part II. Pledged Notes
Original
Principal
Date Lender Borrower Amount
---- ------ -------- ------
<PAGE>
ASSET BACKED DERIVATIVE SECURITIES WORKSHEET
Attach to
Covenant Compliance Worksheets for
GAAP and Statutory Financial Statement Compliance Certificates
(As amended by Second Amendment to Credit Agreement,
dated as of April 11, 1997)
Measurement Date:_______________
A B C D
Carrying Value Attributed
In Determining Column B Minus
Asset Backed Consolidated Statutory Column C
Derivative Surplus and Consolidated (Positive and
Securities Net Worth Market Value1 Negative values)
------------------------------------------------------------------------
1.
2.
3.
4.
5.
6.
7.
8.
Net amount by which carrying value attributed
to Asset Backed Derivative Securities exceeds
market value as of measurement date. (add numbers
in Column D).
===========
Schedule 6.11 to Credit Agreement
First Union National Bank
- ----------
1 Indicate source of market value determination:_______________________________
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 31st day of December,
1997, between FRONT ROYAL, INC., a North Carolina corporation with offices at
2200 Gateway Boulevard, Suite 205, Morrisville, NC 27560 (the "Company") and
Gregg T. Davis ("Employee").
W I T N E S S E T H:
1. Employment and Term. The Company hereby employs Employee as Chief
Financial Officer of the Company, and Employee hereby accepts such employment,
on the terms and conditions set forth herein, for a term of three (3) years,
commencing on the date hereof, unless sooner terminated or extended as herein
provided. The term of this Agreement and Employee's employment hereunder shall
be automatically renewed for additional periods of three (3) years unless
written notice to the contrary shall be given by either party to the other,
not less than ninety (90) days before the end of the initial or any renewal
term (the initial term plus any renewals thereof shall be referred to herein
as the "Term"), in which case this Agreement shall terminate at the end of
such term, and neither party hereto shall thereafter have any further rights
or obligations hereunder except the obligations of Employee under Sections
3(b), (c) and (d) hereof and any obligations of the Company under Sections 5,
6 and 7 hereof. The date upon which this Agreement and Employee's employment
hereunder shall terminate, whether pursuant to the terms of this Section 1, or
pursuant to any other provision of this Agreement, shall hereinafter be
referred to as the "Termination Date."
2. Compensation. (a) For the performance by Employee of his duties in
accordance with this Agreement after the date hereof, including services as an
officer, director and/or member of committees of the Company or any
subsidiaries or affiliates of the Company ("Affiliates"), the Company shall
pay Employee a salary at the rate of One Hundred Seventy Six Thousand Four
Hundred Dollars ($176,400) per annum ("Base Salary"), payable in periodic
installments in accordance with the Company's regular payroll practices, as in
effect from time to time. Within one hundred and eighty (180) days after the
end of each fiscal year of the Company, Employee's salary shall be reviewed
and may be increased at the discretion of the Board of Directors of the
Company ("Board of Directors"). Employee's Base Salary or such other salary as
may be payable to Employee by action of the Board of Directors, is hereinafter
called "Salary."
(b) Within one hundred and eighty (180) days after the end
of each fiscal year of the Company, Employee may, in the absolute discretion
of the Board of Directors, receive from the Company a bonus based on the
performance of the Company during the preceding fiscal year.
<PAGE>
3. Duties and Restrictions. (a) During the term of this Agreement,
Employee shall perform all duties and services incident to his position as
Chief Financial Officer of the Company and such other reasonable duties and
services as may from time to time be assigned to him by the Chief Executive
Officer and all of the duties and services to be performed by Employee are at
all times to be subject to the authority of the Chief Executive Officer.
Employee shall devote his full and exclusive time, attention and best efforts
to the business of the Company and its Affiliates. Employee hereby accepts
such employment and agrees he shall devote his full skill, abilities and
productive time to the performance of his duties under this Agreement, and he
shall not, without the prior consent of the Chief Executive Officer, render to
any third party any services for compensation or which would interfere with
the performance of his duties hereunder.
(b) Employee will not at any time during the term of this
Agreement or thereafter:
(i) reveal, divulge or make known to any person, firm or
corporation or use for his personal benefit, directly or indirectly,
any confidential or proprietary information received by him during
the course of his employment or prior to the commencement thereof.
For purposes of this paragraph 3(b)(i) confidential and proprietary
information shall be defined to mean (i) all historical and pro forma
projections of loss ratios incurred by the Company and any of the
Affiliates, (ii) all historical and pro forma actuarial data relating
to the Company and any of the Affiliates, (iii) historical and pro
forma financial results and projections for the Company and its
Affiliates, (iv) all information relating to the Company's or the
Affiliates' systems and software (other than the portion thereof
provided by the vendor to all purchasers of such systems and software)
and (v) all other information relating to the financial, business or
other affairs of the Company and its Affiliates, including their
customers, that is not available to the general public or generally
known or available within the industry; or
(ii) reveal, divulge or make known to any person, firm or
corporation, or use for his personal benefit, directly or indirectly,
the name or names of any of the customers of the Company or of any of
its Affiliates, nor will he reveal, divulge or make known, to any
person, firm or corporation, or use for his personal benefit,
directly or indirectly, any trade secrets or any knowledge or
information, or any fact concerning any business methods or
operational purposes engaged in by the Company or its Affiliates
(collectively, "Privileged Information"); provided, however, the
restrictions set forth in this paragraph 3(b)(ii) shall not apply to
Employee following the termination of his employment with the Company
or its Affiliates with respect to any Privileged Information known or
made generally available to the general public or within the
industry.
(c) Employee will not at any time during the term of this
Agreement, and for a period of one (1) year thereafter in the event Employee's
employment is terminated pursuant to Section 4, 5, 6 or 7(a) hereof or upon
the expiration of the term of this Agreement in accordance with Section 1
hereof, engage in or have any interest in, directly or indirectly, any
Competitive
-2-
<PAGE>
Business, whether as principal, director, officer, employee, consultant,
partner, stockholder, director, trustee or manager of any competing
corporation, association, firm or business or otherwise, or directly or
indirectly solicit, interfere with, or endeavor to entice away from the Company
or any of its Affiliates any of their customers or employees. The restrictions
contained in this subsection 3(c) shall not prevent the purchase or ownership
by Employee of not more than three percent (3%) of the securities of any class
of any corporation, whether or not such corporation is engaged in any
competitive business, which are publicly traded on any securities exchange or
any "over the counter" market. Employee will not, for a period of one (1) year
following the Termination Date, employ or associate in any manner in a business
relationship with, any person who was an employee of any Affiliate (other than
the Company) at any time during the term of Employee's employment hereunder.
For purposes of this Agreement, the term "Competitive Business" shall mean the
business of acquiring, holding and operating property and casualty specialty
insurance companies.
The restrictions of this Section 3(c) shall not apply if the
Employee's employment is terminated following a Change of Control. A "Change of
Control" shall be deemed to have occurred (i) upon the sale, in one or a series
of related transactions, of all or substantially all of the assets of the
Company, (ii) if, as a result of one or a series of related transactions, the
holders of the issued and outstanding shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock, determined on a fully diluted basis as
if all outstanding warrants, options and convertible securities had been
exercised or converted, immediately prior to the effective date for such
transaction or last of such transactions beneficially own (as such term is
defined under Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended), in the aggregate, less than 55% of the issued and
outstanding voting securities of the Company, determined on a fully diluted
basis as if all outstanding warrants, options and convertible securities had
been exercised or converted, or the successor to the Company if such
transaction was a merger or consolidation in which the Company was not the
surviving entity, or (iii) if members comprising the Board of Directors on the
date hereof cease for any reason to comprise at least a majority of the Board
of Directors, provided, that, any Person who becomes a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
comprising the Board of Directors on the date hereof (either by a specific
vote or by approval of the proxy statement of the Company in which such Person
is named as a nominee for director, without objection to such nomination)
shall be, for all purposes of this definition, considered as though such
Person were a member of the Board of Directors on the date hereof.
(d) Any and all writings, inventions, improvements,
processes, procedures and/or techniques which Employee may make, conceive,
discover or develop, either solely or jointly with any other person or
persons, at any time during the term of this Agreement or during the term of
his employment or association with the Company or any Affiliate, whether
during working hours or at any other time, and whether upon the request or
suggestion of the Company or otherwise, which relate to or may be useful in
connection with any business now or hereafter during the term of this
Agreement carried on or actively developed by the Company or any Affiliate,
including developments or expansions of its present fields of operations,
shall be the
-3-
<PAGE>
sole and exclusive property of the Company. Employee shall make full and
prompt disclosure to the Board of Directors of all such writings, inventions,
improvements, processes, procedures and techniques and shall take all actions
and shall execute all documents requested by the Board of Directors to vest
the absolute title thereto in the Company. Employee shall not be entitled to
receive any additional compensation or reimbursement with respect to such
writings, inventions, improvements, processes, procedures and techniques.
(e) Employee acknowledges that the restrictions contained in
paragraphs (b) and (c) of this Section 3 are reasonable and necessary in order
to protect the legitimate interests of the Company, in view of the nature of
the business in which the Company and its Affiliates are engaged and the
substantial equity interest of Employee in the Company. If any provision
contained in Paragraph (b) or (c) of this Section 3 is adjudged unreasonable
in any proceeding, then such provision shall be deemed modified by reducing
the period of time during which such provision is applicable and/or, if
applicable, the geographic area to which such provision applies, to the extent
necessary for such provision to be adjudged reasonable and enforceable.
4. Termination For Cause. This Agreement may be terminated by the
Company "for cause" at any time, by written notice to Employee, for any of the
following reasons:
(a) If Employee shall willfully violate the provisions of
Section 3 of this Agreement, or shall willfully fail to comply with any other
term or condition of this Agreement or shall grossly neglect his duties
hereunder;
(b) If Employee shall (i) be convicted of a felony or a
crime involving moral turpitude (meaning a crime that includes the commission
of an act of gross depravity, dishonesty or bad morals), or (ii) commit an act
of dishonesty, fraud or embezzlement against the Company;
(c) If the Company's operating results are substantially
below budget which shall mean 50% or less of the amount set forth on
Attachment 1 hereto; or
(d) If Employee fails to comply for any reason with a
reasonable directive of the Board of Directors determined to be in the best
interest of the Company and its shareholders.
In the event of termination pursuant to paragraph (a), (b) or (d) of
this Section 4, then Employee's Salary and right to receive any fringe
benefits pursuant to Section 8 hereof shall terminate on the Termination Date
fixed in a written notice from the Company, which shall be no earlier than the
date of such notice.
In the event of termination pursuant to paragraph (c) of this Section
4, then Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a
period of twelve (12) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof;
-4-
<PAGE>
(ii) the continuation at the Company's expense of
coverage under all plans, insurance policies and other fringe benefits
described in Section 8 hereof, for a period of twelve (12) months after
the Termination Date; and
(iii) any amounts payable to Employee through the
Termination Date pursuant to Sections 9 and 10 hereof. Thereafter,
notwithstanding anything to the contrary contained in this Agreement,
the Company shall have no further obligations to Employee, except as
provided in any stock option or other bonus or incentive plan to which
Employee is entitled, and Employee shall have no further rights
hereunder.
5. Termination by Employee. Employee shall have no right to terminate
his employment hereunder without the prior written consent of the Board of
Directors, other than by expiration of the term hereof in accordance with
Section 1 hereof. In the event Employee elects to have the term of this
Agreement expire, upon the Termination Date the Company shall have no further
obligations to Employee and Employee shall have no further rights hereunder.
6. Expiration or Termination Without Cause. The Company may terminate
this Agreement at any time without cause or may elect to have the term of this
Agreement expire. In the event that the Company terminates this Agreement
without cause or elects to have the term of this Agreement expire, Employee
shall be entitled to receive:
(i) an amount equal to Employee's Base Salary for a period of
eighteen (18) months after the Termination Date, payable in
accordance with the terms of Section 2 hereof; provided, however,
that if the Employee continues to comply with the covenants contained
in Section 3(c) hereof beyond the one year period set forth therein,
then the Employee shall be entitled to continue to receive Employee's
Base Salary for so long as Employee continues to comply with such
covenants, up to an additional eighteen (18) month period (it being
understood that the maximum time period during which Base Salary will
continue to be paid under this Section 6(i) shall be three (3)
years);
(ii) the continuation at the Company's
expense of coverage under all plans, insurance policies and other
fringe benefits described in Section 8 hereof, for a period of twelve
(12) months after the Termination Date; and
(iii) any amounts payable to Employee through the
Termination
Date pursuant to Sections 9 and 10 hereof.
7. Termination by Reason of Disability or Death. (a) If, on account
of physical or mental disability, Employee shall fail or be unable to perform
his assigned duties in any material respect for a period of (i) sixty (60)
consecutive days, or (ii) an aggregate of ninety (90) days during any twelve
(12) month period, the Company may, at its option, thereafter terminate this
Agreement and Employee's employment hereunder upon giving at least thirty (30)
days written notice to Employee.
-5-
<PAGE>
(b) If Employee dies during the term hereof, this Agreement
shall automatically terminate on the date of his death.
(c) In the event that this Agreement and Employee's
employment are terminated in accordance with this Section 7, then after the
Termination Date the Company shall have no further obligations hereunder,
except that, in the event of a termination pursuant to paragraph (a) above,
Employee shall be entitled to the benefits described in Section 6 hereof
(without regard to the proviso of Section 6(i)), net of any payments or
benefits to Employee under disability insurance or similar plans maintained by
the Company.
8. Fringe Benefits. The Company shall provide at the Company's
expense to Employee during the term of the Agreement:
(a) a medical insurance plan covering Employee, his spouse
and his minor children and a disability income insurance policy, which
insurance plans and policies shall be at least comparable to such plans and
policies provided to the Company's other senior executive personnel.
(b) full participation in all other fringe benefits provided
to the Company senior executive personnel, which fringe benefits may include,
in the sole discretion of the Board of Directors, a pension plan, a profit
sharing plan, a stock option plan and/or a stock participation plan.
9. Vacation. Employee shall be entitled, for each year during the
term hereof, to vacation time to be taken at such time or times as shall be
mutually convenient to the Company and Employee.
10. Other Expenses. During the term of this Agreement, Employee
shall be entitled to be reimbursed for all reasonable business expenses incurred
by him in connection with the performance of his duties hereunder upon the
timely submission and approval of appropriate vouchers therefor, to the Chief
Executive Officer of the Company.
11. Representation by Employee. Employee represents and warrants
that he is not under any obligation, contractual or otherwise, to any person,
firm or corporation that is inconsistent with this Agreement and his employment
hereunder and that he is free to enter into and perform the terms of this
Agreement.
12. Uniqueness of Services. Employee acknowledges that the
services to be rendered under the provisions of this Agreement are of a special,
unique and extraordinary character and that it would be difficult or impossible
to replace such services and that, by reason thereof, Employee agrees and
consents that if he violates any of the provisions of this Agreement, the
Company, in addition to any other rights and remedies available under this
Agreement or otherwise, shall be entitled to an injunction to be issued by a
tribunal of competent jurisdiction restricting Employee from committing or
continuing any violation of this Agreement.
-6-
<PAGE>
13. Notices. Any notices provided for or permitted by this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered in person or three (3) days after it is deposited in a United States
Postal Depositary, postage prepaid, registered or certified mail, return receipt
requested, addressed to the party for whom intended at such party's address
set forth below or to such other address as such party may designate by notice
in writing given in the manner provided by this Section 13, or when actually
received by the party for whom such notice was intended if sent by any other
means:
To Employee: Gregg T. Davis
2200 Gateway Boulevard
Suite 205
Morrisville, NC 27560
To the Company: Front Royal, Inc.
2200 Gateway Boulevard
Suite 205
Morrisville, NC 27560
Attention: Chief Executive Officer
14. Entire Agreement; Amendments. This Agreement constitutes the
entire agreement and understanding between Employee and the Company with
respect to the subject matter hereof and shall supersede any and all other
prior agreements and understandings, whether oral or written, relating thereto
or to the employment of Employee by the Company. This Agreement may not be
rescinded, modified or amended except by an instrument in writing signed by
the parties hereto and any provision hereof may not be waived except by an
instrument in writing signed by the party hereto against whom any such waiver
is sought to be enforced. The waiver by the Company of a breach by Employee of
any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by Employee.
15. Partial Invalidity. The invalidity or unenforceability, by
statute, court decision or otherwise, of any term or condition of this
Agreement shall not affect the validity or enforceability of any other term or
condition hereof.
16. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of North
Carolina.
17. Assignability. This Agreement may not be assigned by Employee,
and all of its terms and conditions shall be binding upon and inure to the
benefit of Employee and his heirs and legal representatives and the Company
with its successors. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring, directly or indirectly,
all or substantially all of the assets of the Company whether by merger,
consolidation, purchase or otherwise and such successor shall thereafter be
deemed the "Company" for purposes hereof.
-7-
<PAGE>
18. Captions. The caption headings in this Agreement are for
convenience of reference only and are not intended and shall not be construed
as having any substantive effect.
19. Survival. The obligations imposed upon Employee and the rights
granted to the Company in subsections 3(b), (c) and (d) hereof and the rights
granted to Employee in Sections 5, 6 and 7 hereof shall survive the
termination or expiration of this Agreement for any reason whatsoever and, at
the election of the Company, may be specifically enforced by it.
IN WITNESS WHEREOF, the parties hereto have caused this
Employment Agreement to be duty executed as of the day and year -first above
written.
FRONT ROYAL, INC.
By: /s/ J. Adam Abram
------------------
J. Adam Abram
President
/s/ Gregg T. Davis
-------------------
Gregg T. Davis
-8-
<PAGE>
Attachment 1
Front Royal, Inc.
Fiscal Year Pre-tax Net Income
----------- ------------------
1998 $11,020,779
1999 $15,411,601
2000 $17,217,930
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of the 27th day of
December, 1996, by and among FRONT ROYAL, INC., a North Carolina corporation
(the "Company"), and each of MOORE GLOBAL INVESTMENTS, LTD. and REMINGTON
INVESTMENT STRATEGIES, L.P. (Moore Global Investments, Ltd. and Remington
Investment Strategies, L.P., collectively, "MCM") and HIGH RIDGE CAPITAL
PARTNERS LIMITED PARTNERSHIP ("High Ridge") (each of which is individually a
"New Purchaser" and all of which are hereafter collectively referred to as the
"New Purchasers"), and each of the persons listed on the signature pages hereto
(each of which is individually an "Additional Purchaser" and all of which are
collectively the "Additional Purchasers"). The New Purchasers and the Additional
Purchasers are hereafter collectively referred to as the "Purchasers".
The parties hereby agree as follows:
1. Sale and Purchase of Securities.
1.1 Sale and Purchase. Subject to the terms and conditions of (a) this
Agreement, (b) the Registration Rights Agreement, referred to in Section
5.1(a)(viii), by and among the Company, the Purchasers and certain other
shareholders of the Company (the "Registration Rights Agreement"), and (c) the
Shareholders' Agreement, dated as of December __ , 1996, by and among the
Company and the other parties listed as signatories thereto (the "Shareholders'
Agreement"), (i) the Company will issue and sell to the New Purchasers, and each
New Purchaser, severally and not jointly, will purchase at the Closing (as
defined in Section 2.1), the number of units specified opposite the name of such
New Purchaser on the signature pages hereto ("Units") each consisting of one
hundred shares of the Company's Class C Common Stock, no par value, ("Class C
Common Shares") together with one hundred associated Rights pursuant to Section
1.3 of this Agreement ("Rights"), and a warrant ("Warrant") to purchase 7.874
Class A Common Shares of the Company pursuant to Section 1.2 of this Agreement,
at a purchase price of $400 per Unit; and (ii) the Company will issue and sell
to the Additional Purchasers, and each Additional Purchaser, severally and not
jointly, will purchase, the number of Units specified opposite the name of such
Additional Purchaser on the signature pages hereto (or, as to any such
Additional Purchaser, such lesser number of Units as the Company shall determine
in its complete discretion) at a purchase price of $400 per Unit.
1.2 Warrants. The Warrants shall be issued at the Closing in the form
attached hereto as Exhibit 1.2.
<PAGE>
1.3 Rights. The Rights shall be issued at the Closing pursuant the terms of
the Rights Agreement, dated as of the date hereof, among the Company and the
signatories thereto in the form attached hereto as Exhibit 1.3.
1.4 Allocation of Purchase Price. The parties agree that the purchase price
of $400 per Unit shall be allocated as follows:
$398.92 shall be allocated to the 100 Class C Common Shares forming part of
each Unit, $1.00 shall be allocated to the 100 Rights forming part of each Unit,
and $.07874 shall be attributable to the Warrant to purchase 7.874 Class A
Common Shares forming part of each Unit.
2. Closing Date: Delivery; Use of Proceeds.
2.1 (a) Closing Date. The closing of the purchase and sale of the Units
shall be held at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP,
at 10:00 A.M. on December 27, 1996, or as promptly thereafter as the conditions
set forth in Section 5 have been met, or at such other time and place as the
Company and the Purchasers may mutually agree. Such time is hereinafter referred
to as the "Closing" and the date of the Closing is hereinafter referred to as
the "Closing Date."
(b) Delivery by the Purchasers. At the Closing each Purchaser shall pay to
the Company, by means of wire transfer of immediately available funds, an amount
equal to the product of $400 and the number of Units set forth opposite such
Purchaser's name on the signature pages hereto (or, as to any Additional
Purchaser, such lesser number of Units as the Company shall determine in its
discretion), and the Company will issue and deliver to each such Purchaser
certificates evidencing the Class C Common Shares so purchased, together with
the Rights and Warrants purchased by them.
2.2 Use of Proceeds. The Company shall use the proceeds of the sale of the
Units sold and purchased hereby to pay part of the purchase price for its
acquisition (the "Acquisition") of all of the outstanding capital stock of
Rockwood Casualty Insurance Company ("Rockwood"), a Pennsylvania stock insurance
company, from PIC Insurance Group, Inc. ("PIC") and Trirock Limited Partnership
("Trirock") pursuant to the Stock Purchase Agreement (the "Stock Purchase
Agreement") by and among the Company, PIC and Trirock dated December 6, 1996, a
copy of which (together will all related documentation, including schedules and
exhibits) has been provided to each New Purchaser.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser as follows:
-2-
<PAGE>
3.1 Organization and Good Standing. The Company does not own a 50% or
greater equity interest in, or otherwise directly or indirectly control, any
corporation, partnership or other entity other than those corporations listed in
Schedule 3.1(i) to this Agreement (the "Front Royal Subsidiaries"). Each of the
Company and the Front Royal Subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its respective state of
incorporation or domicile, has full corporate power and authority to carry on
its respective businesses as now being conducted and is duly qualified or
authorized to do business in each jurisdiction in which it does business, or
owns or leases property, or where such qualification or authorization is
otherwise required by virtue of its presence or activities, except where the
failure to so qualify would not in the aggregate have a Material Adverse Effect
on the Company and the Front Royal Subsidiaries taken as a whole. For purposes
of this Agreement, "Material Adverse Effect" shall mean reasonably likely to
have an adverse effect greater than $150,000 on the properties, liabilities,
business, results of operation, condition (financial or otherwise), prospects or
affairs of either the Company, the Company and the Front Royal Subsidiaries,
taken as a whole, or, following the Closing, the Company and its Subsidiaries
(as defined in Section 6.1(a)), taken as a whole.
3.2 Capitalization. (a) Upon filing of the Amendment to the Articles of
Incorporation referred to in Section 5.1(a)(v) the authorized capital stock of
the Company shall consist of 24,900,000 shares of capital stock, (i) 20,000,000
of which are designated Class A Common Stock, no par value (the "Class A Common
Shares"), (ii) 700,000 of which are designated Class B Common Stock, no par
value (the "Class B Common Shares"), (iii) 3,200,000 of which are designated
Class C Common Shares (the Class A Common Shares, Class B Common Shares and the
Class C Common Shares, collectively, the "Common Shares") and (iv) 1,000,000
shares of preferred stock, of which 155,000 have been designated Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Shares"). There
are 5,442,030 Class A Common Shares issued and outstanding and 272,895 Class B
Common Shares issued and outstanding. All such outstanding Common Shares have
been duly authorized and validly issued and are fully paid and non-assessable.
There are no other shares of capital stock issued and outstanding. Upon
completion of the Acquisition pursuant to the terms of the Stock Purchase
Agreement, there will be 155,000 Series A Convertible Preferred Shares issued
and outstanding and all such outstanding shares will be duly authorized and
validly issued, fully paid and non-assessable. Except as disclosed in Schedule
3.2 (a)(i) to this Agreement, there are no shares of capital stock of the
Company or any Front Royal Subsidiary reserved for issuance. All of the
outstanding capital stock of each of the Front Royal Subsidiaries is owned
beneficially and of record by the Company or a Front Royal
-3-
<PAGE>
Subsidiary as set forth in Schedule 3.2(a)(ii) to this Agreement, free and clear
of all Liens, other than Liens in favor of First Union National Bank of North
Carolina. For purposes of this Agreement, "Lien" shall mean any lien, pledge,
charge, security interest, encumbrance, title retention agreement, restriction,
advance, claim or option.
(b) The authorized capital stock of Colony Management Services, Inc.
consists of 5,000 shares of common stock, no par value, 100 of which are issued
and outstanding. All such outstanding shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(c) The authorized capital stock of Colony Insurance Company ("Colony
Insurance") consists of 200,000 shares of common stock, par value $10 per share,
all of which are issued and outstanding. All such outstanding shares have been
duly authorized and validly issued and are fully paid and non-assessable.
(d) The authorized capital stock of Front Royal Environmental Insurance
Management, Inc. consists of 200,000 shares of common stock, par value $.01 per
share, 60,000 of which are issued and outstanding. All such outstanding shares
have been duly authorized and validly issued and are fully paid and
non-assessable.
(e) The authorized capital stock of Front Royal Environmental Services,
Inc. consists of 100,000 shares of common stock, par value $1.00 per share,
11,875 of which are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable.
(f) The authorized capital stock of Hamilton Insurance Company ("Hamilton
Insurance") consists of 1,500 shares of common stock, par value $1,000 per
share, all of which are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable.
(g) The authorized capital stock of Front Royal Insurance Company ("Front
Royal Insurance") consists of 1,000 shares of common stock, par value $1,500 per
share, all of which are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable.
(h) The authorized capital stock of Front Royal ETS, Inc. consists of 5,000
shares of common stock, no par value, 100 of which are issued and outstanding.
All such outstanding
-4-
<PAGE>
shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(i) The authorized capital stock of Triangle Engineering, Inc. consists of
100,000 shares of common stock, par value $1.00 per share, 10 of which are
issued and outstanding. All such outstanding shares have been duly authorized
and validly issued and are fully paid and non-assessable. Triangle Engineering,
Inc. has no assets, other than certain immaterial assets necessary in connection
with its continued existence, and conducts no business.
(j) Except as set forth in Schedule 3.2(l) to this Agreement, there are no
outstanding securities, rights (preemptive or other), subscriptions, calls,
warrants, options or other agreements that give any person or entity the right
to (i) purchase or otherwise receive or be issued any shares of capital stock of
the Company or any Front Royal Subsidiary (or any interest therein) or any
security convertible into or exchangeable for any shares of capital stock of the
Company or any Front Royal Subsidiary (or any interest therein), (ii) receive
any dividend, voting or ownership rights similar to those accruing to a holder
of shares of capital stock of the Company or any Front Royal Subsidiary or (iii)
participate in the equity, income or election of directors or officers of the
Company or any Front Royal Subsidiary.
(k) The Class C Common Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid, nonassessable and free and clear of all Liens, other than (i) the
restrictions on transfer and other agreements relating to the Class C Common
Shares contained in this Agreement and in the Shareholders' Agreement, (ii)
restrictions on transfer arising under the Securities Act of 1933, as amended
(the "Act"), and under state securities and "blue sky" laws, and (iii) any Liens
granted on the Class C Common Shares with the consent of the holder thereof. The
Company has duly and validly reserved out of its authorized shares of capital
stock 250,000 Class A Common Shares for issuance upon exercise of the Warrants
by the New Purchasers. Upon issuance of such reserved Class A Common Shares in
accordance with the exercise provisions of the Warrants, such Class A Common
Shares will be duly and validly issued, fully paid, non-assessable and free and
clear of all Liens.
3.3 Authority, Validity and Enforceability. The Company has full corporate
power and authority to enter into this Agreement, the Registration Rights
Agreement and the Shareholders' Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. All corporate action on the part of the Company and its directors,
officers, and stockholders necessary
-5-
<PAGE>
for the authorization, execution, delivery and performance by the Company of its
obligations under this Agreement, the Registration Rights Agreement and the
Shareholders' Agreement and the consummation of the transactions contemplated
hereby and thereby, including, without limitation the issuance and sale of the
Class C Common Shares, the Warrants and the Rights has been taken. Each of this
Agreement, the Registration Rights Agreement and the Shareholders' Agreement has
been duly executed and delivered by the Company and is a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms except (a) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and preferential
transfers, and (b) for the limitations imposed by general principles of equity.
The foregoing exceptions set forth in subsections (a) and (b) of this Section
3.3 are hereinafter referred to as the "Enforceability Exceptions."
3.4 No Violation or Breach. Neither the execution and delivery of this
Agreement, the Registration Rights Agreement or the Shareholders' Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby or thereby will violate, result in a breach of any of the terms or
provisions of, constitute a default (or an event which, with the giving of
notice or the passage of time or both, would constitute a default) under, result
in the acceleration of any indebtedness under or performance required by, result
in any right of termination of, increase any amounts payable under, decrease any
amounts receivable under, change any other rights pursuant to, or conflict with,
any agreement, indenture or other instrument to which the Company or any Front
Royal Subsidiary is a party or by which any of their respective properties are
bound, or any law, regulation, judgment, decree, order or award of any court,
governmental body or arbitrator (domestic or foreign) applicable to the Company
or any Front Royal Subsidiary, except that the issuance of Class A Common Shares
upon exercise of the Warrants or the Rights may require adjustments under the
terms of other warrants or options issued by the Company.
3.5 Consents and Approvals. Except as disclosed on Schedule 3.5 hereto, no
consent, approval or authorization of, or declaration, filing or registration
with, or payment of any tax, fee, fine or penalty to, any governmental or
regulatory authority (domestic or foreign) or any other person (either
governmental or private), is required to be made or obtained by the Company or
any Front Royal Subsidiary in connection with the execution and delivery by the
Company of this Agreement, the Registration Rights Agreement (other than
necessary filings to register the Company's securities under the Act, pursuant
to such Agreement) or the Shareholders' Agreement or the consummation by the
Company
-6-
<PAGE>
of the transactions contemplated hereby or thereby. All consents, approvals and
declarations, filings and payments of all taxes, fees, fines, and penalties to,
any governmental or regulatory authority (domestic or foreign) or any other
person (either governmental or private) required to be obtained or made by the
Company or any Front Royal Subsidiary in connection with the execution and
delivery by the Company of this Agreement, the Registration Rights Agreement
(other than necessary filings to register the Company's securities under the Act
pursuant to such Agreement) or the Shareholders' Agreement or the consummation
by the Company of the transactions contemplated hereby or thereby, including
those set forth on Schedule 3.5 hereto, have been obtained, made and satisfied,
other than filings required to be made after but not before the Closing by any
Front Royal Subsidiary with the appropriate Insurance Department under the
insurance holding company act provisions of the Insurance Law of the state of
domicile of each such Front Royal Subsidiary, which filings shall be made by
each respective Front Royal Subsidiary on a timely basis after the Closing.
3.6 Licenses and Permits. Each of the Company and the Front Royal
Subsidiaries has all Permits required in each of the jurisdictions listed on
Schedule 3.6 hereto to engage in the business of writing insurance policies of
the type specified on such Schedule 3.6 except for such Permits, the absence,
expiration or invalidity of which, individually or in the aggregate, do not have
a Material Adverse Effect. Each of the Company and the Front Royal Subsidiaries
is duly licensed and qualified to transact those lines of insurance business in
those states and jurisdictions listed on such Schedule 3.6. Except as set forth
on such Schedule 3.6, all such Permits are owned by the Company and the Front
Royal Subsidiaries, are in full force and effect and none of the Company or the
Front Royal Subsidiaries has received any notice of any event, inquiry,
investigation or proceeding that could result in a penalty or fine in excess of
$25,000, singly or in the aggregate, or in the suspension, revocation or
limitation on any such Permit, and, to the knowledge of the Company, there is no
basis for any such fine, penalty, suspension, revocation or limitation. Each of
the Company and the Front Royal Subsidiaries possesses the minimum statutory
capital and surplus as required by each such jurisdiction for the type of
insurance written by the Company and the Front Royal Subsidiaries in each
jurisdiction set forth on such Schedule 3.6. The phrase, "to the knowledge of
the Company," whenever used in this Agreement with respect to any subject
matter, shall mean to the best knowledge of the president, chief financial
officer, or any vice president responsible for either claims or human resources,
of the Company or any of the Front Royal Subsidiaries who has actual knowledge,
or who in the course of the normal performance of his or her operational
responsibilities, would have knowledge, of such subject matter.
-7-
<PAGE>
3.7 Litigation. Except as set forth on Schedule 3.7 hereto, and except for
claims made under or in connection with insurance policies issued by the Front
Royal Subsidiaries:
(a) there is no action, proceeding, investigation or inquiry pending
or, to the best knowledge of the Company, threatened against the Company
which questions the validity of this Agreement or any action taken or to be
taken pursuant hereto or thereto or in connection with the purchase and
sale of the Units; and
(b) to the best knowledge of the Company, there is no state of facts
and there has occurred no event or group of related events, that would form
the basis of any claim against the Company for liability on account of
violation of statute or regulation, or otherwise in connection with the
conduct of its business that, if adversely determined, would have a
Material Adverse Effect or which questions the validity of this Agreement
or any action taken or to be taken pursuant hereto or in connection with
the purchase and sale of the Units.
Except as set forth on Schedule 3.7 hereto, with respect to claims made against
any of the Front Royal Subsidiaries under or in connection with insurance
policies issued by the Front Royal Subsidiaries, there are no claims as to which
liability in excess of applicable coverage limits has been asserted against any
of the Front Royal Subsidiaries including, without limitation, claims for bad
faith or for punitive damages.
3.8 Brokerage Fees. None of the Company or any Front Royal Subsidiary has
taken any action in connection with this Agreement or the transactions
contemplated hereby which would give rise to any valid claim against the Company
or any Front Royal Subsidiary or any of the Purchasers for any brokerage or
finder's fee, except for fees in the amount of $25,000 owing to the Bridgeford
Group, which fees shall be paid by the Company.
3.9 Charter Documents and By-laws. The Company has heretofore made
available to the Purchasers true and complete copies of the Articles of
Incorporation and By-Laws of the Company and of each the Front Royal
Subsidiaries, as in effect on the date hereof.
3.10 Minute Books. The minute books of the Company and the Front Royal
Subsidiaries accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of the stockholders
of each respective company since the date of formation of such company, and all
formal actions taken at all meetings and all consents in lieu of meetings of the
board of directors of the Company and the Front Royal Subsidiaries and all
committees thereof since the
-8-
<PAGE>
date of formation of such company. All of such minute books have been made
available for inspection by the Purchasers.
3.11 Statutory Statements. The Company has made available to the Purchasers
(a) the Front Royal Statutory Statements and (b) any annual statutory statements
of Front Royal Insurance, Hamilton Insurance and Colony Insurance that were
filed for the year ended December 31, 1995 in any jurisdiction (other than
Virginia and Ohio) and which differ from the Front Royal Annual Statement for
the year ended December 31, 1995. Each such Front Royal Statutory Statement (i)
complied in all material respects with all applicable laws when so filed, (ii)
was prepared in accordance with SAP and (iii) presents fairly in all material
respects the financial position of Front Royal Insurance, Hamilton Insurance and
Colony Insurance as of the respective dates thereof and the related summary of
operations and changes in capital and surplus and in cash flows of Front Royal
Insurance, Hamilton Insurance and Colony Insurance for and during the respective
periods covered thereby. No material deficiency has been asserted by any
insurance regulatory authority with respect to any such Statutory Statement.
"Front Royal Statutory Statements," when used in this Agreement, shall mean,
collectively, the annual statements filed by each of Front Royal Insurance,
Hamilton Insurance and Colony Insurance on the NAIC prescribed convention blank
for each of the years ended December 31, 1994 and 1995, filed with the Virginia
Department of Insurance or the Ohio Department of Insurance as the case may be,
pursuant to the Virginia Insurance Law and the Ohio Insurance Law, respectively
(including management's discussion and analysis and the supporting memorandum to
the actuarial opinions given in connection with each such Front Royal Statutory
Statement).
3.12 Insurance Regulatory Filings. Since January 1, 1991, each of the
Company and the Front Royal Subsidiaries has filed or otherwise provided all
reports, data, other information and applications required to be filed or
otherwise provided to the Virginia Insurance Department or the Ohio Insurance
Department and all other federal, state and local governmental authorities with
jurisdiction over any of the Company or the Front Royal Subsidiaries except
where the failure to file would not have a Material Adverse Effect. The Company
has made available to the Purchasers copies of all reports of examinations
(whether financial, market conduct or other) issued by and all drafts of as of
yet unissued reports of examinations delivered by the Virginia Insurance
Department or the Ohio Insurance Department and all other state insurance
regulatory authorities in respect of any of the Company and the Front Royal
Subsidiaries received since January 1, 1991. Except as set forth on Schedule
3.12 hereto, no deficiencies material to the financial condition, operations or
prospects of any of the Company or the Front Royal Subsidiaries have been
asserted by the Virginia Insurance Department or the Ohio Insurance Department
or any other state
-9-
<PAGE>
insurance regulatory authority with respect to any reports or filings made on
behalf of any of the Company or the Front Royal Subsidiaries since January 1,
1991. The Company has made available to the Purchasers copies of all written
responses submitted on behalf of any of the Company and the Front Royal
Subsidiaries since January 1, 1991, in respect of any report of examination
(whether financial, market conduct or other) of any of the Company and the Front
Royal Subsidiaries by the Virginia Insurance Department or the Ohio Insurance
Department or any other state regulatory authority. The Company has made
available to the Purchasers all files of the Company and the Front Royal
Subsidiaries relating to correspondence with the Virginia Insurance Department
or the Ohio Insurance Department or any other insurance regulatory authority.
3.13 Reserves. The loss, loss adjustment expense and unearned premium
reserves and other similar amounts with respect to losses, claims, discounts and
expenses in respect of the insurance business of each of Front Royal Insurance,
Hamilton Insurance and Colony Insurance as established or reflected in the Front
Royal Quarterly Statement for the quarter ended as of September 30, 1996 (a)
were determined in accordance with (i) generally accepted actuarial standards
applied on a consistent basis (ii) SAP and (iii) the actuarial assumptions of
Tillinghast-Towers Perrin in the actuarial opinion of such actuary dated April
2, 1996, (b) were in accordance with the requirements specified in the related
insurance or reinsurance contracts in all material respects and (c) met the
requirements of the insurance laws of each applicable jurisdiction in all
material respects. Each of Front Royal Insurance, Hamilton Insurance and Colony
Insurance owns assets that qualify as admitted assets under applicable insurance
laws in an amount at least equal to all such reserves and liability amounts and
its minimum statutory capital and surplus as required by the insurance laws,
rules and regulations of its jurisdiction of domicile. The Company believes, in
light of facts known to the Company, that the aggregate reserve levels of each
of First Royal Insurance, Hamilton Insurance, Colony Insurance and Rockwood are
reasonable to meet the obligations of such companies under their respective
insurance policies and reinsurance agreements; however, the Company cannot
guarantee that such reserve levels are sufficient. "Front Royal Quarterly
Statement," for purposes of this Agreement, shall mean, collectively, the
quarterly statements of each of Front Royal Insurance, Hamilton Insurance and
Colony Insurance for the three-month periods ended March 31, 1996, June 30, 1996
and September 30, 1996, filed with the Virginia Department of Insurance or the
Ohio Department of Insurance, as the case may be, pursuant to the Virginia
Insurance Law and the Ohio Insurance Law, respectively.
3.14 Financial Information. (a) The Company has delivered to the Purchasers
true and complete copies of the
-10-
<PAGE>
consolidated balance sheets and consolidated statements of operations and
stockholders' equity and of cash flows of the Company and the Front Royal
Subsidiaries for each of the fiscal years ended as of December 31, 1994 and
December 31, 1995, together with all related notes and schedules thereto (the
"Financial Statements"). The Financial Statements were prepared from the books
and records of the Company and the Front Royal Subsidiaries and present fairly
the consolidated financial condition and results of operations of the Company
and the Front Royal Subsidiaries as of the dates thereof or for the periods
covered thereby in accordance with generally accepted accounting principles
consistently applied ("GAAP").
(b) The Company has delivered to the Purchasers true and complete copies of
the unaudited consolidated balance sheet for the period ended September 30, 1996
and the unaudited consolidated statements of operations for each of the periods
ended September 30, 1996 and September 30, 1995 (the "Third Quarter Financials")
of the Company and the Front Royal Subsidiaries. The Third Quarter Financials
were prepared from the books and records of the Company and the Front Royal
Subsidiaries and present fairly the consolidated financial condition and results
of operations of the Company and the Front Royal Subsidiaries as of the dates
thereof or for the periods covered thereby in accordance with GAAP subject to
normal and recurring year end adjustments and except that the notes thereto may
not be included.
(c) The Company has delivered to the Purchasers true and complete copies of
the unaudited consolidated balance sheet for the period ended November 30, 1996
and the unaudited consolidated statements of operations for each of the periods
ended November 30, 1995 and October 31, 1996 (the "Interim Financials") of the
Company and the Front Royal Subsidiaries. The Interim Financials were prepared
from the books and records of the Company and the Front Royal Subsidiaries and
present fairly the consolidated financial condition and results of operations of
the Company and the Front Royal Subsidiaries as of the dates thereof or for the
periods covered thereby in accordance with GAAP subject to normal and recurring
year end adjustments and except that (i) the notes thereto may not be included
and (ii) the statements of stockholders' equity and cash flows may not be
included.
3.15 No Material Change. Except for the transactions contemplated by this
Agreement or as described in the Offering Memorandum referred to in Section
3.22, or as reflected in the financial statements referred to in Sections 3.11
and 3.14 above, subsequent to December 31, 1995, there has not been any change
in the capital stock, or material increase in debt, or any material decrease in
investments or total assets of the Company or any
-11-
<PAGE>
development resulting in, or reasonably likely to result in, a Material Adverse
Effect.
3.16 Net Worth. Upon consummation of the Acquisition, the "present fair
saleable value" of the assets of the Company as of the Closing Date shall be
greater than the amount of all "liabilities, contingent or otherwise" of the
Company as of the Closing Date, as such terms are determined in accordance with
applicable federal and state laws governing determinations of the insolvency of
debtors.
3.17 Labor Agreements and Actions. Neither the Company nor any Front Royal
Subsidiary is bound by or subject to (and none of its assets or properties is
bound or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company or any Front Royal
Subsidiary. There is no strike or other material labor dispute involving the
Company or the Front Royal Subsidiaries pending, or to the knowledge of the
Company or the Front Royal Subsidiaries threatened, nor is the Company or any
Front Royal Subsidiary aware of any labor organization activity involving its or
any Front Royal Subsidiary's employees. To the knowledge of the Company and the
Front Royal Subsidiaries no officer or key employee, or any group of employees,
intends to terminate their employment with the Company or any Front Royal
Subsidiary, nor does the Company or any Front Royal Subsidiary have a present
intention to terminate the employment of any of the foregoing. To the knowledge
of the Company and the Front Royal Subsidiaries there are no circumstances that
might give rise to a termination of any officer, key employee or group of
employees of the Company or any Front Royal Subsidiary, which termination could
have a Material Adverse Effect on the financial position of the Company and the
Front Royal Subsidiaries taken as a whole.
3.18 Employee Benefit Plans: ERISA. (a) Schedule 3.18 hereto sets forth
each plan, agreement, arrangement or commitment which is an employment or
consulting agreement, executive or incentive compensation plan, bonus plan,
deferred compensation agreement, employee pension, profit sharing, savings or
retirement plan, employee stock option or stock purchase plan, group life,
health, or accident insurance or other employee benefit plan, agreement,
arrangement or commitment, including, without limitation, any commitment arising
under the laws of any jurisdiction, severance, holiday, vacation, Christmas or
other bonus plans (including, but not limited to, "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), maintained by the Company or any Front Royal Subsidiary
for any present or former employees, officers or directors of the Company or any
-12-
<PAGE>
Front Royal Subsidiary ("Company Personnel") or with respect to which the
Company or any Front Royal Subsidiary has liability, makes or has an obligation
to make contributions ("Employee Plans"). Each Employee Plan which is an
"employee pension benefit plan" ("Retirement Plan") as that term is defined in
Section 3(2) of ERISA has been identified as such on Schedule 3.18, and each
Employee Plan which is a multiemployer plan ("MEP") within the meaning of
Section 3(37) of ERISA has been so identified.
(b) The Company has made available to the Purchasers (i) copies of all
Employee Plans or in the case of an unwritten plan, a written description
thereof, (ii) copies of any annual, financial or actuarial reports and Internal
Revenue Service determination letters relating to such Employee Plans and (iii)
copies of all summary plan descriptions (whether or not required to be furnished
under ERISA) and employee communications relating to such Employee Plans and
distributed to Company Personnel, in each case under this subsection (iii),
existing or in effect during or within the past five years.
(c) There are no Company Personnel who are entitled to (i) any pension
benefit that is unfunded or (ii) any pension or other benefit to be paid after
termination of employment other than required by Section 601 of ERISA or
pursuant to plans intending to be qualified under Section 401(a) of the Code and
listed on the Schedule 3.18, and no other benefits whatsoever are payable to any
Company Personnel after the last day of the month in which a participant's
employment terminates (including retiree medical and death benefits).
(d) Each Employee Plan that is an employee welfare benefit plan under
Section 3(1) of ERISA is either (i) funded through an insurance company contract
and is not a "welfare benefit fund" within the meaning of Section 419 of the
Code or (ii) is unfunded. There is no liability in the nature of a retroactive
rate adjustment or loss-sharing or similar arrangement, with respect to any
Employee Plan which is an employee welfare benefit plan.
(e) All contributions or payments due under any Employee Plan have been
made. Each Employee Plan by its terms and operation is in compliance with all
applicable laws (including, but not limited to, ERISA, the Code and the Age
Discrimination in Employment Act of 1967, as amended).
(f) There are no actions, suits or claims pending or threatened (other than
routine noncontested claims for benefits) or, no set of circumstances exist
which may reasonably give rise to such a claim against any Employee Plan or
administrator or fiduciary of any such Employee Plan. As to each Employee Plan
for which an annual report is required to be filed under ERISA or the Code, all
such filings, including schedules,
-13-
<PAGE>
have been made on a timely basis and with respect to the most recent report
regarding each such Employee Plan liabilities do not exceed assets, and no
material adverse change has occurred with respect to the financial materials
covered thereby.
(g) Neither the Company nor any Front Royal Subsidiary nor any entity that
is or was at any time treated as a single employer with the Company or any Front
Royal Subsidiary under Section 414(b), (c), (m) or (o) of the Code has at any
time maintained, contributed to or been required to contribute to or had any
liability with respect to a plan subject to Title IV of ERISA or Section 412 of
the Code whether or not waived.
(h) The Company's savings plan (the "401(k) Plan") is qualified under
Sections 401(a) and 401(k) of the Code and the related trust is exempt from tax
under Section 501(a). The Company has received favorable determination letters
from the Internal Revenue Service stating that such plan is so qualified and
nothing has occurred since the date of such letter to cause the letter to be no
longer valid or effective.
(i) Neither the Company nor any Front Royal Subsidiary nor any other
person, including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could
subject any of the Employee Plans (or their trusts), the Company, any Front
Royal Subsidiary or any entity the Company or any Front Royal Subsidiary has an
obligation to indemnify, to any tax or penalty imposed under Section 4975 of the
Code or Section 502 of ERISA which is reasonably likely to have a Material
Adverse Effect.
(j) None of the assets of the Employee Plans is invested in any property
constituting employer real property or an employer security within the meaning
of Section 407(d) of ERISA.
(k) The events contemplated by this Agreement (either alone or together
with any other event) will not (i) entitle any Company Personnel to severance
pay, unemployment compensation, or other similar payments under any Employee
Plan or law, (ii) accelerate the time of payment or vesting or increase the
amount of benefits due under any Employee Plan or compensation to any Company
Personnel, (iii) result in any payments (including parachute payments) under any
Employee Plan or law becoming due to any Company Personnel, or (iv) terminate or
modify or give a third party a right to terminate or modify the provisions or
terms of any Employee Plan.
(l) The Company and each of the Front Royal Subsidiaries has complied with
the Worker Adjustment and Retraining Notification Act, to the extent applicable.
-14-
<PAGE>
3.19 Certain Contracts and Relationships. Except for agreements
specifically identified on other Schedules hereto, Schedule 3.19 hereto sets
forth a complete and correct list of the following:
(i) All material agreements to which the Company or any Front Royal
Subsidiary is a party not in the ordinary course of business; and
(ii) All agreements to which the Company or any Front Royal
Subsidiary, on the one hand, and an Affiliate (as defined below) of the
Company or any Front Royal Subsidiary, on the other hand, are parties or by
which they are bound (a person or entity shall be deemed an "Affiliate" of
the Company or any Front Royal Subsidiary if it, directly or indirectly,
controls, is controlled by, or is under common control with, the Company or
any Front Royal Subsidiary or is an officer, director (or any Affiliate of
any such officer or director) or stockholder of the Company or any Front
Royal Subsidiary), other than agreements between or among the Company and
the Front Royal Subsidiaries.
As used in this Section 3.19, the word "agreement" includes both oral and
written contracts, leases and all other agreements.
3.20 Compliance with Laws. The operation, conduct and ownership of the
property and business of the Company and the Front Royal Subsidiaries is being
conducted in all material respects in compliance with all federal, state and
local (domestic and foreign) laws, rules, regulations and ordinances (including,
without limitation, those relating to employment discrimination, occupational
safety, conservation or corrupt practices) and all judgments and orders of any
court, arbitrator or governmental authority applicable to them. Except as set
forth on Schedule 3.20 hereto, to the knowledge of the Company, without making
an independent investigation for these purposes, there is no proposed federal,
state or local (domestic or foreign) law, rule, regulation, ordinance, order,
judgment, decree, governmental taking, condemnation or other proceeding which
would be applicable to the business, operations or properties of the Company or
any Front Royal Subsidiary and which could reasonably be expected to Materially
Adversely Affect the assets, liabilities (whether absolute, accrued, contingent
or otherwise), condition (financial or otherwise), results of operations or
business of the Company and the Front Royal Subsidiaries taken as a whole.
3.21 Taxes. (a) The Company and the Front Royal Subsidiaries have timely
filed all returns, schedules and declarations (including withholding and
information returns)
-15-
<PAGE>
("Tax Returns") relating to federal, state, local or foreign income, franchise,
capital, payroll, property, sales, use, excise, employment or other taxes,
including any interest, additions to tax or penalties with respect to the
foregoing ("Taxes" or "Tax"), which are required to be filed on or before the
date hereof by any jurisdictions to which they are or have been subject. All of
the information in such Tax Returns is complete and accurate in all material
respects and such Tax Returns accurately reflect in all material respects the
Tax liabilities of the Company and the Front Royal Subsidiaries and accurately
set forth (to the extent required to be included or reflected in such Tax
Returns) all items relevant to their future Tax liabilities, including the tax
basis of their properties and assets. The Company and the Front Royal
Subsidiaries have paid in full all Taxes (including any interest, additions to
tax or penalties) required to be paid with respect to the periods covered by
such Tax Returns, and have made all deposits of Taxes in all necessary amounts
required by all relevant taxing authorities. The Company and the Front Royal
Subsidiaries have fully accrued in the November 30, 1996 Interim Financials all
Taxes through such date that are not yet due. Except as set forth on Schedule
3.21(a), the Company and the Front Royal Subsidiaries have made all payments of
Taxes required to be deducted and withheld from the wages paid to their
respective employees.
(b) Except as set forth in Schedule 3.21(b), neither the Company nor any
Front Royal Subsidiary is delinquent in the payment of any Taxes or has
requested any extension of time within which to file any Tax Returns that have
not been filed, and no deficiencies for any Taxes have been claimed, proposed or
assessed. Except as set forth in Schedule 3.21(b), neither the Company nor any
Front Royal Subsidiary has agreed to any currently effective extensions of time
for the assessment or payment of any Taxes payable by it.
(c) Except as previously paid or provided for in the November 30, 1996
Interim Financials, there is no actual, threatened or proposed Tax, Tax
assessment or adjustment with respect to the Company or any Front Royal
Subsidiary or any of their assets or operations for any taxable period ending on
or before November 30, 1996 or of any basis therefor. No examinations of the Tax
Returns, or of any forms or information of or relating to the business of the
Company or any Front Royal Subsidiary is currently in progress or threatened
which is reasonably likely to have a Material Adverse Effect.
(d) Neither the Company nor any Front Royal Subsidiary has ever filed, and
will not file on or before the Closing Date, an election under Section 341(f) of
the Code.
3.22 Disclosure. The Company has provided each Purchaser with all the
information which such Purchaser has
-16-
<PAGE>
requested for deciding whether to purchase the Class C Common Shares, Warrants
and Rights and all information which the Company believes is reasonably
necessary to enable such Purchaser to make such decision. The information
provided by the Company in the Company's Offering Memorandum dated December 20,
1996 (the "Offering Memorandum") and this Agreement, including, without
limitation, the Schedules and Exhibits hereto, does not and will not as of the
Closing contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements and facts contained herein or therein, in light of the circumstances
under which they are made, not false or misleading. Copies of all documents
heretofore or hereafter delivered or made available by the Company to the
Purchasers pursuant hereto were or will be complete and accurate records of such
documents. The Company knows of no information or fact that has or is reasonably
likely to have a Material Adverse Effect that has not been disclosed to the
Purchasers in writing. The projections, taken as a whole, furnished to the
Purchasers by the Company in the Offering Memorandum, were made with due care
based on assumptions which the Company believed in good faith to be reasonable
as of the date thereof. These projections were made by the Company based on
assumptions which the Company did not consider improbable or unlikely,
including, but not limited to, allocations of general expenses of the Company
and its Subsidiaries.
3.23 Registration Rights. Except as granted pursuant to and identified in
the Registration Rights Agreement, dated as of May 19, 1993, among the Company
and the Purchasers of the Company's Class A Common Shares and Series 1 Warrants
listed as signatories thereto, except as set forth in certain other warrants
listed in Schedule 3.23 issued by the Company, and except as contemplated in the
Stock Purchase Agreement, the Company has not granted or agreed to grant any
registration rights of any type to any person or entity.
3.24 No Registration. Subject to the truth and accuracy of the
representations of the Purchasers in this Agreement, (i) the issuance, sale and
delivery of the Class C Common Shares, Warrants and Rights to such Purchasers,
as contemplated by this Agreement and (ii) the issuance of Class A Common Shares
issuable upon conversion of the Class C Common Shares and upon exercise of the
Warrants and Rights by the Purchasers are exempt from the registration
requirements of the Act, and any applicable state securities law relating
thereto.
3.25 The Acquisition. To the Company's knowledge, none of the
representations of any party made in the Stock Purchase Agreement is untrue and
none of the conditions to the Closing thereunder has been waived by the Company.
-17-
<PAGE>
4. Representations and Warranties of the Purchasers. Each of the Purchasers
represents and warrants, severally and not jointly, to the Company as follows as
to itself only:
4.1 Acquisition of Securities. This Agreement is made with such Purchaser
in reliance upon such Purchaser's representation to the Company, which by such
Purchaser's execution of this Agreement such Purchaser hereby confirms, that the
Class C Common Shares, Warrants and Rights to be received by such Purchaser will
be acquired for investment for such Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same.
4.2 No Registration. Such Purchaser understands and acknowledges that the
offering of the Class C Common Shares, Warrants and Rights pursuant to this
Agreement will not be registered under the Act, or under any other applicable
blue sky or state securities law on the grounds that the offering and sale of
the Class C Common Shares, Warrants and Rights contemplated by this Agreement
are exempt from registration pursuant to Section 4(2) of the Act and the
regulations thereunder and exempt from qualification pursuant to comparable
available exceptions in various states, and that the Company's reliance upon
such exemptions is predicated upon such Purchaser's representations set forth in
this Agreement.
4.3 Consents and Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, or payment of any tax, fee, fine or
penalty to, any governmental or regulatory authority (domestic or foreign) or
any other person (either governmental or private), is required to be obtained or
made by such Purchaser in connection with the execution and delivery by such
Purchaser of this Agreement, the Registration Rights Agreement, the
Shareholders' Agreement or the consummation by such Purchaser of the
transactions contemplated hereby.
4.4 Investment Representations. Such Purchaser (a) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment hereunder; and (b)
has the ability to bear the economic risks of such Purchaser's prospective
investment, including a complete loss of the investment.
4.5 Authorization. Such Purchaser has full power and authority to enter
into this Agreement and to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement is a valid and binding
agreement of each Purchaser, enforceable in accordance with its terms, subject
to the Enforceability Exceptions.
-18-
<PAGE>
4.6 Brokerage Fees. Such Purchaser has not taken any action in connection
with this Agreement or the transactions contemplated hereby which would give
rise to any valid claim against the Company, the Front Royal Subsidiaries or any
of the Purchasers for any brokerage or finder's fee, except for fees in the
amount of $25,000 owing to the Bridgeford Group, which fees will be paid by the
Company.
4.7 Accredited Investor Status. Such Purchaser is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated by the SEC under
the Act.
4.8 ERISA. Such Purchaser will not acquire the Units with the assets of any
"employee benefit plan" as defined in ERISA and no "prohibited transactions"
under ERISA and the Code will occur in connection with the Purchaser's
acquisition of the Units.
4.9 Access to Information. Such Purchaser has had the opportunity to ask
questions of, and receive answers from, management of the Company, and all such
questions have been answered to the satisfaction of such Purchaser. All
information that such Purchaser has requested has been provided to such
Purchaser to its satisfaction.
5. Conditions.
5.1 Conditions to Closing.
(a) Conditions to Purchaser Obligations. The obligation of each of the
Purchasers to purchase the Class C Common Shares, Warrants and Rights and to
perform their obligations pursuant to Section 2.1(b) at the Closing, is subject
to the fulfillment on or prior to the Closing Date of the following conditions,
any of which may be waived in accordance with the provisions of Section 10.2
hereof:
(i) Representations and Warranties Correct: Performance of
Obligations. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
the Closing Date.
(ii) Compliance Certificate. The Company shall have delivered a
Certificate, executed by the Chief Executive Officer and the Secretary of
the Company, dated the Closing Date, certifying to the fulfillment of the
conditions specified in subsection (i) of this Section 5.1(a).
-19-
<PAGE>
(iii) Consents and Waivers. The Company shall have obtained any and
all consents, permits and waivers necessary or appropriate to be obtained
by the Company for consummation of the transactions contemplated by this
Agreement, including all authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of
any state that are required to be obtained by the Company in connection
with the lawful issuance and sale of the Class C Common Shares, Warrants
and Rights pursuant to the terms of this Agreement.
(iv) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to such Purchaser and such Purchaser's
counsel.
(v) Articles of Incorporation. Articles of Amendment to the Articles
of Incorporation of the Company in the form of Exhibit 5.1(a)(v) shall have
been duly adopted and shall have been properly filed with the North
Carolina Secretary of State and shall constitute the Articles of
Incorporation of the Company. The Company shall have delivered to such
Purchaser facsimile evidence that such Articles have been so filed.
(vi) By-Laws. The By-Laws of the Company shall be amended in the form
of Exhibit 5.1(a)(vi).
(vii) Minimum Purchase. The Purchasers shall have purchased an
aggregate of 31,750 Units for an aggregate of $12,700,000 pursuant to this
Agreement.
(viii) Registration Rights Agreement. The Registration Rights
Agreement shall have been duly executed and delivered by the Company, the
Purchasers and such other parties thereto as may be required to make such
agreement effective in the form of Exhibit 5.1(a)(viii) and shall be in
full force and effect.
(ix) Shareholders' Agreement. The Shareholders' Agreement shall have
been duly executed and delivered by the Company and each of the parties
thereto and shall be in full force and effect.
(x) Acquisition. Concurrently with the Closing, the Acquisition shall
be consummated substantially in accordance with the terms of the Stock
Purchase Agreement and all applicable laws and regulatory requirements.
-20-
<PAGE>
(xi) Election of Directors. Each New Purchaser shall have designated
one person for election or appointment to the Board of Directors of the
Company and each such person shall have been duly elected or appointed as
members of the Board of Directors of the Company, in each case effective at
the Closing.
(xii) Payment of Outstanding Debt. The closing under the Credit
Agreement between the Company and First Union National Bank of North
Carolina and the other banks signatory thereto shall have been consummated
at or prior to the Closing and all indebtedness for borrowed money of the
Company, other than that identified in Schedule 5.1(a)(xii), shall have
been repaid in full.
(xiii) Opinion of Company's Counsel. Robinson Silverman Pearce
Aronsohn & Berman LLP, counsel to the Company, shall have delivered an
opinion addressed to the Purchasers, dated the Closing Date, in form and
substance reasonably satisfactory to the New Purchasers.
(b) Conditions to CompanY Obligations. The Company's obligation to sell and
issue the Class C Common Shares, Warrants and Rights pursuant to this Agreement
is subject to the fulfillment on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company as to any one or more of
the Purchasers if such waiver will not adversely affect the other Purchasers:
(i) Representations and Warranties Correct. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date with
the same force and effect as if they had been made on and as of said date.
(ii) Minimum Purchase. The Purchasers shall purchase an aggregate of
31,750 Units for an aggregate of $12,700,000 pursuant to this Agreement.
(iii) Payments by Purchasers. The payments by the Purchasers required
by Section 2.1(b) shall have been made.
(iv) Acquisition. Concurrently with the Closing, the Acquisition shall
be consummated substantially in accordance with the terms of the Stock
Purchase Agreement and all applicable laws and regulatory requirements.
6. Affirmative Covenants of the Company. The Company hereby covenants and
agrees with each Purchaser that after the Closing and for so long as such
Purchaser owns Class C Common
-21-
<PAGE>
Shares, Warrants or Class A Common Shares or as otherwise specifically provided
herein, as follows:
6.1 Financial Information and Inspection Right. The Company will furnish to
each Purchaser, as soon as practicable after the end of each fiscal year, and in
any event within 120 days thereafter, a consolidated balance sheet as at the end
of such fiscal year, and a related consolidated statement of operations,
consolidated statement of changes in stockholders' equity and a consolidated
statement of cash flows for the year then ended, for each of the Company and
each corporation or entity of which the Company owns, directly or indirectly,
beneficially or of record, a 50% or greater equity interest, including Rockwood
(a "Subsidiary"). Such financial statements shall be prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP") and shall
be accompanied by the report, and a copy of the annual management review letter,
of an independent public accountant of national reputation.
6.2 Board Representation. (a) The Company and each Purchaser shall take all
action within their respective powers, including, without limitation, the voting
of all of their respective shares of stock of the Company, the execution of
written consents, the calling of special meetings, the removal of directors, the
filling of vacancies on the Board of Directors of the Company, the waiving of
notice and the attending of meetings, so as to cause the Board of Directors of
the Company to have as Class C Directors at all times during which the holders
of the Class C Common Shares are entitled to elect directors as a separate
class: (i) one representative designated by High Ridge and (ii) one
representative designated by MCM (each, "Designated Director"), in each case,
however, so long as High Ridge and MCM, respectively, own Class C Common Shares.
(b) The Company shall indemnify, to the fullest extent permitted by law,
any person (or estate of any person) or entity (an "Indemnitee") who was or is a
party to, or is threatened to be made a party to, any threatened, pending or
completed action, suit or proceeding, whether or not by or in the right of the
Company, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such Indemnitee is or was a Designated
Director, or is affiliated or associated with a Designated Director, or
appointed or designated a Designated Director. To the fullest extent permitted
by law, the indemnification provided herein shall include expenses, (including
attorneys' fees), judgments, fines and amounts paid in settlement, and, in the
manner provided by law, such expenses shall be paid by the Company in advance of
the final disposition of such action, suit or proceeding. The indemnification
provided herein shall not be deemed exclusive of any other rights to which any
person seeking indemnification from
-22-
<PAGE>
the Company may be entitled under any agreement, the Articles of Incorporation
or By-Laws of the Company, any vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity as a director and as to
action in another capacity while holding such position. During the time that any
Designated Director serves on the Board of Directors of the Company, and for a
period of at least six years thereafter, subject to availability at a reasonably
acceptable cost to the Company, the Company shall have and maintain one or more
policies of directors and officers liability insurance in form, substance and
amount reasonably acceptable to the New Purchasers.
(c) The Company shall reimburse each Designated Director for reasonable
expenses incurred in attending any meeting of the Board of Directors or any
committee thereof in accordance with its customary policies applicable to all
Directors.
(d) The obligations of the Company contained in Section 6.3(b) shall
survive the disposition of Common Shares and Warrants by either or both of the
New Purchasers.
6.3 Certain Preemptive Rights. (a) Except as hereinafter provided in this
Section 6.3, if after the date hereof the Company proposes to issue additional
shares of common equity securities or securities convertible, exchangeable or
exercisable for common equity securities ("Additional Shares"), the Company
shall deliver to each holder of then outstanding Class C Common Shares written
notice thereof, which notice shall include a general description of the terms of
such proposed issuance of Additional Shares (including the number of Additional
Shares to be so issued), the purchase price per Additional Share to be issued
and the anticipated issuance date. Within ten (10) days of delivery of such
notice, each holder may by written notice (the "Additional Shares Offer") offer
to purchase in such proposed issuance up to a maximum number of the Additional
Shares such that immediately after the purchase of such Additional Shares by
such holder, the percentage of all shares of common equity securities issued and
outstanding on a fully diluted basis (assuming conversion of warrants, options
and other instruments of the Company convertible into or exchangeable for common
equity securities other than the Warrants or the Rights) owned by such holder
shall be unchanged as a result of such issuance. Any holder who fails to provide
the Company with an Additional Shares Offer within such ten (10) day period
shall be deemed to have waived its right to buy any Additional Shares or
otherwise to participate in such proposed issuance. If the terms of the proposed
issuance of Additional Shares set forth in the notice provided by the Company
pursuant to this paragraph shall have materially changed from the date of such
notice, the Company shall deliver to each holder of then outstanding Class C
Common Shares an additional notice and such holder shall again have the
-23-
<PAGE>
rights set forth in this paragraph (and, if such holder shall have provided the
Company with an Additional Shares Offer, such holder shall be entitled to amend
such offer) in accordance with the time periods set forth in this paragraph.
(b) The rights and obligations set forth in this Section 6.3 shall not
apply to any issuances of Additional Shares in respect of (i) warrants or
options to acquire any common equity securities which are outstanding on the
date hereof or on the Closing Date, (ii) any stock option or employee benefit
plan of the Company now existing or hereafter adopted by the Board of Directors
or shareholders of the Company, (iii) any Initial Public Offering, (iv)
securities of the Company issued or issuable pursuant to the this Agreement or
in connection with the Warrants or Rights pursuant hereto, (v) any merger or
acquisition involving the Company which has been approved by the Board, (vi) a
stock dividend or recapitalization of the Company, or (vii) any acquisition or
similar transaction of the Company not intended primarily to raise capital. For
purposes of this Agreement, "Initial Public Offering shall mean the first
underwritten public offering of Class A Common Shares by or for the account of
the Company and offered on a "firm commitment" or "best efforts" basis pursuant
to an offering registered under the Act on Form S-1, Form SB-1 or their
equivalents.
(c) The provisions of this Section 6.3 shall terminate upon the initial
closing under an Initial Public Offering.
6.4 Prompt Payment of Taxes. etc. The Company will promptly pay and
discharge, or cause to be paid and discharged when due and payable, all lawful
Taxes relating to federal, state, local or foreign income, franchise, capital,
payroll, property, sales, use, excise, employment or other taxes, including any
interest, additions to Tax or penalties with respect to the foregoing
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company or any Subsidiary provided, however, that
any such Tax, assessment, charge or levy need not be paid if the validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that the Company will pay all such
Taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any Lien which may have attached as security therefor.
The Company will promptly pay or cause to be paid when due, or in conformance
with customary trade terms, all other indebtedness incident to operations of the
Company or any Subsidiary.
6.5 Insurance. The Company and its Subsidiaries will maintain insurance,
including without limitation the directors and officers liability insurance
referred to in Section 6.2, with
-24-
<PAGE>
financially sound and reputable insurers, for such risks and in such amounts as
are customary for companies in similar businesses similarly situated.
6.6 Accounts and Records. The Company will keep true records and books of
account on behalf of itself and its Subsidiaries in which full, true and correct
entries will be made of all dealings or transactions in relation to the business
and affairs of the Company and its Subsidiaries in accordance with GAAP
consistently applied.
6.7 Compliance with Requirements of Governmental Authorities. The Company
shall, and shall cause its Subsidiaries to, duly observe and conform to all
valid requirements of governmental authorities relating to the conduct of their
businesses or to their material properties or assets.
6.8 Availability of Class A Common Shares upon Conversion and Exercise. The
Company will, from time to time, in accordance with the laws of the state of
North Carolina, increase its authorized number of Class A Common Shares if at
any time the number of Class A Common Shares remaining unissued and available
for issuance shall be insufficient to permit the conversion into Class A Common
Shares of all then outstanding securities convertible into Class A Common
Shares, including, without limitation, the Class C Common Shares, the Warrants
and the Rights.
7. Negative Covenants and Related Matters.
7.1 Negative Covenants of the Company.
(a) The Company shall not take any action requiring, under the Company's
Articles of Incorporation, as amended by the Articles of Amendment thereto
referred to in Section 5.1(a)(v) hereof, the affirmative vote of holders of the
Class C Common Shares without first having obtained such vote required
thereunder.
(b) Without the prior written consent of the holders of record of a
majority of the Class C Common Shares, the Company shall not take any action so
as to increase the number of directors comprising the Board of Directors of the
Company unless such action results in a Board of Directors of 12 members or
less.
(c) Without the approval of at least three-fourths (3/4) of the members of
the Company's Board of Directors (rounded up to the nearest whole number of
members), voting at a meeting duly called and held or by unanimous written
consent, the Company shall not purchase or otherwise reacquire any outstanding
shares
-25-
<PAGE>
of its capital stock ranking senior to the Class C Common Shares as to dividend
rights or liquidation preferences.
8. Restrictions on Transfer: Legends.
8.1 Restrictions on Transfer. Each of the Purchasers agrees that the Class
C Common Shares, the Rights and the Warrants may not be sold, transferred or
disposed of, and the Company will be entitled to refuse to register the transfer
of the Class C Common Shares and the Warrants, unless such sale, transfer or
disposition is effected pursuant to (i) an effective registration statement
under the Act and in compliance with all applicable state laws or (ii) an
opinion of counsel reasonably satisfactory to the Company, or other evidence
reasonably satisfactory to the Company, to the effect that such sale, transfer
or disposition without registration may be effected without violation of the Act
or any applicable state laws.
8.2 Legend on Securities. (a) The Warrants and all certificates
representing the Class C Common Shares and Rights shall bear a legend to the
following effect:
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY APPLICABLE STATE
SECURITIES LAWS. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION
OR OTHER DISPOSITION OF THE SECURITY REPRESENTED BY THIS CERTIFICATE
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IF THE
COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER,
WHICH OPINION OF COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, OR NO-ACTION LETTERS FROM THE SECURITIES AND EXCHANGE
COMMISSION AND ANY STATE SECURITIES COMMISSION, THE APPROVAL OF WHICH
IS REQUIRED, OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY,
TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE REGISTRATION
PROVISIONS OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER, AND ANY APPLICABLE STATE SECURITIES LAWS.
and any other legends required by applicable state blue sky laws.
(b) All certificates representing the Class A Common Shares issued upon
conversion of the Class C Common Shares or exercise of the Warrants or Rights by
the New Purchasers shall
-26-
<PAGE>
also bear the above legend, until such Class A Common Shares are registered
under the Act or until the holder of such Class A Common Shares delivers an
opinion of its legal counsel, reasonably acceptable to the Company, that such
legend is no longer necessary.
9. Indemnification. The Company agrees to indemnify each Purchaser (the
"Indemnified Parties") for, and hold each Indemnified Party harmless from and
against: (i) any and all damages, losses and other liabilities of any kind,
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any kind, including,
without limitation, reasonable fees and disbursements of one counsel for such
Indemnified parties (selected by the New Purchasers) (all of which expenses
shall be periodically reimbursed as incurred) ((i) and (ii), collectively,
"Losses"), in each case, suffered or incurred in connection with (A) any
investigative, administrative or judicial proceeding or claim, brought or
threatened by a third party, relating to or arising out of this Agreement, the
Registration Rights Agreement, the Shareholders Agreement or the transactions
contemplated hereby and thereby or the Company's use of the proceeds received in
connection with the sale of the Class C Common Shares, Warrants and Rights
hereunder, (B) any material inaccuracy in any representation or warranty made or
incorporated by reference in this Agreement, and (C) any breach by the Company
of any covenant or agreement made or incorporated by reference in this
Agreement, the Registration Rights Agreement or the Shareholders' Agreement.
10. Miscellaneous.
10.1 Expenses. All reasonable out-of-pocket expenses incurred by each of
the Purchasers in connection with the negotiation and purchase of the Class C
Common Shares offered hereby, and not otherwise provided for herein, including
reasonable attorney's fees and expenses, shall be borne by the Company.
10.2 Modifications, Amendments and Waivers. The provisions of this
Agreement may be amended or waived only upon the written agreement of (a) the
Company and (b) the holder or holders of at least three-fourths (3/4) of the
Class C Common Shares then outstanding, which Class C Common Shares shall have
been purchased pursuant to this Agreement, and the Class A Common Shares then
outstanding that were issued upon conversion of the Class C Common Shares or
exercise of the Warrants and/or Rights, voting together as one class. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any provision or condition of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in writing.
-27-
<PAGE>
10.3 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal law, and not the law pertaining to
conflicts or choice of law, of the State of New York.
10.4 Survival and Remedies. The representations and warranties of the
parties made herein shall survive the Closing of the transactions contemplated
hereby, notwithstanding any investigation made by the Purchasers, for a period
of two (2) years; provided, however, that the representations and warranties
contained in Section 3.21 shall survive for a period of three (3) years and the
representations and warranties contained in Sections 3.2 and 3.3 shall survive
indefinitely. All statements as to factual matters contained in any certificate
or other instrument delivered by or on behalf of the Company pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
10.5 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of the Purchasers or
holders of Class C Common Shares, Warrants and Rights are also for the benefit
of, and enforceable by, any subsequent holders of such securities and the Class
A Common Shares into which such Class C Common Shares, Warrants and/or Rights
are converted, except any subsequent holder who acquires any such security in a
registered public offering.
10.6 Entire Agreement. This Agreement, the Registration Rights Agreement,
the Shareholders' Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement among the parties
with regard to the subject matter hereof and thereof.
10.7 Notices. All notices and other communications required or permitted
hereunder shall be effective upon receipt and shall be in writing and delivered
personally, by facsimile transmission, by overnight delivery service or by mail,
postage prepaid, addressed (a) if to a Purchaser, at such Purchaser's address
set forth below its name on the signature pages hereto, or at such other address
as such Purchaser shall have furnished to the Company in writing, with a copy,
in the case of the New Purchasers, to Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York 10019, Attention: James A. Fitzpatrick, Jr., Esq.,
telecopy number (212) 259-6333 or (b) if to the Company, at 220 Gateway Blvd.,
Suite 205, Morrisville, North Carolina 27560, Attention: J. Adam Abram, Chief
Executive Officer and Gregg T.
-28-
<PAGE>
Davis, Chief Financial Officer, telecopy number (919) 469-3557, or at such other
address as the Company shall have furnished to the Purchasers in writing, with a
copy to Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the
Americas, New York, New York 10104, Attention: Kenneth L. Henderson, Esq.,
telecopy number (212) 541-4630.
10.8 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
10.9 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
10.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
10.11 Construction of Agreement. None of the parties hereto or their
respective counsel shall be deemed to have drafted this Agreement for purposes
of construing the terms hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any party hereto.
10.12 Termination. This Agreement may be terminated at any time prior to
the Closing by either the Company or any Purchaser upon 15 days written notice
to the non-terminating party if the Closing shall not have occurred on or before
January 31, 1997.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the day and year first above written.
THE COMPANY:
FRONT ROYAL, INC.
By:________________________________
Name:
Title:
NUMBER OF UNITS
PURCHASED HEREBY THE PURCHASERS:
_______ Units MOORE GLOBAL INVESTMENT, LTD.
By:
By:_______________________________
Name:
Address:
Telecopy:
_______ Units REMINGTON INVESTMENT STRATEGIES,
L.P.
By:
By:________________________________
Name:
Title:
Address:
Telecopy:
_______ Units HIGH RIDGE CAPITAL PARTNERS LIMITED
PARTNERSHIP
By:
By:________________________________
Name:
Title:
Address:
-30-
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR ADDITIONAL PURCHASERS
_______ Units NAME:______________________________
By:
By:________________________________
Name:
Title:
Address:
Attn.:
-31-
<PAGE>
AGREEMENT OF REINSURANCE AND ASSUMPTION
---------------------------------------
THIS AGREEMENT is made and entered into effective December 30, 1996 (the
"Effective Date") by and among Rockwood Casualty Insurance Company, a
Pennsylvania insurance company with its home office located at 654 Main Street,
Rockwood, Pennsylvania 15557 (hereinafter called "Rockwood") and Premier Auto
Insurance Company, f/k/a Somerset Casualty Insurance Company, a Pennsylvania
insurance company with its home office located at 502 West Office Center Drive,
Suite 100, Fort Washington, Pennsylvania 19034 (hereinafter called "Premier").
W I T N E S S E T H:
WHEREAS, Rockwood is a duly licensed insurance company in the Commonwealth
of Pennsylvania, authorized to issue property and casualty insurance coverages,
including private passenger automobile insurance; and,
WHEREAS, Rockwood is admitted in and authorized to issue private passenger
automobile insurance in the State of West Virginia; and
WHEREAS, Rockwood issued private passenger automobile policies to various
insureds in the Commonwealth of Pennsylvania (the "Pennsylvania Policies") and
in the State of West Virginia (the "West Virginia Policies") on or before
December 31, 1996 (collectively the "Reinsured Policies"); and
WHEREAS, Premier is a duly licensed insurance company in the Commonwealth
of Pennsylvania authorized to issue property and casualty insurance, including
private passenger automobile insurance policies; and,
WHEREAS, Premier desires to assume Rockwood's Pennsylvania Policies and
reinsure Rockwood's West Virginia Policies and Rockwood desires to transfer its
liabilities under the Reinsured Policies to Premier pursuant to an Agreement of
Reinsurance and Assumption; and,
NOW, THEREFORE, in consideration of the foregoing and the provisions
hereinafter set forth, the parties, intending to be legally bound, hereby agree
as follows:
1. Transfer and Assumption of Rights and Liabilities of the Reinsured
Policies to Premier.
(a) Rockwood hereby transfers and assigns to Premier all of Rockwood's
rights and liabilities under the Reinsured Policies including all residual
market obligations incurred by Rockwood arising from premiums received on the
Pennsylvania
<PAGE>
Policies. Premier will contact the Pennsylvania Assigned Risk Plan and inform
the Plan that Premier has assumed Rockwood's obligations to the Plan and ask the
Plan to assign all of Rockwood's assignments to Premier. Any Reinsured Policy
renewed by Premier after the Effective Date of this Agreement shall be the sole
obligation of Premier and shall not be a Reinsured Policy for purposes of this
Agreement for any right or obligation arising subsequent to the renewal date.
(b) Premier hereby assumes all existing and future rights and obligations
of Rockwood under the Pennsylvania Policies, including the right and obligation
to renew, terminate or cancel the Reinsured Policies, with the same effect as if
the Pennsylvania Policies had been originally issued by Premier and hereby
covenants to Rockwood that it shall fully satisfy all obligations owing under
the Pennsylvania Policies. It is the intention of the parties hereto that
Premier's assumption of Rockwood's rights and obligations under the Pennsylvania
Policies is absolute and unconditional and that Rockwood shall have no further
rights or obligations under the Pennsylvania Policies. Premier also hereby
assumes all obligations for servicing the Pennsylvania Policies, including but
not limited to the defense and direct payment of claims, the collection of
premiums, and the management of agency and policyholder relations.
(c) Premier hereby reinsures all existing and future obligation of Rockwood
under the West Virginia Policies and Premier hereby covenants to Rockwood that
it shall fully satisfy all obligations owing under the West Virginia Policies.
Premier also hereby assumes all obligations for servicing the West Virginia
Policies, including but not limited to the defense and direct payment of claims,
the collection of premiums, and the management of agency and policyholder
relations.
(d) On the Effective Date, Rockwood shall transfer to Premier, subject to
Premier's obligation to establish and fund the Collateral Account under the
terms and conditions set forth in Paragraph 7 (b) hereof, one hundred percent
(100%) of the Gross Premiums for the Reinsured Policies, less claims and
expenses paid under the Reinsured Policies through the Effective Date.
(e) Premier hereby agrees to reimburse Rockwood for all obligations to
agents who produced the Reinsured Policies pursuant to profit sharing agreements
with Rockwood and all residual market obligations of Rockwood arising from
premium received on the Reinsured Policies.
(f) Premier will offer agency agreements to all appointed Rockwood agents
writing personal passenger automobile business which agreements shall contain
substantially the same terms and conditions as their Rockwood contracts. Premier
shall reimburse Rockwood for any commission obligations arising out of its
termination of its personal passenger automobile agents.
-2-
<PAGE>
(g) Rockwood shall deliver to Premier originals or copies of all files and
other documents, if any, maintained by Rockwood with respect to the Reinsured
Policies, and Rockwood shall deliver to Premier any notices of claim and such
other documentation or communications respecting the Reinsured Policies assumed
by Premier received by Rockwood subsequent to the Effective Date of this
Agreement promptly upon receipt thereof.
(h) Rockwood hereby assigns and agrees to promptly remit to Premier any and
all premiums collected by Rockwood on the Reinsured Policies.
(i) Premier shall issue an assumption certificate to each Pennsylvania
Policy on or before the Effective Date in substantially the form attached hereto
as Exhibit "A" or such form as approved by the Pennsylvania Insurance
Department. At the same time, Premier shall send a Request for Consent for
Transfer to each Pennsylvania Policyholder in the form attached hereto as
Exhibit "B".
(j) In order to facilitate a smooth transition for this assumption,
Rockwood shall deliver to Premier all materials and information necessary for
the administration of the Reinsured Policies and all pending and closed claims
on the Effective Date or such sooner date as the parties may agree to.
(k) Rockwood and Premier agree to cooperate in obtaining all appropriate
consents or approvals of insurance regulatory authorities with respect to this
Agreement.
(l) Premier acknowledges that it is not authorized by this Agreement or
otherwise to issue any policy forms which bear Rockwood's name or logo provided,
however, that Premier may fulfill requests for duplicate certificates or
policies with Rockwood's forms accompanied by an explanation that Premier is the
assuming reinsurer.
2. Definitions
A. The term Accident Year as used in this Agreement shall mean those
Reinsured Policies with an inception, renewal or anniversary date
during the twelve (12) months commencing each January 1, and all
premium attributable to, and all losses arising out of such Reinsured
Policies from such inception, renewal or anniversary date until
expiration, cancellation, or next anniversary, whichever occurs first,
will be ascribed to the accident year.
B. The term Reinsured Policy as used in this Agreement shall mean any
binder, policy, certificate or contract of insurance issued, accepted
or held, covered provisionally or otherwise, by or on
-3-
<PAGE>
behalf of Rockwood which results in private passenger automobile
insurance.
C. The term Gross Premium as used in this Agreement shall mean all of the
premiums and any other fees as received by the Company from
policyholders on account of the Reinsured Policies, less returns and
adjustments.
D. The term Allocated Loss Adjustment Expense as used in this Agreement
shall mean all costs and expenses allocable to a specific claim that
are incurred in the investigation, appraisal, adjustment, settlement,
litigation, defense or appeal of a specific claim, including court
costs and costs of supersedeas and appeal bonds, and including
post-judgment interest and pre-judgment interest and shall be in
addition to the limit of liability hereon. However, allocated loss
adjustment expense does not include unallocated claim expenses such as
salaries and expenses of employees, office and overhead expenses.
3. Effective Date.
The Effective Date of the transaction contemplated in this Agreement shall
be 12:01 a.m. on December 31, 1996.
4. Conditions Precedent
The obligations of Rockwood and Premier hereunder are subject to the prior
satisfaction of each of the following conditions precedent:
(a) Premier shall have obtained the written consent of the Commissioner of
the Pennsylvania Insurance Department and the Department of Insurance of any
state in which a Reinsured Policy was issued to the transfer and assumption and
to the consent form attached hereto as Exhibit "B".
(b) Rockwood shall have transferred to Premier all funds agreed to herein.
(c) Premier shall have established and funded the Collateral Account as set
forth in Paragraph 7 (b) herein.
5. Representations and Warranties.
Rockwood and Premier warrant that each is authorized to enter into the
arrangement described in this Agreement. Rockwood represents that none of its
agency
-4-
<PAGE>
contracts with agents writing personal passenger automobile insurance has been
in existence for more than four years.
6. Extra Contractual Obligations.
Premier specifically agreed and acknowledges that it has assumed
responsibility for any extra contractual obligation, including punitive damages
and loss in excess of policy limits, incurred by Rockwood arising out of the
Reinsured Policies. Extra Contractual Obligations are defined as those
liabilities not covered under any other provision of this Agreement and which
arise from the handling of any claim under the Reinsured Policies, such
liabilities arising because of, but not limited to, the following: failure by
Rockwood or Premier to settle within policy limits, or by reason of alleged or
actual negligence, fraud or bad faith in rejecting an offer of settlement or in
the preparation of the defense or in the trial of any action against its insured
or in the preparation or prosecution of any appeal upon such action or for any
other action for which Rockwood is deemed to be liable whether or not such loss
is covered by or within the limits of the Reinsured Policies.
The date on which any extra contractual obligation is incurred by Rockwood
shall be deemed, in all circumstances, to be the date of the original loss.
This Paragraph shall not apply where the loss has been incurred due to a
fraud of a member of the Board of Directors or a corporate officer of Rockwood
acting individually or collectively or in collusion with any individual or
corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder, committed subsequent to
December 31, 1996.
7. Indemnification.
(a) Premier agrees to defend, indemnify and hold harmless Rockwood, its
officers, directors, agents, employees and affiliates from and against any and
all liability, costs, damages and expense, including reasonable attorneys' fees,
incurred in connection with any and all claims or actions by any party against
Rockwood based upon, arising out of, or related to the Reinsured Policies
including Extra Contractual Obligations as set forth in Paragraph 6 hereof.
(b) Premier shall deposit with Rockwood on the Effective Date an amount
equal to one hundred percent (100&) of the unearned Gross Premium and eighty
percent (80%) of the earned Gross Premium on the Reinsured Policies ("Collateral
Account"). The Collateral Account shall be held by Rockwood in a segregated,
interest bearing account which shall be under the exclusive control of Rockwood
but which shall be owned by Premier.
(c) The funds held in the Collateral Account may not be used by Rockwood
for any purpose except for: (1) payments to Premier as set forth in Paragraph
-5-
<PAGE>
7(e); or (2) in the event that Premier shall fail to perform its obligations
under this Agreement, for the payment of losses, allocated loss adjustment
expenses and unearned premiums liabilities, in connection with the Reinsured
Policies.
(d) Within forty five (5) days following the end of each calendar quarter,
Premier will render an accounting to Rockwood for the Reinsured Policies by
Accident Year. The report will include written premiums, earned and unearned
premiums, losses and allocated loss adjustment expense paid and an actuarial
evaluation of losses and allocated loss adjustment expenses by Accident Year
("Quarterly Accounting"). If any Quarterly Accounting indicates that unpaid
losses, including incurred by not reported losses, exceed the amounts held in
the Collateral Account, Premier shall within ten (10) days of the Quarterly
Accounting, deposit into the Collateral Account cash in the amount of the
difference between the total unpaid losses and the amount in the Collateral
Account.
(e) Within fifteen (15) days following the end of each calendar quarter,
Premier shall file with Rockwood a quarterly statement of (1) the losses and
allocated loss adjustment expenses paid during the prior quarter and (2) the
amount of premium which was earned during the prior quarter ("Quarterly
Statement"). Within fifteen (15) days of receipt of the Quarterly Statement,
Rockwood shall release to Premier from the Collateral Account: (1) an amount
equal to the loss and allocated loss adjustment expense paid by Premier during
the prior quarter; (2) twenty percent (20%) of the amount of premium which
became earned during the prior quarter; and (3) the amount of reserves held on
any Pennsylvania Policy where the policyholder has executed a Consent in the
form set forth in Exhibit "B" hereto.
(f) Premier agrees to defend, indemnify and hold harmless Rockwood from any
and all damages, claims, demands, liabilities or expenses (including, without
limitation court costs and attorneys' fees) (collectively, "Liabilities") which
Rockwood may suffer or incur resulting from, related to or arising out of any
Liabilities arising out of this Agreement of Reinsurance and Assumption and the
assumption certificates issued pursuant thereto including, but not limited to
primary liabilities and residual liabilities.
(g) The representations, warranties, and agreements of the parties
contained in this Agreement shall survive the transfer on the Effective Date of
the rights and obligations under the Reinsured Policies. The indemnification
provisions set forth herein are not intended as exclusive remedies. Each party
shall have the right to pursue such legal or equitable remedies as may be
available for any breach of this Agreement.
(h) If Rockwood learns of any matter for which it asserts Premier is liable
under this Paragraph, Rockwood shall promptly notify Premier in writing of the
existence of such matter. Premier shall have the obligation at its sole expense
and in the name of Rockwood to contest any matter involving a third party for
which indemnification or defense has been sought by Rockwood. As requested by
Premier, Rockwood shall cooperate with Premier in such contest provided any
expenditures incurred in such cooperation shall be
-6-
<PAGE>
paid by Premier. If Premier does not serve on Rockwood a written notice of its
intention to defend or does not commence to contest any matter within twenty
days after receipt of notice from Rockwood of the existence of such matter or if
Premier disputes it is liable to Rockwood for any such sum, Rockwood shall have
full right and power to defend or otherwise deal with and dispose of the matter
and to receive indemnification therefor from Premier. Rockwood shall not pay or
otherwise settle, compromise or deal with any matter for which Premier may be
liable for indemnification under this Paragraph so long as Premier is contesting
the matter in good faith pursuant to this Agreement, and no final judgment has
been entered against Rockwood.
(i) Any controversy or claim arising out of or relating to this Agreement,
or any breach hereof, including, without limitation, any claim that this
Agreement or any part hereof is invalid, illegal or otherwise voidable or void,
shall be submitted to binding arbitration in Harrisburg, Pennsylvania in
accordance with the rules of the American Arbitration Association, and any
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof.
8. Inspection
Premier shall place at the disposal of Rockwood at all reasonable times,
and Rockwood shall have the right to inspect, through its authorized
representatives, all books, records and papers of Premier in connection with
Premier's service of the Reinsured Policies. Rockwood shall place at the
disposal of Premier at all reasonable times, and Premier shall have the right to
inspect, through its authorized representatives, all books, records, and papers
of Rockwood in connection with the Reinsured Policies.
9. Insolvency
In the event of the insolvency of Rockwood, Premier agrees that its
obligations hereunder are payable directly to Rockwood or to its statutory
rehabilitator or liquidator without diminution because of Rockwood's insolvency.
10. General.
(a) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to principles of conflicts of law thereof.
(b) Further Assurances. The parties hereto agree to execute and deliver any
and all papers and documents necessary to complete the transactions contemplated
hereby.
(c) Binding Effect. This Agreement shall be binding upon the parties hereto
and their respective successors and assigns; provided, however, that this
-7-
<PAGE>
Agreement and all rights hereunder may not be assigned by any party hereto
without the written consent of the other party.
(d) Exhibits. All of the Exhibits attached to this Agreement are hereby
incorporated herein and made a part hereof.
(e) Entire Agreement. This Agreement contains the entire agreement among
the parties hereto and there are no agreements, representations or warranties
which are not set forth herein. All prior negotiations, agreements and
understandings are superseded hereby. This Agreement may not be amended or
revised except by a writing signed by all parties hereto. No representation,
promise, inducement or statement of intention has been made by any party hereto
other than as set forth in the Agreement.
(f) Inspection. Either party shall have the right at any reasonable time,
to inspect at the office of the other party, all books and documents relating to
the Reinsured Policies.
(g) Severability. Inapplicability or unenforceability of any provision of
this Agreement shall not limit or impair the operation or validity of any other
provision of this Agreement.
(h) Currency. The currency to be used for all purposes of this Agreement
shall be United States of America currency.
(i) Notices. Any notice, authorization, request or demand required or
permitted to be given hereunder shall be in writing and shall be sent for
overnight delivery through Federal Express, Express Mail or United Parcel
Service.
TO ROCKWOOD: John P. Yediny
Rockwood Casualty Insurance Company
654 Main Street
Rockwood, Pennsylvania 15557
TO PREMIER: Charles M. Lederman
Premier Auto Insurance Company
502 West Office Center Drive
Suite 100
Fort Washington, Pennsylvania 19034
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed this Agreement on the date(s) stated below.
-8-
<PAGE>
ROCKWOOD CASUALTY INSURANCE PREMIER AUTO INSURANCE
COMPANY COMPANY
By:_________________________________ By:___________________________
Title:______________________________ Title:________________________
Date:_______________________________ Date:_________________________
-9-
<PAGE>
IMPORTANT NOTICE
-------------------------------
This Certificate forms a part of your policy as a policyholder of Rockwood
Casualty Insurance Company and should be attached thereto.
CERTIFICATE OF ASSUMPTION
--------------------------------------------
This Is To Certify That
This Policy Of
Rockwood Casualty Insurance Company
Policy No.______________
Has Been Assumed By
Premier Auto Insurance Company
502 West Office Center Drive, Suite 100
Fort Washington, Pennsylvania 19034
Premier Auto Insurance Company has taken responsibility for and agreed to carry
out all of the obligations of your personal passenger automobile policy with
Rockwood Casualty Insurance Company.
The transfer of responsibility to Premier was completed following the approval
of the Insurance Department of the Commonwealth of Pennsylvania.
All premiums now or hereafter due on this policy, requests for service, claims
or any other correspondence should be sent to Premier Auto Insurance Company or
to your agent.
IN WITNESS WHEREOF, Premier Auto Insurance Company has caused this Certificate
of Assumption to be executed on this ______ day of _________________, 1997.
- ------------------------------- -------------------------------------
PRESIDENT PRESIDENT
ROCKWOOD CASUALTY INSURANCE CO. PREMIER AUTO INSURANCE CO.
654 Main Street 509 West Office Center Dr., Suite 100
Rockwood, Pennsylvania 15557 Fort Washington, Pennsylvania 19034
FORM NO.________________
EXHIBIT "A "
<PAGE>
IMPORTANT: THIS DOCUMENT CONTAINS INFORMATION REGARDING YOUR
CONTRACT RIGHTS. PLEASE READ IT CAREFULLY.
------------------------------------------------------------
REQUEST FOR CONSENT TO TRANSFER OF POLICY
------------------------------------------------------------
Premier Auto Insurance Company ("Premier") has agreed to replace the Rockwood
Casualty Insurance Company ("Rockwood") as your insurer under Policy No(s).
_________ effective on ______________ (date). Premier is a duly licensed
insurance company in the Commonwealth of Pennsylvania authorized to issue
private passenger automobile insurance policies as of ___________________
(date). Premier's principal place of business is 502 West Office Center Drive,
Suite 100, Fort Washington, Pennsylvania 19034.
There will be no change in the terms and conditions of your policy as a result
of a transfer between Rockwood and Premier.
Your Rights
-----------
You may choose to accept or reject the transfer of your policy to Premier. If
you want your policy transferred to Premier, you should sign and date this
consent and return it in the enclosed preaddressed, postage-paid envelope. If
you do not wish to consent to the transfer of your policy to Premier, you may
keep your policy with Rockwood until its renewal date. Regardless of whether or
not you accept the transfer, your policy will be serviced by Premier and all
further premium payments, claims inquiries or other policy services should be
directed to Premier at the address noted above or through its qualified agents.
In addition, whether or not you accept or reject the transfer, at its annual
renewal, your policy will be terminated by Rockwood and a new policy will be
offered to you by Premier.
Effect of Transfer
------------------
If you accept this transfer, Premier Auto Insurance Company will be your
insurer. It will have direct responsibility to you for the payment of all
claims, benefits and for all other policy obligations, both past and future.
Rockwood Casualty Insurance Company will be released of all of its obligations
to you under the policies.
If you have any further questions about this agreement, you may contact either
Premier or your agent.
Sincerely,
- ------------------------------------ ---------------------------------
Rockwood Casualty Insurance Company Premier Auto Insurance Company
<PAGE>
REQUEST FOR CONSENT TO TRANSFER OF POLICY
------------------------------------------------------------------------
Yes, I accept the transfer of my automobile insurance policy, Policy No(s).
_______________ from Rockwood Casualty Insurance Company to Premier Auto
Insurance Company and I understand that this transfer replaces Rockwood with
Premier in regard to
any and all obligations under the policies.
(Date)_________________________ (Signature)____________________________
FOR:
---------------------------------------
(Name of Policyholder)
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of December
31, 1996, between FRONT ROYAL, INC., a North Carolina corporation (the
"Company"), and (i) the purchasers of the Company's Class A Common Stock and
Series 1 Warrants (the "First Warrants") listed on the signature pages hereof
(the "Purchasers") pursuant to the Securities Purchase Agreement, dated as of
May 19, 1993, among the Company and the Purchasers (the "Purchase Agreement"),
the holders of the Company's Class A Common Stock listed on the signature pages
hereof (the "Class A Holders") and F.R. Group, Inc., (the parties in foregoing
clause (i) collectively referred to as the "First Parties"), (ii) the purchasers
of those certain units comprised of 6.00% Secured Senior Subordinated Notes and
Class A Common Stock Warrants (the "Second Warrants") listed on the signature
pages hereto (collectively, the "Second Parties"), pursuant to those certain
Subscription Agreements, dated as of June 30, 1994, among the Company and the
Second Parties (collectively, the "Subscription Agreement"), (iii) the holders
of those certain Series 2 Warrants issued on September 23, 1994 and December 22,
1994 (the "Third Warrants"), listed on the signature pages hereof (collectively,
the "Third Parties"), issued in connection with that certain Loan Agreement,
dated as of September 22, 1994, among the Company and the Third Parties (the
"Loan Agreement"), and (iv) the purchasers listed on the signature pages hereof
of those certain units comprised of shares of the Company's Class C Common Stock
(the "Placement Shares"), Class A Common Stock Purchase Warrants (the "Fourth
Warrants") and Rights (the "Rights"), which Rights the Company may, upon
exercise thereof, pay in shares of the Company's Class A Common Stock
(collectively, the "Fourth Parties"), pursuant to the Subscription Agreement
dated as of December 31, 1996 among the Company and the Fourth Parties (the
"Subscription Agreement").
W I T N E S S E T H:
WHEREAS, the Company and the First Parties are parties to that certain
Registration Rights Agreement, dated as of May 19, 1993 (the "Original
Registration Agreement"), pursuant to which the Company granted to the First
Parties certain registration rights under the Securities Act (as defined below)
(the "Registration Rights") with respect to certain shares of the Company's
stock specified therein;
WHEREAS, the Company has granted Registration Rights to the Second Parties
pursuant to the Second Warrants with respect
<PAGE>
to the shares of Class A Common Stock issuable on exercise of the Second
Warrants;
WHEREAS, the Company has granted Registration Rights to the Third Parties
pursuant to the Third Warrants with respect to the shares of Class A Common
Stock issuable on exercise of the Third Warrants;
WHEREAS, the Company has agreed to grant Registration Rights to the Fourth
Parties in connection with the Class A Common Stock issuable on conversion of
the Placement Shares, and the shares of Class A Stock issuable on exercise of
the Fourth Warrants and the Rights, on similar terms and conditions as provided
to the First Parties in the Original Registration Rights Agreement;
WHEREAS, the Company has agreed to grant Registration Rights to the holders
(the "Preferred Holders") of the Company's Series A Preferred Stock (the "Series
A Preferred") issued in connection with the acquisition by the Company of
Rockwood Casualty Insurance Company ("Rockwood") with respect to the shares of
Class A Common Stock issuable on conversion of the Series A Preferred, and to
the holders of certain warrants (the "Fifth Warrants") issued by the Company in
connection with the acquisition of Rockwood (the "Rockwood Warrant Holders"),
identical to the rights set forth in this Agreement and the Preferred Holders
and Rockwood Warrant Holders shall have the right to become parties to this
Agreement;
WHEREAS, all of the parties hereto have agreed that it is in the mutual
best interest of each party hereto that this one Agreement (i) amend and restate
in its entirety the Original Registration Rights Agreement, (i) replace in its
entirety the Registration Rights granted to the Second Parties and the Third
Parties in connection with, respectively, (a) the Second Warrants and (b) the
Third Warrants, (iii) grant Registration Rights to the Fourth Parties with
respect to the Class A Common Stock issuable on conversion or exercise of the
Placement Shares, the Fourth Warrants and the Rights and (iv) grant Registration
Rights to the Preferred Holders and the Rockwood Warrant Holders with respect to
the Class A Common Stock issuable on conversion or exercise of the Series A
Preferred and the Fifth Warrants.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
-2-
<PAGE>
ARTICLE I
DEFINITIONS
1.01. Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Affiliate" means, with respect to any Person (defined below), (i)
any Person controlling, controlled by or under common control with such
Person and (ii) the spouse, siblings, parents, children or grandchildren of
such Person, or any trust or similar entity formed for the benefit of one
or more of such persons.
(b) "Articles of Incorporation" means the Articles of Incorporation of
the Company, as amended from time to time.
(c) "Board of Directors" means the board of directors of the Company
as constituted from time to time.
(d) "Class A Common Stock" means the Company's Class A Common Stock,
no par value.
(e) "Class B Common Stock" means the Company's Class B Common Stock,
no par value.
(f) "Class C Common Stock" means the Company's Class C Common Stock,
no par value.
(g) "Commission" means the Securities and Exchange Commission.
(h) "Common Stock" means (i) the Class A Common Stock, (ii) the Class
B Common Stock, (iii) the Class C Common Stock, (iv) any other capital
stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies or in
the absence of any provision to the contrary in the Company's Articles of
Incorporation, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been
suspended by the happening of such a contingency or provision), and (v) any
other securities into which or for which any of the securities described in
(i), (ii), (iii) or (iv) may be converted or exchanged pursuant to a plan
of recapitalization, reorganization, merger, sale of assets or otherwise.
-3-
<PAGE>
(i) "Company" means Front Royal, Inc., a North Carolina corporation,
and its successors and assigns.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, as
amended.
(k) "Initial Public Offering" means the first underwritten public
offering of Common Stock of the Company for the account of the Company and
offered on a "firm commitment" or "best efforts" basis pursuant to an
offering registered under the Securities Act with the Commission on Form
S-1, Form SB-l or their then equivalents forms.
(l) "Parties" means, collectively, the First Parties, the Second
Parties, the Third Parties, the Fourth Parties, the Preferred Holders and
the Rockwood Warrant Holders.
(m) "Person" means an individual, corporation, partnership, joint
venture, trust, university or unincorporated organization or a government
or any agency or political subdivision thereof.
(n) "Qualified Public Offering" means a fully under- written, firm
commitment public offering pursuant to an effective registration under the
Securities Act covering the offer and sale by the Company of its Common
Stock in which the aggregate gross proceeds to the Company exceed
$10,000,000 and in which the price per share of such Common Stock equals or
exceeds $8.00 (such price subject to equitable adjustment in the event of
any stock split, stock dividend, combination, reorganization,
reclassification or other similar event).
(o) "Registrable Securities" means:
(i) Registrable Shares, as defined in the Original Registration
Agreement; and
(ii) Shares of Class A Common Stock issued or issuable on exercise of
the Second Warrants, the Third Warrants, the Fourth Warrants and the Fifth
Warrants, the Rights and any shares of Common Stock issued on account of
such Common Stock; and
(iii) Shares of Class A Common Stock issued or issuable on conversion
of the Class C Common Stock, and any shares of Common Stock issued on
account of such Class A Common Stock; and
(iv) Shares of Class A Common Stock that are issued on exercise of the
Rights, and any shares of Common Stock issued on account of such Class A
Common Stock; and
-4-
<PAGE>
(v) Shares of Class A Common Stock issued or issuable on conversion of
the Series A Preferred, and any shares of Common Stock issued on account of
such Class A Common Stock;
provided, however, that shares of Common Stock that are Registrable
Securities shall cease to be Registrable Securities (x) upon the
consummation of any sale of such shares pursuant to an effective
registration statement under the Securities Act or Rule 144 under the
Securities Act or (y) at such time as such Registrable Securities become
eligible for sale under Rule 144(k) under the Securities Act.
(p) "Required Demand Percentage" means the number of Registrable
Securities equal to 15% of the aggregate number of shares of Common Stock
outstanding on the date hereof, assuming conversion in full of the Series A
Preferred and exercise in full of all outstanding warrants and options,
other than the Fourth Warrants. As of January 1, 1997, the number of shares
of Common Stock constituting the Required Demand Percentage is 1,947,645 as
of the date hereof.
(q) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, as amended.
(r) "Subsidiary" means any Person of which the Company directly or
indirectly owns securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions.
(s) "Warrants" shall mean the Series 1 Warrants, the First Warrants,
the Second Warrants, the Third Warrants, the Fourth Warrants and the Fifth
Warrants.
ARTICLE II
REGISTRATION RIGHTS
2.01. "Piggy-Back" Registrations. If at any time the Company shall
determine to register for its own account or the account of others under the
Securities Act (including in connection with a Qualified Public Offering, the
Initial Public Offering or a demand for registration of any stockholder of the
Company other than any of the Parties) any of its equity securities, other than
on Form S-8 or Form S-4 or their then equivalents relating to shares of Common
Stock to be issued solely in connection with any acquisition of an entity or
business or shares of Common Stock issuable in connection with stock option or
other employee benefit plans, it shall send to each holder of Registrable
Securities, including each holder who has the right to acquire Registrable
Securities, written notice of such determination and if, within 15 days after
receipt of
-5-
<PAGE>
such notice, such holder shall so request in writing, the Company shall use its
best efforts to include in such registration statement all or any part of the
Registrable Securities such holder requests to be registered.
If, in connection with any offering involving an underwriting of Common
Stock to be issued by the Company, the managing underwriter shall impose a
limitation on the number of shares of such Common Stock which may be included in
the registration statement because in its judgment, such limitation is necessary
to affect an orderly public distribution, then the Company shall be obligated to
include in such registration statement only such portion of the Registrable
Securities with respect to which such holder has requested inclusion pursuant
hereto as such limitation permits after the inclusion of all shares of Common
Stock to be registered by the Company for its own account; provided, however, as
between the Company, other stockholders holding contractual registration rights
and the holders of Registrable Securities, in no event shall the Registrable
Securities included in such offering be limited to less than 25% of the
aggregate shares offered. Any exclusion of Registrable Securities shall be made
pro rata among such holders of Registrable Securities (or their assigns) seeking
to include such shares, in proportion to the number of such shares sought to be
included by such holders of Registrable Securities (or their assigns). No
incidental right under this Section 2.01 shall be construed to limit any
registration required under Section 2.02. The obligations of the Company under
this Section 2.01 may be waived at any time upon the written consent of holders
of at least two-thirds in interest of the Registrable Securities and shall
expire on the fifth anniversary following the consummation of an Initial Public
Offering.
2.02. Required Registrations. If on any occasion, one or more holders of
the Required Demand Percentage shall notify the Company in writing that it or
they desire to offer or cause to be offered for public sale at least 10% of the
shares of Common Stock outstanding on the date hereof, assuming conversion in
full of the Series A Preferred and exercise in full of all outstanding options
and warrants, other than the Fourth Warrants, having a minimum market value of
at least $2,000,000 before calculation of underwriting discounts and
commissions, the Company will so notify all holders of Registrable Securities,
including all holders who have a right to acquire Registrable Securities. Upon
written request of any holder given within 15 days after the receipt by such
holder from the Company of such notification, the Company will use its best
efforts to cause such of the Registrable Securities as may be requested by any
holder thereof (including the holder or holders giving the initial notice of
intent to offer) to be registered under the Securities Act as expeditiously as
practicable. The Company shall not be required to effect more than two
registrations in any calendar year, nor
-6-
<PAGE>
more than four registrations in the aggregate, pursuant to this Section 2.02. If
the Company determines to include shares to be sold by it or by other selling
shareholders (other than any of the Parties) in any registration request
pursuant to this Section 2.02, such registration shall be deemed to have been a
"piggy back" registration under Section 2.01, and not a "demand" registration
under this Section 2.02 if the holders of Registrable Securities are unable to
include in any such registration statement 85% of the Registrable Securities
initially requested for inclusion in such registration statement. The holders of
Registrable Securities may not exercise their rights under this Section 2.02
prior to the earlier of (i) November 19, 1998, or (ii) 180 days after the
effective date of any registration statement covering the Initial Public
Offering, or after the tenth anniversary of such effective date.
2.03. Registrations on Form S-3. In addition to the rights provided the
holders of Registrable Securities in Sections 2.01 and 2.02 above, if the
registration of Registrable Securities under the Securities Act can be effected
on Form S-3 (or any similar form promulgated by the Commission), then upon the
written request of one or more holders of, or Persons owning or having a right
to acquire, the Required Demand Percentage, the Company will so notify each
holder of Registrable Securities, including each holder who has a right to
acquire Registrable Securities, and then, as expeditiously as possible, use its
best efforts to effect qualification and registration under the Securities Act
on Form S-3 of all or such portion of the Registrable Securities as the holder
or holders shall specify; provided, however, the Company shall not be required
to effect a registration pursuant to this Section 2.03 unless the market value
of the Registrable Securities to be sold in any such registration shall be
estimated by the Board of Directors in good faith to be at least $500,000 at the
time of filing such registration statement, and further provided that the
Company shall not be required to effect more than one registration during any
12-month period pursuant to this Section 2.03, or any such registration if the
request for such registration is not made prior to the tenth anniversary of the
date upon which the Company becomes eligible to use Form S-3 (or any successor
form).
2.04. Effectiveness. The Company will prepare and file with the Commission
a registration statement with respect to the Registrable Securities and will use
its best efforts to maintain the effectiveness for up to 90 days (or such
shorter period of time as the underwriters need to complete the distribution of
the registered offering, or one year in the case of a "shelf" registration
statement on Form S-3) of any registration statement pursuant to which any of
the Registrable Securities are being offered, and will prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus contained therein for such period as may be reasonably
-7-
<PAGE>
necessary to effect the sale of such securities, not to exceed 90 days, and to
the extent necessary to comply with the Securities Act and any applicable state
securities statute or regulation. The Company will also provide each holder of
Registrable Securities with as many copies of the registration statement and
prospectus contained in any such registration statement and all amendments and
supplements thereto as it may reasonably request.
2.05. Indemnification of Holders of Registrable Securities. In the event
that the Company registers any of the Registrable Securities under the
Securities Act, the Company will indemnify and hold harmless each holder and
each underwriter of the Registrable Securities (including their officers,
directors, affiliates and partners) so registered (including any broker or
dealer through whom such shares may be sold) and each Person, if any, who
controls such holder or any such underwriter within the meaning of Section 15 of
the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them become
subject under the Securities Act, applicable state securities laws or under any
other statute or at common law or otherwise, as incurred, and, except as
hereinafter provided, will reimburse each such holder, each such underwriter and
each such controlling Person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions whether or not resulting in any liability, as incurred, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the final prospectus (or the registration statement
or prospectus as from time to time amended or supplemented by the Company) or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act or any state securities laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration, unless (i) with respect to any
particular holder, underwriter or controlling Person, such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary or amended preliminary prospectus or final
prospectus in reliance upon and in conformity with information furnished in
writing to the Company in connection therewith by any holder or underwriter (or
in the case of any controlling Person by the holder controlled by such
controlling Person) expressly for use therein or (ii) in the case of a sale
directly by such holder of Registrable Securities (including, without
limitation, a sale of such Registrable Securities through any underwriter
retained by such holder of Registrable Securities to
-8-
<PAGE>
engage in a distribution solely on behalf of such holder of Registrable
Securities), such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus copies of which were delivered to such holder of
Registrable Securities or such underwriter on a timely basis, and such holder of
Registrable Securities failed to deliver a copy of the final or amended
prospectus at or prior to the confirmation of the sale of the Registrable
Securities to the Person asserting any such loss, claim, damage or liability in
any case where such delivery is required by the Securities Act.
Promptly after receipt by any holder of Registrable Securities, any
underwriter or any controlling Person of notice of the commencement of any
action in respect of which indemnity may be sought against the Company, such
holder of Registrable Securities, or such underwriter or such controlling
person, as the case may be, will notify the Company in writing of the
commencement thereof (provided that failure to so notify the Company shall not
relieve the Company from any liability it may have hereunder except and only to
the extent that it has been damaged thereby) and, subject to the provisions
hereinafter stated, the Company shall be entitled to assume the defense of such
action (including the retention of counsel, who shall be counsel reasonably
satisfactory to such holder of Registrable Securities, such underwriter or such
controlling Person, as the case may be), and the payment of expenses insofar as
such action shall relate to any alleged liability in respect of which indemnity
may be sought against the Company.
Such holder of Registrable Securities, any such underwriter or any such
controlling Person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel subsequent to any assumption of the defense by the Company shall
not be at the expense of the Company unless the employment of such counsel has
been specifically authorized in writing by the Company; provided, however, that,
if the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
not more than one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred. At any time, any holder
of Registrable Securities may select separate counsel and assume its own legal
defense with the expenses and fees of such separate
-9-
<PAGE>
counsel and other expenses related to such separate counsel to be borne by such
holder electing separate counsel. The Company shall not be liable to indemnify
any Person for any settlement of any such action effected without the Company's
written consent. The Company shall not, except with the approval of each party
being indemnified under this Section 2.05, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
In order to provide for just and equitable contribution to joint liability
under the Securities Act, applicable state securities laws, or under any other
statute or at common law or otherwise, in any case in which any holder of
Registrable Securities exercising rights under this Article II, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 2.05 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.05 provides for indemnification in such case, then the Company
and such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the Company
on the one hand and of the holder of Registrable Securities on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
holder of Registrable Securities on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company on the one hand or by the holder of
Registrable Securities on the other, and each party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered by it pursuant to such
registration statement, and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
The indemnities provided in this Section 2.05 shall survive the transfer of
any Registrable Securities by such holder.
-10-
<PAGE>
2.06. Indemnification of the Company. In the event that the Company
registers any of the Registrable Securities under the Securities Act, each
holder of the Registrable Securities so registered will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed or otherwise participated in the preparation of the registration
statement, each underwriter of the Registrable Securities so registered
(including, without limitation, any broker or dealer through whom such of the
shares may be sold) and each Person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act from and against any and all losses,
claims, damages, expenses or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act, applicable state securities
laws or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Company and each such director,
officer, underwriter or controlling Person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions whether or not resulting in any liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, in any preliminary or amended
preliminary prospectus or in the final prospectus (or in the registration
statement or prospectus as from time to time amended or supplemented) or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information furnished
in writing to the Company in connection therewith by such holder of Registrable
Securities expressly for use therein; provided, however, that such holder's
obligations hereunder shall be limited to an amount equal to the proceeds
received by such holder of Registrable Securities sold in such registration.
Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against such holder of Registrable
Securities, the Company will notify such holder of Registrable Securities in
writing of the commencement thereof (provided that failure to so notify such
holder shall not relieve such holder from any liability it may have hereunder,
except and only to the extent that it has been damaged thereby), and, subject to
the provisions hereinafter stated, such holder of Registrable Securities shall
be entitled to assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to the Company) and the
payment of expenses insofar as such action shall relate to the alleged liability
in respect of which indemnity may be sought against such holder of Registrable
Securities.
-11-
<PAGE>
The Company and each such director, officer, underwriter or controlling
Person shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
subsequent to any assumption of the defense by such holder of Registrable
Securities shall not be at the expense of such holder of Registrable Securities
unless employment of such counsel has been specifically authorized in writing by
such holder of Registrable Securities; provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select not more than one separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred. At any time, the Company
or any such director, officer, underwriter or controlling Person may select
separate counsel and assume its own legal defense with the expenses and fees of
such separate counsel and other expenses related to such separate counsel to be
borne by the Company or such director, officer, underwriter or controlling
Person, as the case may be. Such holder of Registrable Securities shall not be
liable to indemnify any Person for any settlement of any such action effected
without such holder's written consent. No holder of Registrable Securities
shall, except with the approval of each party being indemnified under this
Section 2.06, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the parties being so indemnified of a release from all
liability in respect to such claim or litigation.
In order to provide for just and equitable contribution to joint liability
under the Securities Act, applicable state securities laws, or under any other
statute or at common law or otherwise, in any case in which the Company
exercising its rights under this Article II, makes a claim for indemnification
pursuant to this Section 2.06, but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding that this
Section 2.06 provides for indemnification, in such case, then the Company and
such holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion as is appropriate to reflect the relative fault of the
-12-
<PAGE>
Company on the one hand and of the holder of Registrable Securities on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of the
holder of Registrable Securities on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company on the one hand or by the holder of
Registrable Securities on the other, and each party's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered by it pursuant to such
registration statement, and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
2.07. Exchange Act Registration. If the Company at any time shall list any
class of equity securities of the Company on any national securities exchange or
authorize any such class for quotation by any national securities association
and shall register such class of equity securities under the Exchange Act, the
Company will, at its expense, simultaneously list on such exchange and maintain
such listing of, or authorize for quotation and maintain such authorization of,
the equity securities of the Company receivable upon conversion or exercise of
the Class C Common Stock, Warrants, the Series A Preferred and the Rights. If
the Company becomes subject to the reporting requirements of either Section 13
or Section 15(d) of the Exchange Act, the Company will use its best efforts to
file timely with the Commission such information as the Commission may require
under either of said Sections; and in such event, the Company shall use its best
efforts to take all action as may be required as a condition to the availability
of Rule 144 or Rule 144A under the Securities Act (or any successor exemptive
rules hereinafter in effect) with respect to such equity securities. The Company
shall furnish to any holder of Registrable Securities forthwith upon request (i)
a written statement by the Company as to its compliance with the reporting
requirements of Rule 144, (ii) a copy of the most recent annual or quarterly
report of the Company as filed with the Commission and (iii) such other reports
and documents as a holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a holder to sell any such Registrable
Securities without registration. After the occurrence of the Initial Public
Offering, the Company agrees to use its best efforts to facilitate and expedite
eligible transfers of the Registrable Securities pursuant to Rule 144
-13-
<PAGE>
under the Securities Act, which efforts shall include timely notice to its
transfer agent to expedite such transfers of Registrable Securities.
2.08. Damages. The Company recognizes and agrees that the holders of
Registrable Securities will not have an adequate remedy if the Company fails to
comply with this Article II and that damages may not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by any holder of Registrable Securities or any other
Person entitled to the benefits of this Article II requiring specific
performance of any and all provisions hereof or enjoining the Company from
continuing to commit any such breach of this Article II.
2.09. Further Obligations of the Company. Whenever under the preceding
Sections of this Article II, the Company is required hereunder to register
Registrable Securities it agrees that it shall also do the following:
(a) Furnish to each selling holder such number of copies of each
preliminary and final prospectus and such other documents as said holder
may reasonably request to facilitate the public offering of its Registrable
Securities;
(b) Use its best efforts to register or qualify the Registrable
Securities covered by said registration statement under the applicable
securities or "blue sky" laws of such jurisdictions as any selling holder
may reasonably request, to the extent legally required and to do all acts
and things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by such registration
statement; provided, however, that the Company shall not be obligated to
qualify to do business in any jurisdictions where it is not then so
qualified or to take any action which would subject it to the service of
process in suits other than those arising out of the offer or sale of the
securities covered by the registration statement in any jurisdiction where
it is not then so subject or subject the Company to any material tax in any
such jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a signed counterpart, addressed to
the selling holders, of (i) an opinion of counsel for the Company, dated
the effective date of the registration statement, covering such matters as
such selling holders and the managing underwriter participating in the
disposition may reasonably request and (ii) "comfort" letters signed by the
Company's independent public accountants who have examined and reported on
the Company's financial statements included in the registration statement,
to the extent permitted by the standards of the American Institute of
Certified Public Accountants, covering substantially the same matters with
respect
-14-
<PAGE>
to the registration statement (and the prospectus included therein) and (in
the case of the accountants' "comfort" letters) with respect to events
subsequent to the date of the financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' "comfort"
letters delivered to the underwriters in underwritten public offerings of
securities;
(d) Permit each selling holder of Registrable Securities, his counsel,
any managing underwriter participating in any disposition pursuant to any
registration statement or other representatives to inspect and copy such
corporate documents and records as may reasonably be requested by them;
(e) Furnish to each selling holder of Registrable Securities a copy of
all documents filed with and all correspondence from or to the Commission
in connection with any such offering of securities;
(f) Use its best efforts to insure the obtaining of all necessary
approvals from the National Association of Securities Dealers, Inc.; and
(g) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering
the period of at least 12 months, but not more than 18 months, beginning
with the first month after the effective date of the registration statement
covering the Initial Public Offering, which earning statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
(h) Use its best efforts to cause all such Registrable Securities
relating to any registration statement to be listed on each securities
exchange or market, if any, on which similar securities issued by the
Company are then listed;
(i) Use its best efforts to provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
registration statement;
(j) Enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
selling holders of at least a majority of the Registrable Securities being
sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;
(k) Notify each selling holder of such Registrable Securities,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or
-15-
<PAGE>
a supplement to any prospectus forming a part of such registration
statement has been filed;
(l) Notify each selling holder of such Registrable Securities of any
request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information;
(m) Prepare and file with the Commission, promptly upon the request of
any selling holer of such Registrable Securities, any amendments or
supplements to such registration statement or prospectus which, in the
opinion of counsel selected by the selling holders of a majority of the
Registrable Securities, is required under the Securities Act or the rules
and regulations thereunder in connection with the distribution of
Registrable Securities by such seller;
(n) Prepare and promptly file with the Commission and promptly notify
each seller of such Registrable Securities of the filing of such amendment
or supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered under
the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
(o) Advise each selling holder of such Registrable Securities,
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the Commission suspending the effectiveness
of such registration statement or the initiation or threatening of any
proceeding for such purpose and promptly use all reasonable efforts to
prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued; and
(p) At least forty-eight hours prior to the filing of any registration
statement or prospectus or any amendment or supplement to such registration
statement or prospectus, furnish a copy thereof to each selling holder of
such Registrable Securities and refrain from filing any such registration
statement, prospectus, amendment or supplement to which counsel selected by
the selling holders of at least a majority of the Registrable Securities
being registered shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations thereunder,
unless, in the case of an amendment or supplement, in the opinion of
counsel for the Company the filing of such amendment or
-16-
<PAGE>
supplement is reasonably necessary to protect the Company form any
liabilities under any applicable federal or state law and such filing will
not violate applicable laws.
Whenever under the preceding Sections of this Article II the holders
of Registrable Securities are registering such shares pursuant to any
registration statement, each such holder agrees to (i) provide to the
Company, promptly upon its request, such information and materials as it
may reasonably request in order to effect the registration of such
Registrable Securities and (ii) with respect to the First Warrants,
exercise all First Warrants necessary to obtain the shares of Common Stock
registered on such holder's behalf in any registration statement, such
conversion to be effective at the closing of such offering pursuant to such
registration statement.
2.10. Expenses. In the case of each registration effected under Sections
2.01, 2.02 or 2.03, the Company shall bear all reasonable costs and expenses of
each such registration on behalf of the selling holders of Registrable
Securities, including, but not limited to the Company's printing, legal and
accounting fees and expenses, Commission and NASD filing fees and "blue sky"
fees and expenses and the reasonable fees and disbursements of one counsel for
all the selling holders of Registrable Securities in connection with the
registration of their Registrable Securities; provided, however, that the
Company shall have no obligation to pay or otherwise bear any portion of the
underwriters commissions or discounts attributable to the Registrable Securities
being offered and sold by the holders of Registrable Securities, or the fees and
expenses of more than one counsel for the selling holders of Registrable
Securities in connection with the registration of the Registrable Securities.
The Company shall pay all expenses of the holders of the Registrable Securities
in connection with any registration initiated pursuant to this Article II which
is withdrawn, delayed or abandoned by the Company, except if such withdrawal,
delay or abandonment is caused by the fraud, material misstatement or omission
of a material fact by a holder of Registrable Securities to be included in such
registration.
2.11. Approval of Underwriter. Any managing underwriter engaged in any
registration made pursuant to Section 2.02 shall be a nationally or regionally
recognized firm requiring the approval in writing of the holders of a majority
of the Registrable Securities requesting such registration, which approval shall
not be unreasonably withheld.
2.12. Transferability. For all purposes of Article II of this Agreement,
the holder of Registrable Securities shall include not only all Parties but (i)
any assignee or transferee of the Registrable Securities, or (ii) any general or
limited partner or any officer or director of any of the Parties,
-17-
<PAGE>
provided, however, that such assignee or transferee agrees in writing to be
bound by all of the provisions of this Agreement, including, without limitation,
Section 2.13 hereof.
2.13. "Lock-Up" Agreement. (a) Initial Public Offering. Each holder of
Registrable Securities agrees, if so requested by the Company and an underwriter
of Common Stock or other securities of the Company, not to sell, grant any
option or right to buy or sell, or otherwise transfer or dispose of in any
manner, whether in privately-negotiated or open-market transactions, any Common
Stock or other securities of the Company held by it during the 180-day period
following the effective date of a registration statement filed pursuant to the
Initial Public Offering, provided that:
(i) such agreement shall apply only to the Initial Public Offering;
and
(ii) all holders of Registrable Securities, any other security holders
whose securities are included in such registration statement, and all
officers and directors of the Company shall also enter into similar
agreements.
Such "lock-up" agreement shall be in writing and in form and substance
reasonably satisfactory to the Company and such underwriter. The Company may
impose stop-transfer instructions with respect to the shares subject to the
foregoing restrictions until the end of said 180-day period.
No holder of Registrable Securities shall be so restricted unless all
holders are similarly and proportionately restricted.
(b) Lock-Up after Initial Public Offering. Each holder of Registrable
Securities agrees that in the event the Company proposes to offer for sale to
the public any of its equity securities after the Initial Public Offering, and
(1) if such holder of Registrable Securities is an "affiliate" of the Company
(for example, because a stockholder of any of the Parties is a director of the
Company) or otherwise holds beneficially or of record 10% or more of the
outstanding equity securities of the Company; and (2) if requested by the
Company and an underwriter of Common Stock or other securities of the Company;
and (3) if all other "affiliates" and such 10% stockholders similarly situated
are requested by the Company and such underwriter to sign, and actually do sign,
any "Lock-Up Agreement" (as described herein), then it will not sell, grant any
option or right to buy or sell, or otherwise transfer or dispose of in any
manner, to the public in open market transactions, any Common Stock or other
securities of the Company held by it during the 90-day period following the
effective date of the registration statement of the Company filed under the
Securities Act. The Company agrees that
-18-
<PAGE>
it will sign a Lock-Up Agreement upon substantially similar terms and conditions
in the event of a registration effected pursuant to Section 2.02 or 2.03 hereof.
Such agreements shall be in writing and in form and substance reasonably
satisfactory to the holder of Registrable Securities, the Company and such
underwriter and pursuant to customary and prevailing terms and conditions. The
Company may impose stop-transfer instructions with respect to the securities
subject to the foregoing restrictions until the end of said 90-day period.
2.14. Hold-Back Agreements. (a) Restrictions on Public Sale by Holders of
Registrable Securities. Each holder of Registrable Securities hereby understands
and agrees that the registration rights pursuant to this Agreement and its
ability to offer and sell Registrable Securities pursuant to a registration
statement are limited by the provisions of the immediately following sentence.
If the Company determines in its good faith judgment that the filing of a
registration statement in accordance with this Article II or the use of any
prospectus would require the disclosure of material information which the
Company has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to consummate a
significant transaction, upon written notice of such determination by the
Company, the rights of each holder of Registrable Securities to offer, sell or
distribute any Registrable Securities pursuant to a registration statement will
for up to 60 consecutive days in respect of a single such notice in any 12-month
period be suspended until the date upon which the Company notifies each such
holder in writing that suspension of such rights for the grounds set forth in
this clause (a) is no longer necessary.
(b) Limitation on Blackouts. Notwithstanding anything contained herein to
the contrary, the aggregate number of days (whether or not consecutive) during
which the Company may delay the effectiveness of a registration statement or
prevent offerings, sales or distributions by a holder of Registrable Securities
pursuant to clause (a) above shall in no event exceed 90 days during any
12-month period.
2.15. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under Article II of this Agreement, and
for that purpose references hereunder to Registrable Securities shall be deemed
to be references to the securities which the holders of Registrable Securities
would be entitled to receive in exchange for Registrable Securities under any
such merger, consolidation or reorganization; provided, however, that the
provisions of this Section 2.15 shall not apply
-19-
<PAGE>
in the event of any merger, consolidation or reorganization in which the Company
is not the surviving corporation if all stockholders are entitled to receive in
exchange for their Registrable Securities consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation which may be immediately sold
to the public without registration under the Securities Act or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within 90 days of completion of the transaction for resale to the
public pursuant to the Securities Act.
ARTICLE III
MISCELLANEOUS
3.01. No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the parties to this Agreement hereunder.
3.02. No Waiver; Cumulative Remedies. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
3.03. Amendments, Waivers and Consents. Except as otherwise expressly
provided in this Agreement, changes in, termination or amendments of or
additions to this Agreement may be made, and compliance with any covenant or
provision set forth herein may be omitted or waived, if the Company (i) shall
obtain consent thereto in writing from the holder or holders of more than
two-thirds of the Registrable Securities and (ii) shall deliver copies of such
consent in writing to any holders of Registrable Securities who did not execute
such consent; provided that no consents shall be effective to reduce the
percentage required under this Section 3.02, and provided, further that the
written consent of the holder or holders of 75% or more of the Registrable
Securities shall be required to amend this Agreement to reduce the number of
demand registration rights set forth in Section 2.02 or 2.03 or to increase
either the percentage of the outstanding shares of Common Stock constituting a
Required Demand Percentage or the number of shares of Common Stock required
pursuant to Section 2.02 or 2.03 to be offered for sale to effect such demand
registration right. No amendment, consent or waiver shall be effective as
against the Company unless the Company is a party thereto. Any waiver or consent
may be given subject to satisfaction of conditions stated therein and any waiver
or
-20-
<PAGE>
consent shall be effective only in the specific instance and for the specific
purpose for which given.
3.04. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including facsimile
communication) and mailed, transmitted by facsimile or delivered (i) if to a
holder of Registrable Securities, at such holder's address for notice as set
forth in the register maintained by the Company and (ii) if to the Company, at
2200 Gateway Center Boulevard, Suite 205, Morrisville, NC 27560, attention:
Chief Executive Officer, facsimile no.: (919) 469-3557, or at such other address
as the Company may inform the other parties in writing.
All such notices, requests, demands and other communications (delivery of
which must be accomplished by hand; electronic facsimile transmission; express
overnight courier service; or registered or certified mail, return receipt
requested) shall be considered to be delivered (A) on the date delivered if
delivered by hand or overnight courier, (B) on the date delivered if sent by
facsimile transmission with a copy thereof sent by certified mail, return
receipt requested, postage prepaid) and (C) three days after sent by certified
mail, return receipt requested, postage prepaid.
3.05. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and All Parties and their respective
successors and assigns.
3.06. Severability. The provisions of this Agreement are severable and, in
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement or
the terms of the Rights or Warrants shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement but this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had never
been contained herein, and such provisions or part reformed so that it would be
valid, legal and enforceable to the maximum extent possible.
3.07. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of North Carolina, without
giving effect to choice of laws provisions thereof.
3.08. Headings. Article, section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
-21-
<PAGE>
3.09. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FRONT ROYAL INC.
By: ___________________________________
Name:
Title:
FIRST PARTIES:
Purchasers:
TECHNOLOGY LEADERS L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By: ___________________________________
Name:
Title:
TECHNOLOGY LEADERS F R CORP.
By: ___________________________________
Name:
Title:
VIRGINIA CAPITAL MANAGEMENT, INC.
By: ___________________________________
Name:
Title:
R.F MAGUIRE TRUST
By: ___________________________________
Name: Raymer F. Maguire, Jr.
Title: Co-Trustee
By: ___________________________________
Name: Charlotte E. Maguire
Title: Co-Trustee
<PAGE>
___________________________________
Ivor Massey, Jr., as Trustee under
Agreement with Eugene Holt, dated
December 10, 1941
Class A Holders:
________________________________________
Rosalind S. Abram
________________________________________
John A. Englert
________________________________________
John J. Metelski
________________________________________
Albert W. Gard, III
________________________________________
Earle L. Page
R. F. MAGUIRE TRUST
By: ___________________________________
Name: Raymer F. Maguire, Jr.
Title: Co-Trustee
By: ___________________________________
Name: Charlotte E. Maguire
Title: Co-Trustee
________________________________________
Raymer F. Maguire, Jr.
________________________________________
Ruth J. Abram
NOAH ABRAM TEITELBAUM TRUST
By: ___________________________________
Name: Robert Hermann
Title: Trustee
ANNA MARA TEITELBAUM TRUST
<PAGE>
By: ___________________________________
Name: Robert Hermann
Title: Trustee
________________________________________
Jane Maguire Abram
________________________________________
Morris B. Abram
________________________________________
Robert J. Owens
________________________________________
Richard W. Wright
________________________________________
Stephen Grant
________________________________________
Peter M. Graham
________________________________________
Dorothy Kretchmer
________________________________________
Arthur J. Samberg
ATLANTIC VENTURE PARTNERS, II, L.P.
By: ___________________________________
(General Partner)
By: ___________________________________
Name: Lewis P. Wilkinson
Title:
<PAGE>
________________________________________
Ivor Massey, Jr., as Trustee under
Agreement with Eugene Holt, dated
December 10, 1941
________________________________________
E. Massie Valentine
________________________________________
Lewis P. Wilkinson
________________________________________
Robert V. Hatcher, Jr.
________________________________________
John G. Bernard
________________________________________
Ward W. Johnson
________________________________________
F.R. GROUP, INC.
By: ___________________________________
Name:
Title:
SECOND PARTIES:
---------------
RAYMER F. MAGUIRE TRUST
By: ___________________________________
Name: Raymer F. Maguire, Jr.
Title: Co-Trustee
___________________________________
Name: Charlotte E. Maguire
Title: Co-Trustee
________________________________________
Raymer F. Maguire, Jr.
<PAGE>
________________________________________
Ruth J. Abram
ANNA MARA TEITELBAUM TRUST
By: ___________________________________
Name: Robert Hermann
Title: Trustee
NOAH ABRAM TEITELBAUM TRUST
By: ___________________________________
Name: Robert Hermann
Title: Trustee
________________________________________
Jane Maguire Abram
________________________________________
Robert J. Owens
ATLANTIC VENTURE PARTNERS II, L.P.
By: ___________________________________
(General Partner)
By: ___________________________________
Name:
Title:
________________________________________
Ivor Massey, Jr., as Trustee under
Agreement with Eugene Holt, dated
December 10, 1941
________________________________________
Lewis P. Wilkinson
________________________________________
Ward W. Johnson
<PAGE>
TECHNOLOGY LEADERS L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By: ___________________________________
Name:
Title:
Virgina Capital, L.P.
By: Virginia Capital Management, Inc.
(General Partner)
By: ___________________________________
Name:
Title:
________________________________________
J. Adam Abram
________________________________________
Michael Sommer
MATTHEW BRONFMAN POUR OFF TRUST
By: ___________________________________
Name: Matthew Bronfman
Title: Trustee
________________________________________
Peter M. Graham
________________________________________
Dorothy Kvetchmer
TECHNOLOGY LEADERS OFFSHORE C.V.
By: Technology Leaders Management, Inc.
(General Partner)
By: ___________________________________
Name:
Title:
________________________________________
Gregg T. Davis
<PAGE>
THIRD PARTIES:
--------------
SIRROM CAPITAL, L.P.
By: Sirrom Corporation
(General Partner)
By: ___________________________________
Name:
Title:
TECHNOLOGY LEADERS, L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By: ___________________________________
Name:
Title:
Virgina Capital, L.P.
By: Virginia Capital Management, Inc.
(General Partner)
By: ___________________________________
Name:
Title:
________________________________________
Matthew Bronfman
RAYMER F. MAGUIRE TRUST
By: ___________________________________
Name: Raymer F. Maguire, Jr.
Title: Co-Trustee
By: ___________________________________
Name: Charlotte E. Maguire
Title: Co-Trustee
________________________________________
J. Adam Abram
________________________________________
Herbert Teitelbaum
<PAGE>
FOURTH PARTIES:
---------------
MOORE GLOBAL INVESTMENTS, LTD.
By:
By: ___________________________________
Name:
Title:
REMINGTON INVESTMENT STRATEGIES, L.P.
By:
By: ___________________________________
Name:
Title:
HIGH RIDGE CAPITAL PARTNERS
LIMITED PARTNERSHIP
By:
By: ___________________________________
Name:
Title:
[See Attached Signature Pages for
additional Fourth Parties]
<PAGE>
Additional Signature Page
to
Amended and Restated Registration Rights Agreement
The undersigned has executed the foregoing Amended and Restated Registration
Rights Agreement as a Fourth Party thereto.
Name of Party: ______________________________________________
By: ____________________________________________
Name:
Title:
<PAGE>
Additional Signature Page
to
Rights Agreement
The undersigned has executed the foregoing Rights Agreement as a PARTY thereto.
Name of Party: ______________________________________________
By: ____________________________________________
Name:
Title:
<PAGE>
NO: AW2 10,519 Class A
Purchase Warrants
VOID AFTER December 31, 2006
NEITHER THIS WARRANT NOR THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES REPRESENTED BY
THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND NEITHER SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER
MANNER TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS THEREOF AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.
THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO A
SUBSCRIPTION AGREEMENT, DATED AS OF DECEMBER 27, 1996. A COPY OF SUCH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF FRONT ROYAL, INC.
FRONT ROYAL, INC.
CLASS A COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated December 31, 1996
FRONT ROYAL, INC., a North Carolina corporation (the "Company"), hereby
certifies that, for value received, Moore Global Investments, LTD., or its
registered assigns ("Holder"), is the owner of the number of Class A Common
Stock Purchase Warrants ("Warrants") specified above. Each Class A Purchase
Warrant initially entitles the Holder, subject to the terms set forth below, to
purchase from the Company 7.874 shares of Class A Common Stock, no par value
(the "Class A Common Stock"), of the Company (each such share, a "Warrant Share"
and all such shares, the "Warrant Shares"), at the exercise price of $0.01 per
whole Warrant Share (as adjusted from time to time as provided in Section 7, the
"Exercise Price") at any time and from time to time commencing on the Exercise
Date (as hereinafter defined) and until and including December 31, 2006 (the
"Expiration Date"), all subject to the following terms and conditions:
2. Series of Warrants. The Warrants represented hereby are part of a series
of Warrants issued pursuant to a Subscription Agreement dated as of December 27,
1996 (the
<PAGE>
"Subscription Agreement"). The transferability of this Warrant Certificate and
the Warrant Shares is subject to the terms of the Subscription Agreement.
2. Registration of Warrant; Transfers. (a) The Company shall register this
Warrant Certificate, upon records to be maintained by the Company for that
purpose (the "Warrant Register"), in the name of the record Holder hereof from
time to time. The Company may deem and treat the registered Holder of this
Warrant Certificate as the absolute owner hereof for the purpose of any exercise
hereof or any distribution to the Holder, and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
(b) The Company shall register the transfer of any of the Warrants
represented by this Warrant Certificate upon the Warrant Register, upon
surrender of this Warrant Certificate, with the Form of Assignment attached
hereto duly completed and signed, to the Company at the office specified in or
pursuant to Section 3(b). Upon any such registration of transfer, a Warrant
Certificate, in substantially the form of this Warrant Certificate evidencing
the Warrants so transferred, shall be issued to the transferee and a new Warrant
Certificate evidencing the remaining portion of the Warrants not so transferred,
if any, shall be issued to the transferring Holder.
(c) This Warrant Certificate is exchangeable, upon the surrender hereof by
the Holder at the office of the Company specified in or pursuant to Section 3(b)
for a new Warrant Certificate, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such new
Warrant Certificate will be dated the date of such exchange.
3. Duration and Exercise of Warrants. (a) Subject to Sections 3(d) and
Section 10, this Warrant shall be exercisable by the registered Holder on any
business day before 5:00 p.m., New York time, at any time and from time to time
on or after the Exercise Date to and including the Expiration Date. At 5:00
p.m., New York time on the Expiration Date, any Warrants not exercised prior
thereto shall be and become void and of no value.
(b) Subject to Sections 3(d), 4, 8 and 10, upon surrender of this Warrant
Certificate, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at 2200 Gateway Blvd., Suite
205, Morrisville, North Carolina, 27560, Attention: Chief Financial Officer, or
at such other address as the Company may specify in writing to the then
registered Holder, and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, in
lawful money of the United States of America, all as specified by the Holder in
the Form of Election to Purchase, the Company shall promptly issue and cause to
be delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares issuable
upon such exercise. Any person so designated by the Holder to receive Warrant
Shares shall be deemed to have become the holder of record of such Warrant
Shares as of the Date of Exercise.
A "Date of Exercise" means the date on which the Company shall have
received (i) a Warrant Certificate, with the Form of Election to Purchase
attached thereto appropriately completed and duly signed, and (ii) payment of
the Exercise Price for the number of Warrant Shares so indicated by the Holder
hereof to be purchased.
-2-
<PAGE>
(c) No single exercise of Warrants evidenced hereby may be for less than
250 Warrant Shares. If less than all of the Warrants Shares which may be
purchased under this Warrant Certificate are exercised at any time, the Company
shall issue, at its expense, a new Warrant Certificate evidencing the right to
purchase the remaining number of Warrant Shares for which no exercise has been
evidenced by this Warrant Certificate.
(d) Notwithstanding the provisions of Section 3(a) and 7(b), the Warrants
shall become immediately exercisable by the Holder (i) upon the sale, in one or
a series of related transactions, of all or substantially all of the assets of
the Company and its Subsidiaries, taken as a whole, (ii) if, as a result of one
or a series of related transactions, the holders of the issued and outstanding
shares of Common Stock (as defined below), determined on a fully diluted basis
as if all outstanding warrants, options and convertible securities had been
exercised or converted, immediately prior to the effective date for such
transaction or last of such transactions beneficially own (as such term is
defined under Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended), in the aggregate, less than 55% of the issued and outstanding
voting securities of the Company, determined on a fully diluted basis as if all
outstanding warrants, options and convertible securities had been exercised or
converted, or the successor to the Company if such transaction was a merger or
consolidation in which the Company was not the surviving entity, or (iii) if
members comprising the Board of Directors on the date hereof cease for any
reason to comprise at least a majority of the Board of Directors, provided,
that, any person who becomes a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors comprising the Board of
Directors on the date hereof (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for all purposes of
this definition, considered as though such person were a member of the Board of
Directors on the date hereof (each of such events, a "Trigger Event"); provided,
however, that if as at the end of the fiscal quarter immediately prior to the
effective date of any Trigger Event (the "Measurement Date") the Book Value per
Share is greater than the Formula Amount as at the Measurement Date, then the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$.01 per Warrant, pro rata in an amount equal to the number of Warrants
represented hereby multiplied by the Adjustment Factor as at the Measurement
Date for each $.01 by which the Book Value per Share at such Measurement Date
exceeds the Formula Amount for such Measurement Date.
4. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of the
Warrants; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares in a name other than that of the Holder,
and the Company shall not be required to issue or deliver the certificates for
Warrant Shares unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid. The
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring the Warrants or receiving Warrant Shares upon
exercise hereof.
5. Replacement of Warrant Certificate. If this Warrant Certificate is
mutilated, lost, stolen or destroyed, the Company may in its discretion issue in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for, this Warrant Certificate, a new Warrant Certificate, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
-3-
<PAGE>
theft or destruction and indemnity, if requested, reasonably satisfactory to it.
Applicants for a new Warrant Certificate under such circumstances shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company will at all times as long as
this Warrant is exercisable, reserve and keep available out of the aggregate of
its authorized but unissued Class A Common Stock or its authorized and issued
Class A Common Stock held in its treasury, for the purpose of enabling it to
issue Warrant Shares upon exercise of the Warrants, the number of Warrant Shares
which are deliverable upon the exercise of the Warrants.
7. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of each Warrant are subject to adjustment from time to
time as set forth in this Section 7. Upon each such adjustment of the Exercise
Price pursuant to this Section 7, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase with respect to each Warrant, at the
Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of a Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. All determinations with respect
to adjustments hereunder shall be made by the Board of Directors in good faith.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make any distributions on shares of
its Common Stock payable in shares of its capital stock (whether payable in
shares of such Common Stock or of capital class of any class), (ii)
subdivide outstanding shares of Class A Common Stock into a larger number
of shares, (iii) combine outstanding shares of Class A Common Stock into a
smaller number of shares, or (iv) issue by reclassification of shares of
Class A Common Stock any shares of capital stock of the Company, then the
Exercise Price shall be adjusted by multiplying it by a fraction the
numerator of which shall be the number of shares of Class A Common Stock
outstanding before such event and the denominator of which shall be the
number of shares of Class A Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 7(a) shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case of any reclassification of the Class A Common Stock, any
consolidation or merger of the Company with or into another person, the
sale or transfer of all or substantially all of the assets of the Company
or any compulsory share exchange pursuant to which the Class A Common Stock
is converted into other securities, cash or property, the Holder shall have
the right thereafter, subject to Section 3(d), to exercise this Warrant to
purchase only the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Class A Common Stock
following such reclassification, consolidation, merger, sale, transfer or
share exchange, and the Holder shall be entitled upon such event to receive
such amount of securities or property as the shares of the Class A Common
Stock which may be purchased by exercise of this Warrant immediately prior
to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled.
-4-
<PAGE>
(c) In case:
i. the Company shall take a record of the holders of its Class A
Common Stock (or other Stock or securities at the time receivable upon
the exercise of the Warrants) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe
for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or
ii. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
iii. of any voluntary dissolution, liquidation or winding-up of
the Company, then, and in each such case, the Company will mail or
cause to be mailed to the Holder or Holders a notice, in accordance
with Section 9, specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place, and the time, if any is to
be fixed, as of which the holders of record of Class A Common Stock
(or such stock or securities at the time receivable upon the exercise
of this Warrant) shall be entitled to exchange their shares of Class A
Common Stock (or such other stock or securities) for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least fifteen days prior to
the date therein specified.
(d) In any case in which any adjustment under this Section 7
is required to be made effective as of the record date for a specified event,
the Company may elect to defer until occurrence of such event (A) issuing to the
Holder, if an exercise under this Warrant is made after such record date, the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
prior to adjustment and (B) paying to the Holder any amount in cash in lieu of a
fractional share pursuant to Section 8 hereof, provided, however, that the
Company shall deliver to the Holder a due bill or other appropriate instrument
evidencing the Holder's right to receive such additional Warrant Shares, other
capital stock and/or cash upon the occurrence of the event requiring such
adjustment.
(e) Any determination that the Company or the Board of Directors must
make pursuant to this Section 7 shall be conclusive if made in good faith.
8. Fractional Shares. The Company shall not be required to issue fractional
Warrant Shares on the exercise of this Warrant. The number of full Warrant
Shares which shall be issuable upon the exercise of this Warrant shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of this Warrant so presented. If any fraction of a Warrant Share would,
except for the provisions of this Section 8, be issuable on the exercise of this
Warrant, the
-5-
<PAGE>
Company shall pay an amount in cash equal to the Fair Market Value of a Warrant
Share multiplied by such fraction.
9. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by registered
or certified mail, postage prepaid, addressed as follows: (1) if to the Company,
to FRONT ROYAL, INC., 2200 Gateway Blvd., Suite 205, Morrisville, North
Carolina, 27560, Attention: Chief Financial Officer, or to facsimile no. (919)
469- 3557; or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
9. Any notice or other communications or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if
delivered via facsimile at the facsimile number specified in this Section 9,
(ii) four (4) days after deposit in the United States mails, (iii) the date when
posted, if sent by nationally recognized courier service or (iv) upon actual
receipt by the party to whom such notice is required to be given.
10. Redemption of Warrants by the Company. The Warrants may be redeemed at
the option of the Company, at a redemption price of $.01 per Warrant, at any
time after any Determination Date if the Book Value per Share is greater than
the Applicable Repurchase Threshold at (i) such Determination Date and, (ii) in
the case of any Determination Date other than December 31, 2000, at the end of
each of the immediately preceding three fiscal quarters. The Company shall have
the right to redeem such number of the Warrants as is equal to (x) in the case
of a redemption following the December 31, 2000 Determination Date, the number
of Warrants represented hereby multiplied by the Adjustment Factor as at such
Determination Date times each $.01 by which the Book Value per Share at such
Determination Date exceeds the Applicable Repurchase Threshold at such
Determination Date, and (y) in the case of any redemption on account of any
Determination Date other than December 31, 2000, all the Warrants. Notice of
redemption shall be given to the Holder in accordance with Section 9. From and
after the giving of any notice of redemption, the Holder shall no longer have
any rights to exercise the Warrants and shall have no rights with respect to the
Warrants except to receive the redemption price upon surrender of this Warrant
Certificate. All computations of the Applicable Repurchase Threshold, the number
of Warrants redeemable by the Company and redemption price shall be adjusted to
reflect any stock dividends and any stock splits or combinations or similar
transactions taking place after the Original Issue Date through the
Determination Date.
11. Certain Definitions.
"Adjustment Factor" shall mean two percent (2%), adjusted as appropriate to
take into account any stock dividends, stock splits or combinations or similar
transactions occurring after the Original Issue Date that resulted in
adjustments to the Formula Amount or the Applicable Repurchase Threshold, as
applicable.
"Applicable Repurchase Threshold" shall mean with respect to a
Determination Date: (i) in the case of December 31, 2000, $7.25, and (ii) in the
case of any other Determination Date and any other date, $7.75; in each case
adjusted to take into account any stock dividends, stock splits or combinations,
or similar transactions occurring after the Original Issue Date and prior to the
Determination Date.
-6-
<PAGE>
"Book Value per Share" as at any date shall mean (A) the sum of (i) the
consolidated stockholders equity of the Company and its subsidiaries as at such
date, including preferred and common stockholders equity determined in
accordance with generally accepted accounting principles consistently applied,
as set forth (x) in the case of a determination of Book Value per Share at the
end of any fiscal year of the Company, in the audited balance sheet of the
Company at such fiscal year end, and (y) in the case of a determination of Book
Value per Share at the end of any fiscal quarter other than a fiscal year end,
in the unaudited balance sheet of the Company at such fiscal quarter end
regularly prepared by the Company; plus (ii) the aggregate consideration
receivable by the Company from the exercise or conversion of any then
outstanding warrants, options and rights to acquire Common Stock and securities
convertible into Common Stock other than the Warrants and Rights issued by the
Company pursuant to the Subscription Agreement; divided by (B) the total number
of shares of Common Stock outstanding at such date of determination, other than
treasury shares, plus the number of shares of Common Stock that would be
outstanding if all then outstanding options, warrants and rights to acquire
Common Stock, and all securities convertible into Common Stock, then
outstanding, other than the Warrants and Rights issued pursuant to the
Subscription Agreement, were exercised or converted. For purposes of the
foregoing, with respect to any security convertible into Common Stock, the
amount receivable by the Company upon such conversion shall be the amount
received by the Company from the issuance of the convertible security plus any
additional consideration payable by the holder thereof upon conversion into
Common Stock.
"Common Stock" shall mean, collectively, the Class A Common Stock; the
Class B Common Stock, no par value, of the Company; the Class C Common Stock, no
par value, of the Company; and any other class of equity securities of the
Company designated as common stock.
"Determination Date" shall mean December 31, 2000, and any fiscal quarter
end prior to December 31, 2000, as at which the Applicable Repurchase Threshold
is being determined for purposes of Section 10.
"Exercise Date" shall mean June 1, 2001 or such earlier date as may be
determined in accordance with Section 3(d).
"Fair Market Value" of a Warrant Share means on any particular date (a) the
average of the last sale price per share of the Class A Common Stock on the five
trading days preceding such date on the principal stock exchange on which the
Class A Common Stock has been listed or, if there is no such price on such date,
then the last price on such exchange on the date nearest preceding such date, or
(b) if the Common Stock is not listed on any stock exchange, the average of the
bid and asked price for a share of Class A Common Stock in the over-the-counter
market, as reported by Nasdaq at the close of business on the five trading days
preceding such date, or (c) if the Class A Common Stock is not quoted on Nasdaq,
the average of the bid and asked price for a share of Class A Common Stock in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on the five trading days preceding
such date, or (d) if the Class A Common Stock is not publicly traded, the fair
market value of a share of Class A Common Stock as determined by the Board of
Directors of the Company in good faith.
"Formula Amount" shall mean, as at any Measurement Date, the Initial Book
Value plus the result of the following formula: (i) $7.25, less the Initial Book
Value, divided by (ii)
-7-
<PAGE>
sixteen (16), and multiplied by (iii) the number of fiscal quarters from January
1, 1997 through the Measurement Date, including the fiscal quarter ending on the
Measurement Date. The Formula Amount shall be adjusted as appropriate to take
into account any stock dividends, stock splits or combinations, or similar
transactions occurring after the Original Issue Date.
"Initial Book Value" shall mean the Book Value per Share as at December 31,
1996 (taking into account the consummation of the transactions contemplated in
the Subscription Agreement and the acquisition of Rockwood Casualty Insurance
Company).
"Original Issue Date" shall mean December 31, 1996, the date on which the
Warrants were originally issued pursuant to the Subscription Agreement.
12. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Nothing in this Warrant shall be construed to give to any person or
corporation other than the Company, the Holder and any registered holder of
Warrant Shares any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company, the
Holder and any other registered holder of Warrant Shares.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of North Carolina without regard
to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.
FRONT ROYAL, INC.
By:___________________________
Name:_________________________
Title:________________________
-8-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To Front Royal, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Class A Common Stock ("Class A Common Stock"), no par value, of Front
Royal, Inc. and encloses herewith $__________ in cash (or encloses herewith
evidence of payment of such sum), which sum represents the Exercise Price (as
defined in the Warrant) for the number of shares of Class A Common Stock to
which this Form of Election to Purchase relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Class A Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER
_____________________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
If the number of shares of Class A Common Stock issuable upon this exercise
shall not be all of the shares of Class A Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right to
purchase the shares of Class A Common Stock not issuable pursuant to the
exercise evidenced hereby be issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: ___________, 19___ Name of Holder:
(Print)_______________________
(By:)_________________________
(Title:)
-9-
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right represented by the within Warrant
to purchase the _____ shares of Class A Common Stock of FRONT ROYAL, INC. to
which the within Warrant relates and appoints _______________________________
attorney to transfer said right on the books of FRONT ROYAL, INC. with full
power of substitution in the premises.
Dated:
__________________, 199_
____________________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant)
____________________________________________
Address
In the presence of:
_________________________
-10-
<PAGE>
LEASE
THIS LEASE made as of this 31st day of December 1996 by and between
ROCKWOOD ASSET MANAGEMENT, INC., a Pennsylvania corporation having its principal
place of business at 200 Route 22, Delmont, Pennsylvania 15626 ("Lessor"), and
ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania insurance corporation having
its principal place of business at 654 Main Street, Rockwood, Pennsylvania
("Lessee").
WHEREAS, Lessor and Lessee are parties to a certain Lease dated as of July
1, 1994 (the "1994 Lease") for those certain premises situate in the Borough of
Rockwood, County of Somerset, Commonwealth of Pennsylvania, more particularly
intended to be described on Exhibit "A" attached hereto and made a part hereof,
and commonly known as 654 Main Street and 641 Main Street, respectively (the
"Premises"), and subject to the exceptions to title set forth on Exhibit "B"
attached hereto and made a part hereof. It is intended by this Lease to include
within the term Premises all of the lands and improvements presently owned by
Lessee in the Borough of Rockwood, County of Somerset, Commonwealth of
Pennsylvania whether or not included or described on Exhibit "A".
WHEREAS, Lessor and Lessee desire to terminate the 1994 Lease and enter
into a new lease for the Premises.
NOW, THEREFORE, in consideration of the premises contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Lessor and Lessee do hereby agree as follows:
WITNESSETH
1. PREMISES. The 1994 Lease is hereby terminated and of no further force and
effect except as otherwise provided therein, and Lessor hereby leases to Lessee
and Lessee hereby leases from Lessor the Premises. The Premises includes all
fixtures, improvements, additional and other property affixed thereto at the
commencement of, or at any time during, the term of this Lease, together with
the appurtenant non-exclusive right to the use of all rights-of-way, easements
and of all areas for parking available for the Premises.
2. TERM. The term of this Lease shall be for a period of Fifteen (15) years.
The term of this Lease and Lessee's obligation to pay rent hereunder shall
commence at 12:01 a.m. on January 1, 1997 (the
<PAGE>
"Commencement Date") and shall end at midnight on December 31, 2011 unless
sooner terminated as hereinafter provided.
The term "Lease Year" as used herein shall mean a period of twelve (12)
consecutive full calendar months. The first Lease Year shall begin on the
Commencement Date.
3. RENT.
A. Lessee agrees to pay to Lessor at the office of Lessor, or at such other
place designated by Lessor, in advance, without any prior demand therefor, as
fixed minimum rent the rent set forth on Schedule A attached hereto and made a
part hereof payable in equal monthly installments on the first day of each
calendar month of the applicable Lease Year, commencing on the Commencement Date
("Rent").
B. Lessee hereby covenants and agrees to pay the Rent hereby reserved as
and when due, and also all sums of money, charges or other amounts to be paid by
Lessee to Lessor or to another person under this Lease which shall be deemed to
be included in the definition of "Rent" for purposes hereof. Lessee hereby
covenants and agrees that all such Rent shall be paid without abatement,
diminution, reduction, deduction or setoff. Nonpayment of such additional rent
when due shall constitute a default under this Lease to the same extent and
shall entitle Lessor to the same remedies as nonpayment of fixed minimum rent.
The covenant of Lessee to pay Rent is independent of any other term, covenant or
condition of this Lease.
4. OPERATING EXPENSES. It is the intention of Lessor and Lessee that Lessee
shall be responsible for the payment of all Operating Expenses (as hereinafter
defined) and that Lessor shall be indemnified by Lessee against all such
Operating Expenses. "Operating Expenses" shall include all costs, expenses and
obligations of every kind relating directly or indirectly in any way, foreseen
and unforeseen, ordinary and extraordinary, to Lessee's use, occupancy and
possession of the Premises, which may arise or become due during the term hereof
and any renewal term or extension. Nothing hereinabove contained shall require
Lessee to pay sums owing under Lessor's mortgage or mortgages, any corporate
franchise tax, any estate, inheritance, succession, capital levy, stamp levy,
stamp tax or transfer tax of Lessor (except as otherwise provided in Paragraph
14 hereof) or any income tax, excess profits or revenue tax or any other tax,
assessment, charge or levy based on or measured by the net income (except as set
forth in the next sentence of this Paragraph 4) or capital stock of Lessor, if
applicable; provided, however, that if at any time during the term hereof or any
renewal or extension thereof an occupancy or excise tax on rents is levied or
assessed against Lessor on the net rental, in lieu of, in whole or in part, any
real estate taxes, governmental impositions or assessments, then Lessee
-2-
<PAGE>
shall pay the same. However, "Operating Expenses" shall include any real
property taxes and personal property taxes, charges and assessments which are
levied, assessed upon or imposed by any governmental authority during any
calendar year of the term hereof with respect to the Premises and the land on
which the Premises is located and any improvements, fixtures, and equipment and
all other property of Lessor, real or personal, located in the Premises and used
in connection with the operation of the Premises and any tax which shall be
levied or assessed in lieu of such real or personal property taxes (including,
without limitation, any municipal income tax other than the aforesaid municipal
income tax), and any license fees, tax measured by or imposed upon rents (except
to the extent such license fee or tax is in lieu of or as part of any income
tax), or other tax or charge upon Lessor's business of leasing the Premises.
Payment of such taxes, charges and assessments shall be made before any fine,
penalty, interest or cost may be added thereto for the non-payment thereof;
provided, however, that if by law, any such tax, charge or assessment may be
paid in installments, whether or not interest shall accrue on the unpaid
balance, Lessee may pay the same and any accrued interest on the unpaid balance
in installments as the same respectively become due and payable and before any
fine, penalty, interest or cost may be added thereto for the non-payment of any
such installment and interest. Lessee covenants and agrees to furnish to Lessor
within ten (10) days after the date when any tax, charge or assessment is due
official receipts of the appropriate taxing authority or other evidence
satisfactory to Lessor evidencing payment thereof. Provided, further, that any
tax, charge or assessment relating to a fiscal period of the taxing authority, a
portion of which is included within the term of this Lease and a portion of
which is included in a period of time prior to the Commencement Date or after
the expiration of the term of this Lease or any extension thereof (for reasons
other than Lessee's default hereunder), shall be adjusted between Lessor and
Lessee as of the Commencement Date or such expiration date. Prior to the
expiration of the term of this lease or any extension thereof, Lessor shall bill
Lessee for its pro rata share of the taxes, charges and assessments based upon
the overlap of the last year of the Lease and the fiscal period of the taxing
authorities. Such pro rata billing shall be based upon the taxes, charges and
assessments for the previous fiscal year; provided, however, that if the taxes,
charges and assessments for the last fiscal year of the taxing authorities into
which the term of this Lease extends shall vary from those of the previous such
fiscal year, Lessee and Lessor shall make a final adjustment at the end of the
last such fiscal year based upon the taxes, charges and assessments actually
paid by Lessor, and any such liability of Lessor or Lessee for any such
adjustment shall specifically survive the termination of this Lease.
5. REPAIRS. Throughout the term of this Lease and any renewal or extension
hereof, Lessee, at Lessee's expense, shall keep and maintain the Premises in
good order and condition, and make all
-3-
<PAGE>
necessary repairs thereto, interior and exterior, structural and non-structural,
ordinary and extraordinary, foreseen and unforeseen, necessary or desirable to
maintain said condition, the foundations, exterior walls, structural condition
of interior bearing walls and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations.
Nothing contained herein shall be construed to exclude any expense from the
definition of Operating Expense. Lessor shall not be required to furnish any
services or facilities or to make any repairs or alterations in or to the
Premises. Lessee hereby assumes the full and sole responsibility for the
condition, operation, repair, replacement, maintenance and management of the
Premises and upon termination of this Lease shall return the Premises to Lessor
in the condition prescribed in Paragraph 15 below.
6. UTILITIES. At all times during the term of this Lease and all renewals or
extensions hereof, Lessee shall pay the cost of all utilities serving the
Premises, including electric, steam, water, sewer, gas, oil, telephone, hot
water and every other utility of every nature and description. In no event shall
Lessor be liable for any interruption or failure of utility service to the
Premises.
7. INSURANCE. Lessee shall, at all times during the term of this Lease and all
renewals or extensions hereof, at its sole cost and expense, obtain and maintain
in full force and effect insurance on the Premises of the following types:
A. All risk property coverage and other insurance covering the Premises
against loss or damage by fire and such other risks as are normally insurable
under the standard form of fire insurance with a broad form extended coverage
endorsement, including malicious mischief and vandalism, in an amount, at all
times, not less than one hundred (100) percent of the cost of replacement of all
improvements and betterments to the Premises.
B. Comprehensive liability insurance covering the legal liability of Lessor
and Lessee against claims for bodily injury or death, occurring on, in or about
the Premises in the minimum amount of One Million ($1,000,000.00) Dollars per
occurrence for bodily injury and property damage liability, plus umbrella or
excess insurance coverage of an additional amount of not less than Four Million
($4,000,000.00) Dollars;
C. Lessee shall comply with all applicable Pennsylvania worker's
compensation laws, and shall maintain such insurance if and to the extent
necessary for such compliance;
D. All insurance provided for in this Lease shall be in effect under valid
and enforceable policies issued by insurers of recognized responsibility which
are licensed to do business in the Commonwealth of Pennsylvania and which have
been reasonably
-4-
<PAGE>
approved in writing by Lessor as to the qualifications of insurers and the
amounts of insurance to be written by each. Lessee shall promptly pay all
premiums due on all such insurance and shall take all steps necessary or
appropriate to maintain in full force and effect all such policies during the
term of this Lease and all renewals or extensions hereof. Except as herein
otherwise provided, all insurance maintained by Lessee pursuant to this Lease
shall, except for worker's compensation insurance, name Lessor and Lessee as
insureds. Except as otherwise provided in any mortgage on the Premises, all
insurance policies shall provide that (a) Lessee shall have full, complete and
exclusive authority to adjust all losses thereunder and collect all proceeds
related thereto, and Lessor agrees to be bound by all adjustments made by Lessee
and to cooperate with Lessee in making such adjustments; (b) the insurer thereof
waives all rights of subrogation against Lessor, any successor to Lessor's
interest in the Premises, and any mortgagee or assignee of Lessor's interest in
the Premises; (c) ten (10) days prior written notice of cancellation,
modification or amendment thereof shall be given to Lessor and any mortgagee or
assignee thereof. Lessor shall immediately endorse and turn over to Lessee upon
Lessor's receipt thereof any checks or other negotiable instruments or other
payment representing insurance proceeds paid by the insurance company in respect
to any claim. No such policy shall contain any provision relieving the insurer
thereof of any liability for any loss by reason of the existence of other
policies of insurance covering the Premises against the peril involved or be
invalidated by foreclosure or other proceedings or notices thereof relating to
the Premises or any interest therein or by any change in the title of ownership
of the Premises or any interest therein. Prior to the commencement of the term
of this Lease and thereafter not less than ten (10) days prior to the expiration
dates of the expiring policies theretofore furnished pursuant to this Lease,
originals of the policies, or certificates thereof in the case of bodily injury,
bearing notations evidencing the payment of premiums, or accompanied by other
evidence of such payment, shall be delivered by Lessee to Lessor.
8. LATE PAYMENT. If Lessee shall fail to pay any installment of Rent (whether
minimum rent or additional rent) within fifteen (15) days from the date when
due, or any other amount due hereunder within fifteen (15) days after written
notice from Lessor, Lessee shall pay to Lessor, in addition to the amount of
such installment, an amount equal to five (5) percent of the amount of such
installment.
9. USE OF PREMISES. Lessee may use and occupy the Premises for the sole
purpose of the operation and maintenance of a casualty insurance business and
for no other purpose or business without the consent of Lessor, which consent
shall not be unreasonably withheld or delayed but Lessee shall not move any of
its insurance operations from Somerset County, Pennsylvania prior to June 30,
2001. Lessee shall, at Lessee's sole cost and expense, comply with all
-5-
<PAGE>
applicable laws, ordinances, rules and regulations of governmental authorities
relating to the use or occupancy of the Premises, and including those laws,
ordinances, rules and regulations which require the making of any structural,
unforeseen or extraordinary changes. Lessee shall bear the expense of said
increased insurance rates and any special installations as may be required at
the expense of Lessee. Lessee shall obtain, keep in force and comply with any
governmental license or permit for the proper and lawful occupancy of the
Premises by Lessee.
10. ALTERATIONS. Lessee shall make no structural alterations, additions or
improvements to the Premises without the prior written consent of Lessor, which
consent shall not be unreasonably withheld. Non-structural alterations,
additions or improvements shall not require the consent of Lessor. No
alteration, addition or improvements shall be undertaken until Lessee shall have
procured and paid for, so far as the same may be required from time to time, all
permits and authorizations of any federal, state or municipal government or
departments or subdivisions of any of them having jurisdiction. All alterations,
additions or improvements shall become a part of the Premises when made and
shall remain upon and be surrendered with the Premises at the end of the term.
Notwithstanding the foregoing, prior to expiration or earlier termination of the
Lease, Lessee may, but shall have no obligation to, remove any such alterations,
additions or improvements and in such event of removal, Lessee shall repair any
damage occasioned by such removal and in default thereof Lessor may effect said
repairs at Lessee's reasonable expense.
11. MECHANICS' LIENS. Prior to Lessee performing any construction or other work
on or about the Premises for which a lien could be filed against the Premises,
Lessee shall enter into a written "no lien" agreement with the contractor who is
to perform such work, and such written agreement shall be filed and recorded in
accordance with the Mechanics' Lien Law of Pennsylvania, prior to the
commencement of such work. If any mechanics' or other lien shall be filed
against the Premises purporting to be for labor or material furnished or to be
furnished at the request of Lessee, then Lessee shall, at its expense, cause
such lien to be discharged of record by payment, bond or otherwise, within
thirty (30) days after the filing thereof. If Lessee shall fail to cause such
lien to be discharged of record within such period, Lessor may cause such lien
to be discharged by payment, bond or otherwise, without investigation as to the
validity thereof or as to any offsets or defenses thereto, and Lessee shall,
upon demand, reimburse Lessor for all amounts paid and costs incurred including
attorney's fees, in having such lien discharged of record.
12. ASSIGNMENT AND SUBLETTING. Lessee may, at any time and from time to time,
assign or transfer this Lease or sublet all or any part of Premises with
Lessor's prior written consent, which consent shall not be unreasonably withheld
or delayed. Any assignee shall
-6-
<PAGE>
assume, and be deemed to have assumed, this Lease and be and remain liable
jointly and severally with Lessee for all payments and for the due performance
of all terms, covenants and conditions herein contained on Lessee's part to be
paid and performed from and after the date of such assignment. No assignment
shall be binding upon Lessor unless the assignee shall deliver to Lessor an
instrument in recordable form containing a covenant of said assumption by the
assignee, but the failure or refusal of assignee to execute the same shall not
release assignee from its liability as set forth herein. Lessee shall not
mortgage or encumber its interest in this Lease.
Any consent by Lessor shall not constitute a waiver of strict future compliance
by Lessee of the provisions of this Paragraph 12 or a release of Lessee from the
full performance by it of the covenants on its part herein contained.
13. ACCESS TO PREMISES. Lessor, its employees and agents shall have the right
to enter the Premises upon reasonable notice and during reasonable business
hours for the purpose of examining or inspecting the same, showing the same to
prospective purchasers or, in the event of a default by Lessee and after the
applicable cure period, to prospective tenants of the Premises, or mortgagees,
and following default by Lessee and the expiration of the applicable cure
period, making such alterations, repairs, improvements or additions to the
Premises as Lessor may reasonably deem necessary or desirable; provided,
however, that nothing contained herein shall be deemed or construed to create an
obligation on the Lessor to make any such alterations, repairs, improvements or
additions. If representatives of Lessee shall not be present to open and permit
entry into the Premises at any time when such entry by Lessor is necessary or
permitted hereunder, Lessor may enter by means of a master key (or forcibly in
the event of an emergency) without liability to Lessee and without such entry
constituting an eviction of Lessee or termination of this Lease.
14. OPTION TO PURCHASE AND RIGHT TO REQUIRE PURCHASE.
A. Lessee shall have the option exercisable at any time during the term of
this Lease and within sixty (60) days after the expiration or earlier
termination of this Lease, whether for default or otherwise, to purchase the
Premises at the scheduled price as set forth on Exhibit "C" attached hereto and
made a part hereof, which price shall change from time to time and shall be
equal to Two Million Five Hundred Thousand ($2,500,000.00) Dollars on the
fifteenth anniversary of the Commencement Date. Lessee may exercise such option
to purchase only if it is not in default of its monetary obligations under this
Lease or, if it is in monetary default, only after it has cured such default. In
the event that Lessee has not exercised such purchase option, Lessor shall have
the right to require that Lessee purchase the Premises on the
-7-
<PAGE>
fifteenth anniversary of the Commencement Date for the sum of Two Million Five
Hundred Thousand ($2,500,000.00) Dollars.
B. Upon the exercise by the Lessee of the option to purchase the Premises,
or upon the exercise by the Lessor of its right to have the Lessee purchase the
Premises, the following shall occur:
(i) the Lessor and Lessee shall proceed to a closing (the "Closing")
to occur within twenty (20) days after the date of such exercise;
(ii) each party shall bear its own costs in connection with the
Closing; provided, however, that transfer taxes shall be borne by the
Lessee; and
(iii) Lessor shall convey marketable title to the Premises by a
Special Warranty Deed, subject only to exceptions to title as set forth on
Exhibit "B" attached hereto and made a part hereof, and such other
exceptions to title which arose during the term hereof as a matter of law
prior to the Closing and to which Lessee has given its prior written
consent (which may be withheld in Lessee's sole determination) or were
created by Lessee.
C. Upon the vesting of title to the Premises in Lessee in accordance with
this Paragraph 14, this Lease shall, at Lessee's option, terminate. In the event
of such termination of this Lease, all rent paid in advance shall be apportioned
as of the date of such termination.
D. If either Lessor or Lessee shall default in its obligation to convey (in
the case of Lessor) or to acquire (in the case of Lessee) title to the Premises,
the other party shall be entitled to damages and the right to compel specific
performance of the covenants in this Paragraph 14.
15. SURRENDER OF PREMISES. At the end of the term of this Lease, and in the
event that Lessee has not elected to purchase the Premises and Lessor has not
elected to require such purchase, as set forth in Paragraph 14, Lessee shall
surrender the Premises to Lessor, together with all alterations, additions and
improvements thereto (to the extent the same are accepted by Lessor), in broom
clean condition and in working order and repair except for ordinary wear and
tear and damage by fire and other casualty excepted. If Lessee is not then in
monetary default under any of the terms hereof, Lessee shall have the right at
the end of the term hereof to remove any equipment, furniture, trade fixtures or
other personal property placed in the Premises by Lessee, provided that Lessee
promptly repairs any damage to the Premises caused by such removal. Lessee shall
surrender the Premises to Lessor at the end of the term hereof, without notice
of any kind, and Lessee waives all right to any such notice as may be provided
under any laws now or hereafter in effect in Pennsylvania, including The
Landlord and
-8-
<PAGE>
Tenant Act of 1951, 68 P.S. ss. 250.101 et seq. If Lessee shall fail to remove
any of its equipment, furniture, trade fixtures or other personal property, the
same shall be deemed abandoned and Lessor may remove and store the same at the
expense of Lessor or sell the same on behalf of Lessee at public or private sale
in such manner as is commercially reasonable with any proceeds thereof to be
first applied to the costs and expenses including attorneys' fees of the storage
and sale and the payment of any amounts owed hereunder by Lessee.
16. INDEMNIFICATION. Notwithstanding any provision to the contrary contained in
this Lease, Lessee shall indemnify and save harmless Lessor from and against all
liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including reasonable attorneys' fees, which may be imposed upon or
incurred by or asserted against Lessor by reason of any of the following
occurring during the term of this Lease (except to the extent caused by acts of
the Lessor occurring following the date hereof):
(i) Any work or thing done in, on or about the Premises or any part
thereof;
(ii) Any use, non-use, possession, occupation, condition, operation,
maintenance or management of the Premises or any part thereof or any
street, avenue, alley, sidewalk, curb, passageway, entrance or space
adjacent thereto;
(iii) Any negligence on the part of Lessee or any of its agents,
contractors, servants, employees, licensees or invitees;
(iv) Any accident, injury or damage to any person or property
occurring in, on or about the Premises or any part thereof or any street,
avenue, alley, sidewalk, curb, passageway, entrance or space adjacent
thereto;
(v) Any failure on the part of Lessee to keep, observe and perform any
of the terms, covenants, agreements, provisions, conditions or limitations
contained in this Lease on Lessee's part to be kept, observed and
performed;
(vi) The termination of this Lease by reason of the occurrence of an
event of default as defined in Paragraph 22, below; or
(vii) Any tax attributable to the execution, delivery or recording of
this Lease, or any amendment thereof.
In case any action or proceeding is brought against Lessor by reason of any
such claim, Lessee upon written notice from Lessor shall, at Lessee's sole cost
and expense, including attorneys' fees, resist or defend such action or
proceeding by counsel approved by Lessor in writing, such approval not to be
unreasonably
-9-
<PAGE>
withheld, but no approval of counsel shall be required in each and every
instance where the claim is resisted or defended by counsel of an insurance
carrier obligated so to resist or defend such claim.
17. FIRE OR OTHER CASUALTY. In case of damage to the Premises by fire or other
casualty, Lessee shall give prompt notice to Lessor, and following the
settlement of the insurance claim Lessee shall cause the damage to be repaired
with reasonable promptness. Lessor shall have no obligation to repair or
rebuild. Regardless of whether the Premises are rendered untenantable, the rent
shall not be abated. In the event the damage to the Premises shall be extensive
and substantial, Lessee may elect not to repair or rebuild. Lessee shall notify
Lessor in writing of Lessee's decision not to repair or rebuild within sixty
days from the date of such damage and this Lease shall, at Lessee's option,
terminate as of the date of such notice, with the same effect as if such date
were the date herein fixed as the expiration date of this Lease; provided,
however, that upon such termination Lessee shall be responsible for payment to
Lessor of the scheduled price, as set forth on Exhibit "C" attached hereto and
made a part hereof, as of the date closest to such termination date, less any
insurance proceeds received by Lessor with respect to the Premises and not paid
over to Lessee, and Lessee shall receive from Lessor a special warranty deed to
the Premises in exchange for such payment of the scheduled price (and the
Closing of title shall be governed by the provisions of Paragraph 14 above as if
Lessee had exercised its option to purchase).
Lessor will not carry insurance of any kind on any of Lessee's furniture or
furnishings or on any fixtures, equipment, other improvements, property or
appurtenances of Lessee under this Lease and Lessor shall not be obligated to
repair any damage thereto or to replace the same.
18. WAIVER OF SUBROGATION. Lessor and Lessee do each hereby release and relieve
the other, their agents or employees from responsibility for and waive any claim
of recovery for (a) any loss or damage to the real or personal property of
either located anywhere in the Premises, including the Premises itself, arising
out of or incidental to the occurrence of any of the perils which may be covered
by their respective fire insurance policies, with extended-coverage
endorsements, or (b) loss resulting from business interruption at the Premises
or loss of rental income from the Premises, arising out of or incidental to the
occurrence of any of the perils which may be covered by the business
interruption insurance policy and by the loss of rental income insurance policy
held by Lessor or Lessee. Any insurance policy shall expressly permit such a
release or contain a waiver of any rights of such insurer against Lessor and
Lessee and such other persons. Nothing contained herein shall be interpreted or
construed to require Lessor to maintain any insurance.
-10-
<PAGE>
19. SUBORDINATION NON-DISTURBANCE AND ATTORNMENT. Lessee accepts this Lease
subject and subordinate only to any first mortgage or mortgages held by an
institution (including, without limitation, the notes or other obligations
secured thereby and any and all renewals, modifications, consolidations,
replacements or extensions of any such mortgages or the notes or other
obligations secured thereby) now in existence or hereinafter made from time to
time, placed upon or affecting the Premises; provided upon the condition that
the holder thereof executes a Non Disturbance Agreement which shall be on the
form customarily used by the institutional holder of the mortgage and reasonably
acceptable to Lessee and in substance confirms in writing the terms and
conditions of this Lease and the rights of Lessee herein, including, but without
limitation, the disposition of insurance proceeds to Lessee. Lessee shall
execute, acknowledge and deliver to the holder of any such mortgage or to any of
the parties to such instruments, at any time upon demand by such holder or by
any such party, and releases, certificates or other documents that may be
reasonably required by such holder or by any such party, for the purpose of
evidencing the subordination of this Lease to such mortgages or instruments or
to any renewals, modifications, consolidations, replacements or extensions
thereof, on the condition that the Non Disturbance Agreement shall be unaffected
thereby. In the event of a sale under any mortgage (or any note or other
obligation secured thereby) to which this Lease is subordinate, or a taking of
possession of the Premises by the mortgagee or other person acting for or
through the mortgagee under any mortgage to which this Lease is subordinate,
then and upon the happening of such events, Lessee shall attorn to and recognize
as lessor hereunder as the party who, but for this Lease, would be entitled to
possession of the Premises. Lessee agrees to give any mortgagee notice of any
default of Lessor under the terms and conditions of this Lease and agrees that
if Lessor shall fail to cure such default, such mortgagee shall be given an
opportunity to take such actions to cure the default as it shall reasonably deem
appropriate to protect its security. In such event this Lease shall not be
terminated by Lessee as long as such mortgagee is promptly curing such default
or diligently pursuing such remedies, provided, however, that the period for the
cure thereof by such mortgagee shall not exceed sixty (60) days beyond the date
the notice to the mortgagee shall have been given. As used herein, the term
"institution" or "institutional holder" shall mean a bank (savings or
commercial), insurance company, savings and loan association or governmental
pension fund, in each case having a net worth in excess of Fifty Million
($50,000,000) Dollars.
20. CONDEMNATION.
(a) In the event that the Premises or any material part thereof shall be
condemned for public use, then and in that event, upon the vesting of title to
the same for such public use, this Lease shall terminate, anything herein
contained to the contrary
-11-
<PAGE>
notwithstanding, and Lessee shall be deemed to have exercised its option to
purchase the Premises as set forth in Paragraph 14 above as of such date of
termination. Neither Lessor nor any mortgagee of the Premises shall have any
interest in the condemnation award, the entirety of which shall belong to
Lessee. Lessor shall, nevertheless, cooperate with Lessee in obtaining any such
award to the extent such cooperation shall be reasonably necessary. As used
herein, the term "material part" shall be deemed to consist of either or both of
(i) a taking in excess of fifty (50) of the area of either the buildings and
improvements comprising the Premises and/or (ii) a taking which in the sole and
absolute judgment of Lessee shall be of such an extent as to render the
continued use of the Premises by Lessee uneconomical or undesirable for Lessee.
In the event of such termination of this Lease, Lessee shall be responsible for
payment to Lessor of the scheduled price, as set forth on Exhibit "C" attached
hereto and made a part hereof, as of the date closest to such termination (and
the Closing of title shall be governed by the provisions of Paragraph 14 above
as if Lessee had exercised its option to purchase).
(b) Notwithstanding the foregoing, in the event that less than a material
part of the Premises shall be so taken, Lessee may at its election retain the
part not so taken but there shall be no reduction in the Rent and the
condemnation award shall be paid to Lessor on the condition that Lessor shall
apply such award to the Rent and Purchase Price next coming due and payable
under the Lease, as the case may be. Nothing contained herein shall be construed
to preclude Lessee from prosecuting any claim directly against the condemning
authority in such condemnation proceeding for loss of business or depreciation
to, damage to, or cost of removal of, or for the value of, stock, trade
fixtures, furniture and other personal property belonging to Lessee; provided,
however, that no such claim shall diminish or otherwise adversely affect
Lessor's award or the award of any mortgagee who shall have entered into a
Non-Disturbance Agreement with Lessee in accordance with this Lease.
21. ESTOPPEL CERTIFICATES. Lessee and Lessor shall, at any time and from time
to time, within 15 days following written request from Lessor or Lessee,
execute, acknowledge and deliver to Lessor and Lessee a written statement
certifying that this Lease is in full force and effect and unmodified (or, if
modified, stating the nature of such modification), certifying the date to which
the Rent reserved hereunder has been paid, and certifying that there are not, to
Lessee's or Lessor's knowledge, any uncured defaults on the part of Lessor or
Lessee hereunder, or specifying such defaults if any are claimed. Any such
statement may be relied upon by any prospective purchaser or mortgagee of all or
any part of the Premises or land on which the Premises is situate or assignee of
Lessee's interest or subtenant. Lessee's or Lessor's failure to deliver such
statement within said 15-day period shall be conclusive upon Lessee or Lessor
that this Lease is in full force
-12-
<PAGE>
and effect and unmodified, and that there are no uncured defaults in the
obligations of Lessor or Lessee hereunder.
22. DEFAULT. The occurrence of any of the following shall constitute an event
of default and breach of this Lease by Lessee:
A. A failure by Lessee to pay, when due, any installment of Rent hereunder
or any such other sum herein required to be paid by Lessee which continues
uncured for a period of fifteen (15) days following written notice thereof from
Lessor to Lessee;
B. A failure by Lessee to observe and perform any other terms or conditions
of this Lease to be observed or performed by Lessee, where such failure
continues for thirty days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of the default is such that the same
cannot reasonably be cured within such period, Lessee shall not be deemed to be
in default if within such period Lessee shall commence such cure and thereafter
diligently prosecute the same to completion and the cure period shall be
extended for such period of subsequent prosecution;
C. The making by Lessee of any assignment for the benefit of creditors; the
adjudication that Lessee is bankrupt, insolvent or unable to pay its debts; the
filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or
a petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against Lessee, the same is
dismissed within one hundred eighty (180) days after the filing thereof); the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located in the Premises or of Lessee's interest in this Lease
(unless possession is restored to Lessee within thirty days after such
appointment); or the attachment, execution or levy against, or other judicial
seizure of, substantially all of Lessee's assets located in the Premises or of
Lessee's interest in this Lease (unless the same is discharged within thirty
days after issuance thereof).
23. REMEDIES. Upon the occurrence of any such event of default set forth above
or elsewhere in the Lease, Lessor shall have the option of either (i)
terminating this Lease by twenty (20) days prior written notice thereof to
Lessee given within ten (10) days following the expiration, without cure, of the
cure period, or (ii) continuing the Lease in full force and effect. The election
by Lessor not to terminate this Lease upon the occurrence of any event of
default shall not preclude the later exercise by Lessor of its right to so
terminate this Lease. Failure to timely terminate constitutes an election to
continue the Lease.
A. In the event Lessor shall terminate this Lease as a result of an event
of default and Lessee shall not exercise its option to purchase and Lessor shall
not exercise its option to compel Lessee to purchase, each as in accordance with
Paragraph 14,
-13-
<PAGE>
then Lessor shall be entitled to recover as damages for the breach by the Lessee
of its obligations and liabilities under this Lease the full amount of the Rent
(including additional rent) for the remainder of the term, all of which shall
accelerate and be due and payable at once discounted at the rate of six (6%)
percent per annum and, in addition thereto, the Lessor shall be entitled to
recover from, and there shall be recoverable from, Lessee:
(1) The reasonably incurred actual cost of restoring said Premises to
good condition, normal wear and tear and damage by fire or other casualty
excepted;
(2) All due or accrued sums, under the terms of this Lease up to the
date of termination; and
(3) Lessor's reasonably incurred actual cost of recovering possession
of the Premises, including but not limited to, attorneys' fees and court
costs incurred by Lessor.
B. Upon any termination of this Lease, Lessee shall quit and peacefully
surrender the Premises (in the manner and upon the terms and conditions set
forth in Paragraph 15 hereof) to Lessor, and Lessor, upon or at any time after
any such termination, may, without further notice, enter upon and re-enter the
Premises and possess and repossess itself thereof, by force, summary
proceedings, ejectment or otherwise, and may dispossess Lessee and remove Lessee
and all other persons and property from the Premises and may have, hold and
enjoy the Premises and the right to receive all income of and from the same.
C. Against the rents and sums due from Lessee to Lessor during the
remainder of the term (including all due or accrued sums, plus interest and late
charges if in arrears, under the terms of this Lease), credit shall be given
Lessee in the net amount of rent received from the new tenant after deduction by
Lessor for:
(1) The reasonable costs incurred by Lessor in reletting the Premises
(including, without limitation, reasonable remodeling costs, and brokerage
fees);
(2) Lessor's reasonable cost of recovering possession of the Premises
including but not limited to attorneys' fees and court costs incurred by
Lessor; and
(3) The reasonable cost of storing any of Lessee's property left on
the Premises after re-entry. Notwithstanding any provision to the contrary,
upon the default of any substitute tenant or upon the expiration of the
lease term of such substitute tenant before the expiration of the term or
extension of the term then in effect, as the case may be, Lessor may, at
Lessor's election, either relet to still another substitute tenant, or
terminate this Lease and exercise its rights under this Lease.
-14-
<PAGE>
D. Lessor shall have the right of injunction, in the event of a breach or
threatened breach by Lessee of any of the terms and conditions hereof, to
restrain the same and the right to invoke any remedy allowed by law or in
equity, whether or not other remedies, indemnity or reimbursements are herein
provided. The rights and remedies given to Lessor in this Lease are distinct,
separate and cumulative remedies; and no one of them, whether or not exercised
by Lessor, shall be deemed to be exclusive of any of the others.
24. WAIVER. The failure or delay on the part of either party to enforce or
exercise at any time any of the terms and conditions of this Lease shall in no
way be construed to be a waiver thereof, nor in any way to affect the validity
of this Lease or any part hereof, or the right of the party to thereafter
enforce each and every such term or condition. No waiver of any breach of this
Lease shall be held to be a waiver of any other or subsequent breach. The
receipt by Lessor of rent at a time when the rent is in default under this Lease
shall not be construed as a waiver of such default. The receipt by Lessor of a
lesser amount than the rent due shall not be construed to be other than a
payment on account of the rent then due, nor shall any statement on Lessee's
check or any letter accompanying Lessee's check be deemed an accord and
satisfaction, and Lessor may accept such payment without prejudice to Lessor's
right to recover the balance of the rent due or to pursue any other remedies
provided in this Lease. No act or thing done by Lessor or Lessor's agents or
employees during the term of this Lease shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept such a surrender shall be
valid unless in writing and signed by Lessor.
25. QUIET ENJOYMENT. If and so long as Lessee pays the rent reserved hereunder
and observes and performs all the terms and conditions on Lessee's part to be
observed and performed hereunder, Lessee shall and may peaceably and quietly
have, hold and enjoy the Premises for the entire term hereof, subject to all the
terms and conditions of this Lease.
26. SUCCESSORS. The respective rights and obligations provided in this Lease
shall bind and shall inure to the benefit of the parties hereto, and their
permitted successors and assigns.
27. GOVERNING LAW. This Lease shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
28. SEVERABILITY. If any term, covenant or condition of this Lease shall prove
to be invalid, void or illegal it shall in no way affect, impair or invalidate
any other term, covenant or conditions hereof which shall nevertheless remain in
full force and effect.
29. HOLDING OVER. If Lessee shall, with the consent of Lessor, hold-over at the
expiration of the term hereof, such tenancy shall be deemed a month-to-month
tenancy, which tenancy may be terminated
-15-
<PAGE>
as provided by applicable law. During such tenancy, Lessee agrees to pay to
Lessor an amount equal to one and one-half (1-1/2) times the amount of fixed
minimum rent in effect at the time of the termination of this Lease, and to be
bound by all the terms and conditions hereof. If Lessor shall not give consent
to such hold-over by Lessee, such tenancy may be terminated as above provided,
and until Lessee has vacated the Premises, it agrees to pay to Lessor rent at a
monthly rental double the then annual rent paid by Lessee at the expiration of
the term of this Lease.
30. LESSOR'S LIABILITY. Any covenants and agreements herein made on the part of
Lessor are made and intended not as personal covenants, but are made and
intended for the purpose of binding only Lessor's interest in the Premises, as
the same may from time to time be encumbered. No personal liability or personal
responsibility is assumed by, or shall at any time be asserted or enforceable
against, Lessor or its legal representatives, successors, and assigns on account
of the Lease or on account of any covenant or agreement of Lessor herein.
31. NOTICES. All notices under this Lease shall be in writing and sent by
registered or certified mall, postage prepaid, to Lessor at 200 U.S. Route 22,
Delmont, Pennsylvania 15626, Attention: Terrence S. Jacobs, and to Lessee at 654
Main Street, Rockwood, Pennsylvania 15557 or such other addresses may from time
to time be designated by either party in writing. Notices mailed as aforesaid
shall be deemed given on the date of such mailing. Any consent of Lessor to any
action of Lessee contemplated hereby shall be given prior to the action so taken
in writing in the same manner as any notices required hereunder.
32. BROKERS. Each of the parties represents and warrants that there are no
claims for unpaid brokerage commissions or finder's fees in connection with the
execution of this Lease, and agrees to indemnify the other against and hold it
harmless from all liabilities arising from any such claim including, without
limitation, the cost of attorney's fees in connection therewith.
33. ENTIRE AGREEMENT. This Lease contains all covenants and agreements between
Lessor and Lessee relating in any manner to the rent, use and occupancy of the
Premises and Lessee's use of the Premises and other matters set forth in this
Lease. No prior agreement or understanding pertaining to the same shall be valid
or of any force or effect and the terms, covenants and conditions of this Lease
shall not be altered, modified or added to except in writing signed by Lessor
and Lessee.
34. ENVIRONMENTAL COMPLIANCE AND INDEMNIFICATION
A. Hazardous Materials: The term "Hazardous Materials" as used herein shall
mean any substance or waste defined or designated as hazardous or toxic waste,
material, substance or similar term by
-16-
<PAGE>
any present or future federal, state or municipal environmental statute, code,
ordinance, order, judgment, decree, injunction, restriction, requirement, rule
or regulation of any governmental agency or authority, and shall include,
without limitation, all of the following:
(i) hazardous substances, as such term is defined in the
Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Section 9601(14), as
amended by the Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99499, 100 Stat. 1613 (Oct. 17, 1986)
("SARA"); (ii) regulated substances, within the meaning of
Title I of the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6991-6991 (i), as amended by SARA; (iii) any
element, compound or material which can pose a threat to the
public health or the environment when released into the
environment; (iv) hazardous waste as deemed in the
Pennsylvania Solid Waste Management Act, Pa. Stat. Ann.
title 35 Section 6018.103 (Purdon Supp. 1987); (v) hazardous
material designated under the Pennsylvania Hazardous
Materials Transportation Act Pa. Stat. Ann. title 75 Section
8301 to 8308 (Purdon Supp. 1987); (vi) any substance which
may be the subject of liability pursuant to the Pennsylvania
Clean Streams Law, Pa. Stat. Ann. title 35, Sections 691.1
to 691.1001 (Purdon Supp. 1987); (vii) an object or material
which is contaminated with any of the foregoing; (viii) any
other substance designated by any federal, state, and local
laws, statutes, ordinances, rules, regulations, orders and
requirements of common law concerning protection of the
environment or human health ("Environmental Laws") or a
federal, state or local agency as detrimental to public
health, safety and the environment.
B. Lessee Representations: Lessee hereby covenants, represents and warrants
that it shall not use the Premises for the purpose of refining, producing,
storing, handling, transferring, processing or transporting Hazardous Materials
or in violation of the Environmental Laws.
C. Compliance with Environmental Laws: Lessee shall operate the Premises or
cause it to be operated in compliance with the Environmental Laws and all
applicable laws, rules and regulations promulgated by the Environmental
Protection Agency and the Department of Environmental Resources of the
Commonwealth of
-17-
<PAGE>
Pennsylvania or any successor agencies thereto including, without limitation,
regulations governing underground storage tanks.
D. Indemnification: Lessee shall indemnify, defend and hold harmless
Lessor, its partners, directors, officers, employees, agents, servants,
successors and assigns from and against any and all claims, liabilities,
obligations, damages, penalties, causes of action, costs and expenses (including
attorneys' fees, investigation, consultant and management fees and court costs)
arising from (i) Lessee's or any of Lesee's agents', contractors', employees',
invitees', or licensees' use or occupancy of the Premises, including, but not
limited to, the release or discharge of Hazardous Materials in, on or about the
Premises, or (ii) the conduct of Lessee's business or the business of any of
Lessee's agents, contractors, employees, invitees, or licensees, or (iii) any
activity, work or things done, permitted or suffered by Lessee or any of
Lessee's agents, contractors, employees, invitees, or licensees, including, but
not limited to, the use, treatment, production, handling, refining, transfer,
processing, transporting, generating, manufacturing, disposing or storage of any
Hazardous Materials including, without limitation, petroleum products, radon,
asbestos, or polychlorinated biphenyls in, about or affecting the Premises or
elsewhere, or (iv) the violation of any Environmental Laws or any federal, state
or municipal environmental present and future laws, statutes, codes, or
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
restrictions and requirements, or (v) any act, event or occurrence affecting the
Premises which results from the use, treatment, production, handling, refining,
transfer, processing, transporting, generating, manufacturing, disposing or
storage of any Hazardous Materials. In case any action or proceeding is brought
against Lessor by reason of any such claim, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor. The provision of this Section shall survive the termination or
expiration of this Lease and the surrender of the Premises by Lessee.
B. Present Conditions: Notwithstanding anything to the contrary contained
in this Lease, Lessor agrees to indemnify, defend and hold harmless Lessee from
and against all claims, liabilities, losses, damages and penalties to the extent
they are based upon or caused by Hazardous Materials which were present at the
site at the date of this Lease including, without limitation, the Hazardous
Materials disclosed in that certain Phase II Environmental Site Assessment of
the Premises dated December 14, 1996 prepared by Front Royal Environmental
Services, Inc.;
35. No Termination. Without limiting Lessee's obligations under Paragraph 3
hereof, this Lease shall not terminate nor shall Lessee have any right to
terminate this Lease or to be released, relieved or discharged from any
obligations or liabilities hereunder for any
-18-
<PAGE>
of the following reasons except as otherwise expressly provided in this Lease:
(a) any damage to, or destruction of, the Premises or any portion
thereof;
(b) any condemnation, confiscation, requisition or other taking or
sale of the possession, use, occupancy or title to the Premises or any
portion thereof;
(c) any limitation, restriction, deprivation or prevention of, or any
interference with, any use or the occupancy or possession of the Premises
or any portion thereof, unless resulting from the material breaches or
default of Lessor (or persons acting by, through or on behalf of Lessor)
and unless Lessee's use, occupancy or possession of the Premises is
materially impaired or interfered with. Nothing herein shall impair or
limit the rights of Lessor's mortgagees to notice of and an opportunity to
cure such breach or default;
(d) any failure by Lessee to obtain or maintain any permits, licenses,
approvals or other authorizations to permit its operations on the Premises
as may be required by any governmental authorities having jurisdiction of
the Premises;
(e) any material default or breach on the part of Lessor under this
Agreement unless such default or breach materially impairs or interferes
with Lessee's use, occupancy or possession of the Premises and Lessor's
mortgagees shall have had reasonable notice of and full and adequate
opportunity to cure;
(f) the inadequacy, incorrectness or failure of the description of the
Premises or any portion thereof if the use, occupancy or possession of the
Premises by Lessee is not materially impaired or adversely affected
thereby; or
(g) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution or other proceeding affecting Lessor
or any assignee of Lessor, or any action with respect to this Lease which
may be taken by any receiver, trustee or liquidator (or other similar
official) or by any court.
Except as otherwise provided herein, Lessee waives all rights now or
hereafter conferred by law to any abatement, suspension, deferment, diminution
or reduction of Rent or other amounts payable by Lessee hereunder.
35. CONDITION OF PREMISES. The Premises are leased by Lessor to Lessee
hereunder subject to:
-19-
<PAGE>
(a) discrepancies or conflict in boundary lines easements,
encroachments or area content which a satisfactory survey would disclose;
(b) building restrictions and regulations, and the amendments and the
additions thereto now or at any time hereafter in force in Rockwood,
Somerset County, Pennsylvania;
(c) present and future zoning law, ordinances, resolutions and
regulations of Rockwood, Somerset County, Pennsylvania, and all present and
future ordinances, laws, regulations and orders of all boards, bureaus,
commissions and bodies of any municipal, county, state or federal
governments now or hereafter having or acquiring jurisdiction of the
Premises and the use, occupancy and condition thereof;
(d) the effect of all present and future municipal, state or federal
laws, orders and regulations relating to lessees, sublessees or occupants
of the Premises, their rights and the rentals to be charged for the use of
the Premises or any portion or portions thereof;
(e) violations of laws, ordinances, orders or requirements that might
be disclosed by any examination and inspection or search of the Premises by
any federal, state or municipal departments or authorities having
jurisdiction, as the same may exist on the date hereof or on the
Commencement Date, and which the Lessee covenants and agrees to remove
promptly as is provided in Paragraph 9 of this Lease (except for the
presence of Hazardous Materials as identified in the Phase II Environmental
Site Assessment of the Premises dated November 14, 1996 conducted by Front
Royal Environmental Services, Inc.
(f) the condition and state of repair of the building on the Premises
demised hereunder as the same may be on the Commencement Date;
(g) all assessments, water meter and water charges and sewer rents,
accrued, fixed or not fixed; and
(h) the restrictions, covenants, easements and agreements now of
record and described in Exhibit B.
Except as set forth in Paragraph 34(E) of this Lease, Lessor makes no
representations or warranties to Lessee with respect to the Premises. Lessee
acknowledges and agrees that it has examined the condition of the Premises and
has found the same to be satisfactory for all purposes hereof. Lessee further
acknowledges and agrees that Lessor has made no representations or warranties
concerning the permitted uses of the Premises, the zoning laws applicable to the
Premises, or the financial statements applicable to the operation of the
Premises, and that the obligations of
-20-
<PAGE>
Lessee hereunder are not conditioned upon, and are independent of, the use of
the Premises for any specific purpose.
36. RECORDATION. Upon the request of either Lessor or Lessee, the parties shall
record a memorandum of this Lease at the expense of the party requesting the
recording.
IN WITNESS WHEREOF, this Lease has been executed by the parties hereto the
day and year first above written.
Attest: ROCKWOOD ASSET MANAGEMENT, INC.
____________________________ By:____________________________
By its: ____________________
Attest: ROCKWOOD CASUALTY INSURANCE
COMPANY
____________________________ By:____________________________
By its: ____________________
-21-
<PAGE>
LEGAL DESCRIPTION
PARCEL 1:
ALL THAT CERTAIN lot or piece of ground, situate in the Borough of
Rockwood, Somerset County, Pennsylvania being bounded and described as follows:
BEGINNING at a star bolt (found), said point being the northeast point of
intersection of the right-of-way of Main Street and the right-of-way of Walnut
Street;
THENCE along the eastern right-of-way line of Walnut Street, N
5(degree)46'20" W, a distance of 149.98 feet to a star bolt (found) at the
southeast intersection of the right-of-way of Walnut Street and the right-of-way
of a 24-foot alley;
THENCE along the southern right-of-way line of the 24-foot alley, N
84(degree)44'40" E, a distance of 50.00 feet to a point at the comer of lot 80,
property of Ray V. Stemer;
THENCE along property of Ray V. Stemer, S 04(degree)05'50" E, a distance of
150.00 feet to a star bolt (found) on the northern right-of-way line of Main
Street,
THENCE along the northern right-of-way line of Main Street, S
84(degree)44'40" W, a distance of 45.62 feet to the place of BEGINNING.
BEING marked, known and numbered as lot no. 81 on the Plan of Lots of
Rockwood Borough.
PARCEL 2:
ALL THAT CERTAIN lot or piece of ground, situate in the Borough of
Rockwood, Somerset County, Pennsylvania being bounded and described as follows:
BEGINNING at a point, said point being on the northerly right-of-way line
of Main Street and the southeast corner of lot 77, property of Richard L.
Matthews;
THENCE along property of Richard L. Matthews, N 4(degree)18'00" W, a
distance of 154.00 feet to an iron pipe (found) on the southern right-of-way
line of a 24-foot alley;
THENCE along said alley N 84(degree)44'40" E, a distance of 166.50 feet to
a point at the corner of property of N/F Wetzel Co.;
THENCE along property of N/F Wetzel Co., S 21(degree)22'00" E, a distance
of 90.27 feet to a railroad spike (found);
-22-
<PAGE>
THENCE continuing along property of N/F Wetzel Co., S 50(degree)00'00" E, a
distance of 108.00 feet to a pipe (found) on the northern right-of-way line of
Main street,
THENCE along the northern right-of-way line of Main Street, S
86(degree)45'05" W, a distance of 270.30 feet to the place of BEGINNING.
BEING marked, known and numbered as lots 74 through 76 and parts of lots 71
& 72 & 73 on the Plan of Lots of Rockwood Borough.
PARCEL 3:
ALL THAT CERTAIN lot or piece of ground, situate in the Borough of
Rockwood, Somerset County, Pennsylvania being bounded and described as follows:
BEGINNING at a drill hole (found), said point being on the southern
right-of-way line of Main Street and at the northeast comer of property of Terry
C. Younkin;
THENCE along the southern right-of-way line of Main Street, N
86(degree)65'45" E, a distance of 55.80 feet to a doll hole (found);
THENCE continuing along the right-of-way of Main Street, N 40(degree)00'00"
E, a distance of 243.20 feet to a star bolt (found) at the southeast point of
intersection of the southern right-of-way line of Main Street and the western
right-of-way line a 16.5-foot alley;
THENCE along said alley S 50(degree)00'00" E, a distance of 150.00 feet to
an iron pipe (found) on line of property of N/F the Borough of Rockwood;
THENCE along property of N/F the Borough of Rockwood the following courses
and distances:
S 40(degree)00'00" W, a distance of 50.00 feet to a point;
N 50(degree)00'00" W, a distance of 38.20 feet to a star bolt (found);
S 45(degree)51'10" W, a distance of 22.55 feet to a star bolt (found);
S 50(degree)00'00" E, a distance of 40.50 feet to an iron pin (found);
S 40(degree)00'00" W, a distance of 144.05 feet to an iron pipe (found);
N 50(degree)00'00" W, a distance of 59.65 feet to an iron pipe (found);
S 42(degree)53'00" W, a distance of 106.95 feet to a point;
S 67(degree)23'00" W, a distance of 51.80 feet to a point;
N 83(degree)25'00" W, a distance of 6.90 feet to an iron pipe (found) on
the line of property of Terry C. Younkin;
-23-
<PAGE>
THENCE along property of Terry C. Younkin, N 6(degree)19'00" W, a distance
of 132.95 feet to the Place of BEGINNING.
BEING marked, known and numbered as lots 3 through 8 on the Plan of Lots of
Rockwood Borough.
This legal description describes all that property described in Lawyer's
Title Insurance Corporation Title Commitment No. 182083, bearing an effective
date of December 9, 1996.
-24-
<PAGE>
EXHIBIT "B"
1. Any taxes for the current year which may be hereafter assessed, but which
are not yet due and payable.
2. All coal and mining rights and all rights relating thereto.
3. The following rights of way:
a) From Rockwood Insurance Company to Timothy R. Kerrigan and Gertrude J.
Kerrigan dated December 1, 1972 and recorded in Deed Book Volume 733, Page
22, and as shown on the Survey (as herein defined).
b) From Rockwood Insurance Company to Pennsylvania Electric Company dated
January 11, 1985 and recorded February 13, 1985 in Deed Book Volume 931,
Page 705, and as shown on the Survey.
4. Oil and gas lease to C.E. Beck dated August 13, 1980 and recorded in Deed
Book Volume 868, Page 385, as referenced on the Survey.
5. Easement Agreement between Rockwood Insurance Company and the Borough of
Rockwood recorded March 8, 1984 in Deed Book Volume 915, Page 410, as shown
on the Survey.
6. Oil and gas lease given by Leonard P. Sembower to C. E. Beck, dated March
24, 1980, and recorded in Somerset County Deed Book Volume 871, at Page 58,
as assigned to Amoco Production Company by assignment dated December 30,
1980, and recorded in Somerset County Deed Book Volume 871, at page 106, as
referenced on the Survey.
7. Perpetual Easement from James B. Phillippi and Edna Mae Phillippi, his
wife, to Borough of Rockwood recorded February 23, 1965 in Deed Book Volume
609, Page 517.
8. Reservations and exceptions as set forth in deed from Florence H. Hemminger
and Charles E. Heminger, her husband, to James B. Phillippi and Edna Mae
Phillippi, husband and wife, dated December 24, 1964 and recorded December
24, 1964 in Deed Book Volume 607, Page 551.
9. Taxes for the year 1997 and thereafter, which are not yet due and payable.
10. Current water charges in the amount of $136.68 and current sewer charges in
the amount of $322.50, neither of which are yet due and payable.
-25-
<PAGE>
11. ALTA/ACSM Land Title Survey by Howard G. McIlvried, P.L.S., dated 12/26/96
and last revised 12/27/96, designated as Project No. 9596 (hereinafter the
"Survey") discloses the following:
a) Subject Premises' asphalt pavement encroaches onto premises adjoining on
the South, by 3.8 feet;
b) Subject Premises' asphalt pavement encroaches onto premises adjoining on
the West, by 3.1 feet;
c) Overhead utility lines cross Subject Premises to other property;
d) Subject Premises' asphalt pavement encroaches onto premises adjoining on
the East, by 11.8 feet;
e) Manholes;
f) Flood control easement;
g) Concrete Block Retaining Wall encroaches from/onto southeasterly portion
of Parcel 3.
-26-
<PAGE>
EXHIBIT "C"
Schedule of Purchase Price
(See Paragraph 14 of the Lease)
For purpose of the computation of the price under Paragraph 14 of the
Lease, the purchase price shall equal the present value, using an 8-1/2 percent
per annum discount rate, of all payments of fixed minimum rent shown on Schedule
A to be made under the Lease from and after the date of the exercise of the
option, including the payment of $2,500,000 at the expiration of the term of the
Lease (and referred to in Paragraph 14), using a mid year convention and a
straight line interpolation to the closing date of the transaction described in
Paragraph 14 of the Lease. The purchase price shall be Two Million Five Hundred
Thousand ($2,500,000) Dollars on the fifteenth anniversary of the Commencement
Date (as prescribed in Paragraph 14) of the Lease.
-27-
<PAGE>
SCHEDULE A
RENT
Year Rent
1 $78,000
2 $78,000
3 $78,000
4 $86,000
5 $86,000
6 $261,000
7 $287,040
8 $287,040
9 $287,040
10 $287,040
11 $677,040
12 $704,122
13 $704,122
14 $704,122
15 $704,122
Option $2,500,000
-28-
<PAGE>
MEMORANDUM OF LEASE
----------
THIS MEMORANDUM made and entered into for the purpose of recording in
accordance with the Act of June 2, 1959, P.L. 454, ss.2, 21 P.S.ss.405, this
31st day of December in the year 1996, by and between ROCKWOOD ASSET MANAGEMENT,
INC., a Pennsylvania corporation, as Lessor, and ROCKWOOD CASUALTY INSURANCE
COMPANY, a Pennsylvania insurance corporation, as Lessee, parties to the Lease
dated as of December 31, 1996 (hereinafter sometimes called the "Lease"), as
follows:
I. The name of the lessor in the Lease is ROCKWOOD ASSET MANAGEMENT,
INC., a Pennsylvania corporation.
II. The name of the lessee in the Lease is ROCKWOOD CASUALTY INSURANCE
COMPANY, a Pennsylvania insurance corporation.
III. The address of the lessor in the Lease is 200 Route 22, Delmont,
Pennsylvania 15626; and the address of the lessee in the Lease is
654 Main Street, Rockwood, Pennsylvania 15557.
IV. The date of the Lease is December 31, 1996.
V. The demised premises as described in the Lease are those certain
lots or pieces of ground, with buildings and improvements thereon
erected, situate in the Borough of Rockwood, County of Somerset
and Commonwealth of Pennsylvania, more particularly
-29-
<PAGE>
described in the Schedule attached hereto and made a part hereof,
as if set forth herein verbatim.
VI. The date of commencement of the term of the Lease is January 1,
1997.
VII. The term of the Lease commences at 12:01 a.m. on January 1, 1997
and ends at midnight on December 31, 1022, unless sooner
terminated in accordance with the provisions of the Lease or
otherwise by law.
VIII. Neither the lessor nor the lessee under the Lease has the right to
extend or renew the term of the Lease.
IX. The lessee under the Lease has the right and obligation of
purchase with respect to the demised
-30-
<PAGE>
premises in accordance with the provisions of the Lease.
IN WITNESS WHEREOF, the lessor and the lessee under the Lease, the parties
to the Lease, have executed this Memorandum of Lease the day and year referred
to above.
Signed, sealed and delivered
in the presence of: LESSOR:
ROCKWOOD ASSET MANAGEMENT, INC.
____________________________ By______________________________
Title:________________________
____________________________ Attest:_________________________
Title:___________________
[Corporate Seal]
LESSEE:
ROCKWOOD CASUALTY INSURANCE
COMPANY
____________________________ By______________________________
Title:________________________
____________________________ Attest:_________________________
Title:___________________
[Corporate Seal]
-31-
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this the 31st day of December, 1996, before me, a Notary Public in and
for the said County and State, personally appeared ____________________________,
who acknowledged himself to be the ____________________ of ROCKWOOD ASSET
MANAGEMENT, INC., a Pennsylvania corporation, and that he, as such officer,
being authorized to do so, executed the foregoing Memorandum of Lease for the
purposes therein contained by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------------
Notary Public
My commission expires:
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this the 31st day of December, 1996, before me, a Notary Public in and
for the said County and State, personally appeared ____________________________,
who acknowledged himself to be the ____________________ of ROCKWOOD CASUALTY
INSURANCE COMPANY, a Pennsylvania insurance corporation, and that he, as such
officer, being authorized to do so, executed the foregoing Memorandum of Lease
for the purposes therein contained by signing the name of the corporation by
himself as such officer.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
-------------------------------
Notary Public
My commission expires:
-32-
<PAGE>
SHAREHOLDER AND REGISTRATION RIGHTS AGREEMENT
THIS SHAREHOLDER AND REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of December 31, 1996, by and among Fort
Washington Holdings, Inc., a Pennsylvania corporation ("Fort Washington"), PIC
Insurance Group, Inc., a Pennsylvania stock insurance company ("PIC"), Charles
M. Lederman ("Lederman") and Timothy I. McCarthy, Sr. ("McCarthy" and,
collectively with Fort Washington, PIC and Lederman, the "Shareholders") and
Front Royal, Inc., a North Carolina corporation (the "Company").
RECITALS
WHEREAS, the Company, PIC and Trirock Limited Partnership are
parties to a Stock Purchase Agreement, dated as of December 6, 1996 (the
"Purchase Agreement"), pursuant to which, among other things, the Company is
acquiring all of the outstanding capital stock of Rockwood Casualty Insurance
Company;
WHEREAS, pursuant to the Purchase Agreement, the Company will issue
to PIC 155,000 shares of the newly created Series A Convertible Preferred Stock,
par value $100 per share, of the Company having an aggregate stated value of
$15,500,000 (the "Preferred Stock");
WHEREAS, pursuant to a Purchase and Sale Agreement, dated as of
December 31, 1996 between PIC and Fort Washington (the "Purchase and Sale
Agreement"), PIC will sell and transfer to Fort Washington the Preferred Stock;
WHEREAS, under the terms of the Purchase and Sale Agreement, Fort
Washington is issuing to PIC a promissory note secured by a pledge of the
Preferred Stock;
WHEREAS, pursuant to Non-Competition and Non-Solicitation Agreements
entered into concurrently herewith between the Company and each of Lederman and
McCarthy, who are the holders of all of the outstanding capital stock of Fort
Washington, the Company will issue to each of Lederman and McCarthy a Class A
Common Stock Purchase Warrant (collectively, the "Warrants") to acquire up to
200,000 shares of the Company's Class A Common Stock, no par value (the "Class A
Common Stock");
WHEREAS, the parties hereto desire that the holders of Preferred
Stock be entitled to certain preemptive rights and registration rights, that the
voting rights of the Preferred Stock be limited in certain respects, and the
holders of each of the Warrants be entitled to certain registration rights;
WHEREAS, the parties hereto desire that the Company be entitled to a
right of first refusal to acquire the Preferred Stock, Warrants and shares of
Class A Common Stock issuable upon conversion or exercise thereof, as the case
may be;
NOW, THEREFORE, in consideration of the agreements contained herein
and for other valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto hereby agree as follows:
<PAGE>
1. Board Representation. As set forth in the Articles of Amendment to the
Articles of Incorporation of Front Royal authorizing the Preferred Stock, the
holders of record of the Preferred Stock shall have the right, by the vote of a
majority of the then outstanding shares thereof, to nominate and elect one
director to the Board of Directors of the Company (the "Board"). The Company,
PIC and Fort Washington (each on its own behalf and on behalf of any subsequent
holder or holders of Preferred Stock subject to the terms and conditions of this
Agreement) agree that such director initially shall be Lederman. If the holders
of the Preferred Stock subsequently vote to nominate or elect a director other
than Lederman, or if Lederman is no longer able or willing to serve as a
director of the Company, the holders of the outstanding shares of Preferred
Stock shall have the right to call a special meeting of the shareholders of the
Company for the purpose of electing thereat, and the Board shall nominate, such
person as is designated by the vote of a majority of such holders, to serve as a
director, subject to the approval of a majority of the holders of each of the
Class A Common Stock and the Class B Common Stock of the Company, no par value,
voting as a single class, which approval shall not unreasonably be withheld. The
rights set forth in this paragraph 1 shall automatically cease to exist, and
shall not subsequently be reinstated, if at any time after the date hereof less
than 50,000 shares of Preferred Stock shall be outstanding.
2. Right of First Refusal. No Shareholder may sell, transfer, pledge or
otherwise encumber, assign, give, or otherwise dispose of (collectively,
"Transfer") any of the Securities (as defined in paragraph 2(d) below) now or
hereafter owned by it other than (i) upon compliance with the provisions of
paragraphs (a), (b) and (c) below, or (ii) in a "Permitted Transfer" (as defined
in Section 2(f), below).
(a) If a Shareholder receives a bona fide written cash offer (an
"Offer") for the purchase of any or all of its Securities that it desires
to accept, then it (in such capacity, the "Selling Shareholder") shall
deliver a written notice (the "Option Notice") to the Company, and shall
attach thereto a copy of the Offer. The Option Notice shall set forth the
identity of the proposed transferee, the identity of the Securities to
which such Offer applies (the "Offered Securities"), the purchase price to
be paid for such Offered Securities, evidence of the proposed transferee's
financial ability to pay the purchase price for such Offered Securities,
and a brief description of any other material terms of the proposed
Transfer not contained in the Offer. The Company shall have an irrevocable
option, exercisable by written notice (an "Option Election Notice")
delivered to the Selling Shareholder prior to the thirtieth (30th) day
following receipt of the Option Notice (the "Option Expiration Date"), to
purchase, at the price and on the terms set forth in the Option Notice, all
or any portion of the Offered Securities.
(b) If the Company delivers an Option Election Notice to the Selling
Shareholder on or prior to the Option Expiration Date, the closing of the
Transfer of the Offered Securities by the Selling Shareholder to the
Company shall occur within fifteen (15) days of the date of the Option
Election Notice (or on such other date as the Selling Shareholder and the
Company may agree) (the "Closing Expiration Date"). At such closing, the
Selling Shareholder shall deliver to the Company the certificates, Warrants
or other instruments representing the Offered Securities, together with all
instruments and evidences of transfer as the Company may reasonably
request, and the Company shall deliver to the Selling Shareholder the
purchase price to be paid on account of the Offered Securities as set forth
in the Option Notice.
(c) If the Selling Shareholder shall have delivered an Option Notice
in accordance with paragraph 2(a) above and the Company shall either have
failed to deliver an Option
-2-
<PAGE>
Election Notice on or prior to the Option Expiration Date or shall have
delivered such Option Election Notice but thereafter failed to close on the
Transfer of the Offered Securities on or prior to the Closing Expiration
Date and such failure was solely the fault of the Company, then the Selling
Shareholder shall have the right, for a period of thirty (30) days after,
(i) if the Company shall have failed to deliver a Company Election Notice
pursuant to paragraph 2(a) above, the Option Expiration Date, or (ii) if
the Company shall have delivered a Company Election Notice on or prior to
the Option Expiration Date but thereafter failed to close on the Transfer
of the Offered Securities on or prior to the Closing Expiration Date (and
such failure was solely the fault of the Company), the Closing Expiration
Date, to sell all (but not less than all) of the Offered Securities in
accordance with the terms of the Offer to the person or entity who
originally tendered such Offer (or to an affiliate thereof).
(d) As used in this Agreement, "Securities" shall mean the shares of
Preferred Stock, the shares of Class A Common Stock issuable upon
conversion of the Preferred Stock, the Warrants and the shares of Class A
Common Stock issuable upon exercise of the Warrants.
(e) The obligations of the Shareholders and the rights of the Company
under this Section 2 shall terminate upon the initial closing date under an
Initial Public Offering (as defined in Section 2(g)).
(f) The term "Permitted Transfer" shall mean each of the following
Transfers of Securities, which shall not be subject to the provisions of
Sections 2(a), (b) and (c) above:
(i) With respect to the Warrants and the underlying Class A
Common Stock, any Transfer to the lineal ancestors, lineal descendants
or spouse of Lederman or McCarthy (the "Individual Shareholders"), or
to trusts for the benefit of such persons or an Individual
Shareholder, or to the estate or personal representative of an
Individual Shareholder in the event of death;
(ii) With respect to the Preferred Stock and the underlying Class
A Common Stock, the pledge by Fort Washington of the Preferred Stock
to PIC as contemplated in the Purchase and Sale Agreement or a
Transfer by Fort Washington to PIC pursuant to the Pledge Agreement;
and
(iii) With respect to any of the Securities: (A) any Transfer to
the Company, (B) a Transfer pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the
"Securities Act"), including transfers contemplated by Section 3,
below, (C) a Transfer to the Individual Shareholders or any
corporation, partnership, limited liability company or other entity
that the Individual Shareholders or either of them Controls. For
purposes of the foregoing, the term "Control" shall have the meaning
set forth in the Purchase Agreement.
(g) "Initial Public Offering" shall mean the first underwritten public
offering of Class A Common Stock by or for the account of the Company and
offered on a "firm commitment" or "best efforts" basis pursuant to an
offering registered under the Securities Act with the Commission on Form
S-1, Form SB-1 or their then equivalents.
-3-
<PAGE>
3. Certain Registration Rights. In connection with the consummation of the
transactions contemplated in the Purchase Agreement, the Company is issuing
approximately $12,700,000 of equity securities. As part of such transaction, the
Company has granted to the purchasers (the "Purchasers") certain rights to
require the Company to register for resale their securities with the Securities
and Exchange Commission under the Securities Act or to participate in any
registration of securities of the Company for itself or any other security
holder of the Company, pursuant to a registration rights agreement dated the
date hereof, a true and accurate copy of which will be promptly provided to the
Shareholders by the Company (the "Registration Rights Agreement"). The Company
and the Shareholders agree that the Shareholders shall be entitled with respect
to the Class A Common Stock included in Securities to the same rights and
benefits, subject to the same obligations and limitations, as the Purchasers
have with respect to their securities under the Registration Rights Agreement.
At the election of the Shareholders, the Shareholders shall become parties to
the Registration Rights Agreement or the Company shall enter into an agreement
with the Shareholders of the same tenor as the Registration Rights Agreement.
4. Certain Preemptive Rights. (a) Except as hereinafter provided in this
Section 5, if after the date hereof the Company proposes to issue additional
shares of common equity securities or securities convertible, exchangeable or
exercisable for common equity securities ("Additional Shares"), the Company
shall deliver to each holder of then outstanding shares of Preferred Stock
written notice thereof, which notice shall include a general description of the
terms of such proposed issuance of Additional Shares (including the number of
Additional Shares to be so issued), the purchase price per Additional Share to
be issued and the anticipated issuance date. Within ten (10) days of delivery of
such notice, each holder may by written notice (the "Additional Shares Offer")
offer to purchase in such proposed issuance up to a maximum number of the
Additional Shares such that immediately after the purchase of such Additional
Shares by such holder, the percentage of all shares of common equity securities
issued and outstanding on a fully diluted basis (assuming conversion of all
outstanding shares of Preferred Stock, warrants, options and other instruments
of the Company convertible into or exchangeable for common equity securities)
owned by such holder (assuming conversion in full of all shares of Preferred
Stock held by such holder immediately prior to the issuance of the Additional
Shares) shall be unchanged as a result of such issuance. Any holder who fails to
provide the Company with an Additional Shares Offer within such ten (10) day
period shall be deemed to have waived its right to buy any Additional Shares or
otherwise to participate in such proposed issuance. If the terms of the proposed
issuance of Additional Shares set forth in the notice provided by the Company
pursuant to this paragraph shall have materially changed from the date of such
notice, the Company shall deliver to each holder of then outstanding Preferred
Stock an additional notice and such holder shall again have the rights set forth
in this paragraph (and, if such holder shall have provided the Company with an
Additional Shares Offer, such holder shall be entitled to amend such offer) in
accordance with the time periods set forth in this paragraph.
(b) The rights and obligations set forth in this Section 4 shall not apply
to any issuances of Additional Shares in respect of (i) warrants or options to
acquire any common equity securities which are outstanding on the date hereof,
(ii) any stock option or employee benefit plan of the Company now existing or
hereafter adopted by the Board of Directors or shareholders of the Company,
(iii) any Initial Public Offering, (iv) securities of the Company issued or
issuable pursuant to the Purchase Agreement or in connection with the
transactions contemplated thereby, including equity securities issued or
issuable as part of obtaining the funding for such transactions, (v) any merger
or acquisition involving the Company which has been approved by the Board, (vi)
a stock
-4-
<PAGE>
split, stock dividend or recapitalization of the Company, or (vii) any other
transaction of the Company not intended primarily to raise capital.
(c) The provisions of this Section 4 shall terminate upon the initial
closing under an Initial Public Offering.
5. Legend. Each certificate, Warrant or other instrument representing the
Securities shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDER AND REGISTRATION RIGHTS AGREEMENT, DATED AS OF [THE
CLOSING DATE UNDER THE PURCHASE AGREEMENT]. A COPY OF SUCH
SHAREHOLDER AND REGISTRATION RIGHTS AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF FRONT ROYAL, INC.
6. Certain Matters Relating to Conversion of Preferred Stock. Under the
terms of the Articles of Amendment to the Front Royal Articles of Incorporation
authorizing the issuance of the Preferred Stock, the Preferred Stock may not be
converted into Class A Common Stock unless certain regulatory approvals have
been obtained from the states of Virginia and Ohio. Front Royal agrees that if
at any time Fort Washington elects to convert all or any portion of the
Preferred Stock into Class A Common Stock, Front Royal will (i) reasonably
cooperate with Fort Washington in seeking to obtain the necessary approvals for
such conversion and for the ownership by Fort Washington of Class A Common
Stock, and (ii) not oppose or undermine any application made by Fort Washington
for approval of such conversion and for the ownership by Fort Washington of
Class A Common Stock. This Section 7 is for the sole benefit of Fort Washington
or any other entity Controlled by the Individual Shareholder and not for the
benefit of any other party, and shall terminate and be of no further force and
effect if at any time Fort Washington is not majority owned and Controlled by
Lederman or McCarthy.
7. Transfers. (a) Prior to any Transfer of Securities (i) the Shareholder
shall cause the transferee to execute and deliver to the Company and the other
Shareholders a counterpart of this Agreement if, prior to such Transfer, such
transferee was not a Shareholder; and (ii) if requested by the Company, the
transferring Shareholder shall provide to the Company a legal opinion of counsel
reasonably acceptable to the Company, in form reasonably acceptable to the
Company, to the effect that such Transfer is not subject to the registration
requirements of Federal or state securities laws. Any Transfer shall be subject
to any requirements for approval from regulatory authorities having jurisdiction
over the Company, its subsidiaries or any of the Shareholders.
(b) Any Transfer or attempted Transfer in violation of this Agreement shall
be voidable by the Company, and the Company may choose not to record such
Transfer on its books or treat any purported transferee of such Securities as
the owner of such Securities for any purpose.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof, and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written.
-5-
<PAGE>
9. Governing Law. This Agreement shall be construed and interpreted
according to the laws of the State of North Carolina, without regard to the
conflicts of law rules thereof.
10. Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given (a) when delivered if delivered personally or by messenger or by overnight
delivery service, or (b) three days after mailing when mailed by registered or
certified United States mail, postage prepaid, return receipt requested, or (c)
when received if sent by telecopy (provided that a copy is mailed concurrently
therewith pursuant to the terms hereof), in all cases addressed to the person
for whom it is intended at its address set forth below or to such other address
as a party shall have designated by notice in writing to the other party in the
manner provided by paragraph:
If to the Company: Front Royal, Inc.
2200 Gateway Blvd.
Suite 205
Morrisville, North Carolina 27560
Attention: J. Adam Abram, Chief Executive Officer
and
Gregg T. Davis, Chief Financial Officer
Telecopier No.: (919) 469-3557
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Telecopier No.: (212) 541-4630
If to Fort Washington: Fort Washington Holdings, Inc.
502 West Office Center Drive
Ft. Washington, Pennsylvania 19035
With a copy to: Dilworth Paxson Kalish & Kaufman LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Lawrence G. McMichael, Esq.
Telecopier No.: (215) 575-7200
If to Charles Lederman: PIC Insurance Group, Inc.
502 West Office Center Drive
Ft. Washington, Pennsylvania 19035
-6-
<PAGE>
With a copy to: Dilworth Paxson Kalish & Kaufman LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Lawrence G. McMichael, Esq.
Telecopier No.: (215) 575-7200
If to Timothy McCarthy: PIC Insurance Group, Inc.
502 West Office Center Drive
Ft. Washington, Pennsylvania 19035
With a copy to: Dilworth Paxson Kalish & Kaufman LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Lawrence G. McMichael, Esq.
Telecopier No.: (215) 575-7200
11. Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The paragraph headings
in this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
12. Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
13. Amendment; Waiver. Neither this Agreement nor any term hereof may be
amended, modified or waived except by an instrument in writing signed by the
Company and by the holders of at least two-thirds (2/3) of the Registrable
Securities, and any such amendment, modification or waiver so approved shall be
binding on all holders. The waiver by any party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FRONT ROYAL, INC.
By: _____________________________________
Name: J. Adam Abram
Title: Chief Executive Officer
FORT WASHINGTON HOLDINGS, INC.
By: _____________________________________
Name:
Title
PIC INSURANCE GROUP, INC.
By: _____________________________________
Name:
Title
_________________________________________
Charles M. Lederman
_________________________________________
Timothy I. McCarthy, Sr.
-8-
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
FRANK J. LUCCHINO
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of December 31, 1996,
among FRONT ROYAL, INC., a North Carolina corporation with its principal offices
at 2200 Gateway Boulevard, Suite 205, Morrisville, NC 27560 ("FRI"), ROCKWOOD
CASUALTY INSURANCE COMPANY, a Pennsylvania stock insurance company with its
principal offices at 654 Main Street, Rockwood, Pennsylvania 15557 ("Rockwood;
together with FRI, the "Corporations") and FRANK J. LUCCHINO, whose principal
address is c/o Grogan, Graffam, McGinley & Lucchino, PC, Three Gateway Center,
22nd Floor, Pittsburgh, PA 15222 ("Lucchino").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of a Stock Purchase Agreement, dated as of December 6,
1996 (the "Stock Purchase Agreement"), among Trirock Limited Partnership
("Trirock") and PIC Insurance Group, Inc. ("PIC"), as sellers, and FRI, as
buyer, FRI purchased from Trirock 250,000 shares of Class A Common Stock, no par
value, of Rockwood, constituting 50% of all of the issued and outstanding shares
of Class A Common Stock;
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Stock Purchase Agreement) that this Agreement be executed and delivered and
in full force and effect;
WHEREAS, the Corporations wish to be protected against competition from
each of the general partners of Trirock, in the business of writing or issuing
workers compensation and related lines of insurance ("Competitive Business");
and
WHEREAS, Lucchino is a general partner of Trirock.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on
the date hereof and continue through the tenth anniversary of the date
hereof (the "Term").
2. Covenant Not to Compete. (a) Lucchino covenants and agrees that (i)
the Corporations will suffer substantial damage which will be difficult to
compute if, after consummation of the Closing, Lucchino should engage in
any Competitive
<PAGE>
Business and (ii) the provisions of this Paragraph 2 are reasonable and
necessary for the protection of the Corporations.
(b) Without the prior written consent of the Corporations, (1) during the
first 30 months of the Term of this Agreement, Lucchino shall not, in the States
of Delaware, Indiana, Maryland, Pennsylvania, Virginia or West Virginia, and (2)
during the remainder of the Term of this Agreement, Lucchino shall not, in the
States of Delaware, Indiana, Maryland, Virginia or West Virginia or in Bedford,
Blair, Fayette, Fulton, Indiana or Somerset Counties in the Commonwealth of
Pennsylvania, directly or indirectly: (i) enter into the employ of or render any
services to any person, firm, corporation, partnership, limited liability
company or other entity or business engaged in any Competitive Business; (ii)
engage in any Competitive Business for his own account; or (iii) become
associated with or interested in any Competitive Business as an individual,
partner, shareholder, creditor, director, officer, principal, agent, employee,
trustee, consultant, advisor or in any other relationship or capacity. Mere
passive ownership of stock representing 5% or less of the capital stock of a
publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If Lucchino commits a breach, or threatens to commit a breach, of any
of the provisions of clause (b) above, the Corporations shall have the right and
remedy, in addition to all other remedies at law and in equity: (i) to have the
provisions of this Paragraph 2 specifically enforced by any court having equity
jurisdiction; and (ii) to require Lucchino to account for and pay over to the
Corporations all compensation, profits, monies, accruals, increments, or other
benefits derived or received by Lucchino as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and Lucchino
hereby agrees to account for and pay over such benefits to the Corporations.
(e) Nothing in this Agreement shall be deemed to prohibit (i) the law firm
of Grogan, Graffam, McGinley & Lucchino, PC, of which Lucchino is a partner,
from providing legal services to any insurance company engaged in the business
of writing or issuing workers compensation and related lines of insurance or
(ii) Lucchino from purchasing insurance coverage, including workers compensation
insurance from an insurer engaged in any Competitive Business.
-2-
<PAGE>
3. Covenant Not to Solicit. (a) Lucchino covenants and agrees that for the
Term of this Agreement he shall not, directly or indirectly, solicit for his own
account or for the account of another, or assist any other person in soliciting,
for the purpose of placing workers compensation insurance or related insurance
lines with an insurance company other than Rockwood, any of the agents or
brokers who placed workers compensation business with Rockwood and are
identified on Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit
Lucchino from soliciting any of the agents or brokers identified on Exhibit A
for his own account or for the account of another, for the purpose of placing
any line of insurance which is unrelated to workers compensation insurance.
(b) Lucchino further agrees that, during the Term of this Agreement, he
shall not directly or indirectly (i) solicit, entice, persuade or seek to induce
any person who is or was an employee of, or consultant to, Rockwood on the date
hereof or at any time during the Term of this Agreement or the six-month period
prior to the date hereof, to terminate his or her employment or consultancy with
Rockwood, or (ii) solicit, entice, persuade or seek to induce, for his own
account or for the account of any other person, any person who is or was an
employee or consultant of Rockwood on the date hereof or at any time during the
term of this Agreement or the six-month period prior to the date hereof, for
employment with any insurance company writing workers compensation or related
lines of insurance, or (iii) approach any such employee or consultant for any of
the foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
4. Consideration. (a) In consideration of the covenant not to compete set
forth in Paragraph 2 and the covenant not to solicit set forth in Paragraph 3,
the Corporations shall pay to Lucchino $119,715.00 in the aggregate, of which
(i) $14,574.00 shall be paid each year for the first five (5) years of the Term
of this Agreement and (ii) $9,369.00 shall be paid each year for the second five
(5) years of the Term of this Agreement. Such consideration shall be due and
payable by the Corporations notwithstanding the death of Lucchino at any time
during the Term of this Agreement, and upon his death, the rights to any
consideration due and payable hereunder shall inure to the benefit of Lucchino's
heirs and legal representatives.
(b) In the event the purchase option under the terms of the Lease, dated
December __, 1996, between Rockwood and Rockwood Asset Management, Inc. is
exercised by Rockwood, the Corporations shall prepay, and at any other time the
Corporations may prepay, the consideration due under Paragraph 4(a) for the
balance of the Term. The amount of any such prepayment shall be equal to the
present value of the future payments due hereunder, determined using an 8.5% per
annum discount rate, a mid-year
-3-
<PAGE>
convention and straight line interpolation from the last month end.
5. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) Each Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
each Corporation hereunder shall be binding on its successors or assigns,
whether by merger, consolidation or acquisition of all or substantially all of
its business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 5(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have executed and delivered this
Agreement on the date first above written.
-----------------------------
Frank J. Lucchino
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE
COMPANY
By:___________________________
Name:
Title:
-5-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
JOHN R. MCGINLEY, JR.
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of December 31, 1996,
among FRONT ROYAL, INC., a North Carolina corporation with its principal offices
at 2200 Gateway Boulevard, Suite 205, Morrisville, NC 27560 ("FRI"), ROCKWOOD
CASUALTY INSURANCE COMPANY, a Pennsylvania stock insurance company with its
principal offices at 654 Main Street, Rockwood, Pennsylvania 15557 ("Rockwood";
together with FRI, the "Corporations"), and JOHN R. MCGINLEY, JR., whose address
is c/o Grogan, Graffam, McGinley & Lucchino, PC, Three Gateway Center, 22nd
Floor, Pittsburgh, PA 15222 ("McGinley").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of a Stock Purchase Agreement, dated as of December 6,
1996 (the "Stock Purchase Agreement"), among Trirock Limited Partnership
("Trirock") and PIC Insurance Group, Inc. ("PIC"), as sellers, and FRI, as
buyer, FRI purchased from Trirock 250,000 shares of Class A Common Stock, no par
value, of Rockwood, constituting 50% of all of the issued and outstanding shares
of Class A Common Stock;
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Stock Purchase Agreement) that this Agreement be executed and delivered and
in full force and effect;
WHEREAS, the Corporations wish to be protected against competition from
each of the general partners of Trirock, in the business of writing or issuing
workers compensation and related lines of insurance ("Competitive Business");
and
WHEREAS, McGinley is a general partner of Trirock.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on the
date hereof and continue through the tenth anniversary of the date hereof (the
"Term").
2. Covenant Not to Compete. (a) McGinley covenants and agrees that (i) the
Corporations will suffer substantial damage which will be difficult to compute
if, after consummation of the Closing, McGinley should engage in any Competitive
Business and (ii) the provisions of this Paragraph 2 are reasonable and
necessary for the protection of the Corporations.
<PAGE>
(b) Without the prior written consent of the Corporations, (1) during the
first 30 months of the Term of this Agreement, McGinley shall not, in the States
of Delaware, Indiana, Maryland, Pennsylvania, Virginia or West Virginia, and (2)
during the remainder of the Term of this Agreement, McGinley shall not, in the
States of Delaware, Indiana, Maryland, Virginia or West Virginia or in Bedford,
Blair, Fayette, Fulton, Indiana or Somerset Counties in the Commonwealth of
Pennsylvania, directly or indirectly: (i) enter into the employ of or render any
services to any person, firm, corporation, partnership, limited liability
company or other entity or business engaged in any Competitive Business; (ii)
engage in any Competitive Business for his own account; or (iii) become
associated with or interested in any Competitive Business as an individual,
partner, shareholder, creditor, director, officer, principal, agent, employee,
trustee, consultant, advisor or in any other relationship or capacity. Mere
passive ownership of stock representing 5% or less of the capital stock of a
publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If McGinley commits a breach, or threatens to commit a breach, of any
of the provisions of clause (b) above, the Corporations shall have the right and
remedy, in addition to all other remedies at law and in equity: (i) to have the
provisions of this Paragraph 2 specifically enforced by any court having equity
jurisdiction; and (ii) to require McGinley to account for and pay over to the
Corporations all compensation, profits, monies, accruals, increments, or other
benefits derived or received by McGinley as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and McGinley
hereby agrees to account for and pay over such benefits to the Corporations.
(e) Nothing in this Agreement shall be deemed to prohibit (i) the law firm
of Grogan, Graffam, McGinley & Lucchino, PC, of which McGinley is a partner,
from providing legal services to any insurance company engaged in the business
of writing or issuing workers compensation and related lines of insurance or
(ii) McGinley from purchasing insurance coverage, including workers compensation
insurance from an insurer engaged in any Competitive Business.
3. Covenant Not to Solicit. (a) McGinley covenants and agrees that for the
Term of this Agreement he shall not, directly or indirectly, solicit for his own
account or for the
-2-
<PAGE>
account of another, or assist any other person in soliciting, for the purpose of
placing workers compensation insurance or related insurance lines with an
insurance company other than Rockwood, any of the agents or brokers who placed
workers compensation business with Rockwood and are identified on Exhibit A
hereto. Nothing in this Paragraph 3 shall prohibit McGinley from soliciting any
of the agents or brokers identified on Exhibit A for his own account or for the
account of another, for the purpose of placing any line of insurance which is
unrelated to workers compensation insurance.
(b) McGinley further agrees that, during the Term of this Agreement, he
shall not directly or indirectly (i) solicit, entice, persuade or seek to induce
any person who is or was an employee of, or consultant to, Rockwood on the date
hereof or at any time during the Term of this Agreement or the six-month period
prior to the date hereof, to terminate his or her employment or consultancy with
Rockwood, or (ii) solicit, entice, persuade or seek to induce, for his own
account or for the account of any other person, any person who is or was an
employee or consultant of Rockwood on the date hereof or at any time during the
term of this Agreement or the six-month period prior to the date hereof, for
employment with any insurance company writing workers compensation or related
lines of insurance, or (iii) approach any such employee or consultant for any of
the foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
4. Consideration. (a) In consideration of the covenant not to compete set
forth in Paragraph 2 and the covenant not to solicit set forth in Paragraph 3,
the Corporations shall pay to McGinley $456,895.00 in the aggregate, of which
(i) $55,622.00 shall be paid each year for the first five (5) years of the Term
of this Agreement and (ii) $35,757.00 shall be paid each year for the second
five (5) years of the Term of this Agreement. Such consideration shall be due
and payable by the Corporations notwithstanding the death of McGinley at any
time during the Term of this Agreement, and upon his death, the rights to any
consideration due and payable hereunder shall inure to the benefit of McGinley's
heirs and legal representatives.
(b) In the event the purchase option under the terms of the Lease, dated
December __, 1996, between Rockwood and Rockwood Asset Management, Inc. is
exercised by Rockwood, the Corporations shall prepay, and at any other time the
Corporations may prepay, the consideration due under Paragraph 4(a) for the
balance of the Term. The amount of any such prepayment shall be equal to the
present value of the future payments due hereunder, determined using an 8.5% per
annum discount rate, a mid-year convention and straight line interpolation from
the last month end.
-3-
<PAGE>
5. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) Each Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
each Corporation hereunder shall be binding on its successors or assigns,
whether by merger, consolidation or acquisition of all or substantially all of
its business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 5(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have executed and delivered this
Agreement on the date first above written.
--------------------------
John R. McGinley, Jr.
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE
COMPANY
By:___________________________
Name:
Title:
-5-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
PITTSBURGH MUTUAL INSURANCE COMPANY
NON-COMPETE, NON-SOLICITATION AND CONSULTING AGREEMENT, dated as of
December 31, 1996, between FRONT ROYAL, INC., a North Carolina corporation with
its principal offices at 2200 Gateway Boulevard, Suite 205, Morrisville, NC
27560 (the "Corporation"), and PITTSBURGH MUTUAL INSURANCE COMPANY, a
Pennsylvania mutual insurance company with its principal offices at 502 West
Office Center Drive, Suite 100, Fort Washington, PA 19034 ("PMIC").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of a Stock Purchase Agreement, dated as of December 6,
1996 (the "Stock Purchase Agreement"), among PIC Insurance Group Inc. ("PIC")
and Trirock Limited Partnership ("Trirock"), as sellers, and the Corporation, as
buyer, the Corporation purchased from PIC (a) 250,000 shares of Class A Common
Stock, no par value, of Rockwood Casualty Insurance Company ("Rockwood"),
constituting 50% of all of the issued and outstanding shares of Class A Common
Stock and (b) 571,961 shares of Class B Common Stock, no par value, of Rockwood,
constituting all of the issued and outstanding shares of Class B Common Stock of
Rockwood;
WHEREAS, PMIC is an affiliate of PIC;
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Stock Purchase Agreement) that this Agreement be executed and delivered and
in full force and effect; and
WHEREAS, the Corporation wishes to be protected against competition from
PMIC in the business of writing or issuing workers compensation and related
lines of insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on
the date hereof and continue through the fifth anniversary of the date
hereof (the "Term").
2. Covenant Not to Compete. (a) PMIC covenants and agrees that (i) the
Corporation will suffer substantial damage which will be difficult to
compute if, after consummation of the Closing, PMIC should engage in any
Competitive Business and (ii)
<PAGE>
the provisions of this Paragraph 2 are reasonable and necessary for the
protection of the Corporation.
(b) During the Term of this Agreement, without the prior written consent of
the Corporation, PMIC shall not, in the States of Delaware, Indiana,
Pennsylvania, Maryland, Virginia or West Virginia, directly or indirectly: (i)
enter into the employ of or render any services to any person, firm,
corporation, partnership, limited liability company or other entity or business
engaged in any Competitive Business; (ii) engage in any Competitive Business for
its own account; or (iii) become associated with or interested in any
Competitive Business as a partner, shareholder, creditor, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity.
Mere passive ownership of stock representing 5% or less of the capital stock of
a publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If PMIC commits a breach, or threatens to commit a breach, of any of
the provisions of clause (b) above, the Corporation shall have the right and
remedy, in addition to all other remedies at law and in equity: (i) to have the
provisions of this Paragraph 2 specifically enforced by any court having equity
jurisdiction; and (ii) to require PMIC to account for and pay over to the
Corporation all compensation, profits, monies, accruals, increments, or other
benefits derived or received by PMIC as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and PMIC
hereby agrees to account for and pay over such benefits to the Corporation.
3. Covenant Not to Solicit. (a) PMIC covenants and agrees that for the Term
of this Agreement it shall not, directly or indirectly, solicit for its own
account or for the account of another, or assist any other person in soliciting,
for the purpose of placing workers compensation insurance or related insurance
lines with an insurance company other than Rockwood, any of the agents or
brokers who placed workers compensation business with Rockwood and are
identified on Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit PMIC
from soliciting any of the agents or brokers identified on Exhibit A for its own
account or for the account of another, for the purpose of placing any line of
insurance which is unrelated to workers compensation insurance.
-2-
<PAGE>
(b) PMIC further agrees that, during the Term of this Agreement, it shall
not directly or indirectly (i) solicit, entice, persuade or seek to induce any
person who is or was an employee of, or consultant to, Rockwood on the date
hereof or at any time during the Term of this Agreement or the six-month period
prior to the date hereof, to terminate his or her employment or consultancy with
Rockwood, or (ii) solicit, entice, persuade or seek to induce, for its own
account or for the account of any other person, any person who is or was an
employee or consultant of Rockwood on the date hereof or at any time during the
term of this Agreement or the six-month period prior to the date hereof, for
employment with any insurance company writing workers compensation or related
lines of insurance, or (iii) approach any such employee or consultant for any of
the foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
4. Consideration. (a) In consideration of the covenant not to compete set
forth in Paragraph 2 and the covenant not to solicit set forth in Paragraph 3,
the Corporation shall pay to PMIC $125,000.00 per annum for the Term of this
Agreement. Such annual payment shall be paid, in advance, in four equal
installments on the first business day of each January, April, July and October
commencing January 1997.
(b) In the event the purchase option under the terms of the Lease, dated
December 31, 1996, between Rockwood and Rockwood Asset Management, Inc. is
exercised by Rockwood, the Corporation shall prepay, and at any other time the
Corporation may prepay, the consideration due under Paragraph 4(a) for the
balance of the Term. The amount of any such prepayment shall be equal to the
present value of the future payments due hereunder, determined using an 8.5% per
annum discount rate, a mid-year convention and straight line interpolation from
the last month end.
5. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) The Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
the
-3-
<PAGE>
Corporation hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 5(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to be
executed by their duly authorized representative on the date first above
written.
PITTSBURGH MUTUAL INSURANCE
COMPANY
By:________________________________
Name:
Title:
FRONT ROYAL, INC.
By:________________________________
Name: J. Adam Abram
Title: Chief Executive Officer
-4-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
PIC INSURANCE GROUP, INC.
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of December 31, 1996,
between FRONT ROYAL, INC., a North Carolina corporation with its principal
offices at 2200 Gateway Boulevard, Suite 205, Morrisville, NC 27560 (the
"Corporation"), and PIC INSURANCE GROUP, INC., a Pennsylvania stock insurance
company with its principal offices at 502 West Office, Center Drive, Fort
Washington, PA 19034 ("PIC").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of a Stock Purchase Agreement, dated as of December 6,
1996 (the "Stock Purchase Agreement"), among PIC and Trirock Limited Partnership
("Trirock"), as sellers, and the Corporation, as buyer, the Corporation
purchased from PIC (a) 250,000 shares of Class A Common Stock, no par value, of
Rockwood Casualty Insurance Company ("Rockwood"), constituting 50% of all of the
issued and outstanding shares of Class A Common Stock and (b) 571,961 shares of
Class B Common Stock, no par value, of Rockwood, constituting all of the issued
and outstanding shares of Class B Common Stock of Rockwood;
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Stock Purchase Agreement) that this Agreement be executed and delivered and
in full force and effect; and
WHEREAS, the Corporation wishes to be protected against competition from
PIC in the business of writing or issuing workers compensation and related lines
of insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the payment to PIC of $1.00 and other
good and valuable consideration and the mutual covenants and promises herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Term of the Agreement. The term of this Agreement shall commence on
the date hereof and continue through the tenth anniversary of the date
hereof (the "Term").
2. Covenant Not to Compete. (a) PIC covenants and agrees that (i) the
Corporation will suffer substantial damage which will be difficult to
compute if, after consummation of the Closing, PIC should engage in any
Competitive Business and (ii)
<PAGE>
the provisions of this Paragraph 2 are reasonable and necessary for the
protection of the Corporation.
(b) During the Term of this Agreement, without the prior written consent of
the Corporation, PIC shall not, in the States of Delaware, Indiana,
Pennsylvania, Maryland, Virginia or West Virginia, directly or indirectly: (i)
enter into the employ of or render any services to any person, firm,
corporation, partnership, limited liability company or other entity or business
engaged in any Competitive Business; (ii) engage in any Competitive Business for
its own account; or (iii) become associated with or interested in any
Competitive Business as a partner, shareholder, creditor, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity.
Mere passive ownership of stock representing 5% or less of the capital stock of
a publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If PIC commits a breach, or threatens to commit a breach, of any of the
provisions of clause (b) above, the Corporation shall have the right and remedy,
in addition to all other remedies at law and in equity: (i) to have the
provisions of this Paragraph 2 specifically enforced by any court having equity
jurisdiction; and (ii) to require PIC to account for and pay over to the
Corporation all compensation, profits, monies, accruals, increments, or other
benefits derived or received by PIC as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and PIC
hereby agrees to account for and pay over such benefits to the Corporation.
3. Covenant Not to Solicit. (a) PIC covenants and agrees that for the Term
of this Agreement it shall not, directly or indirectly, solicit for its own
account or for the account of another, or assist any other person in soliciting,
for the purpose of placing workers compensation insurance or related insurance
lines with an insurance company other than Rockwood, any of the agents or
brokers who placed workers compensation business with Rockwood and are
identified on Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit PIC
from soliciting any of the agents or brokers identified on Exhibit A for its own
account or for the account of another, for the purpose of placing any line of
insurance which is unrelated to workers compensation insurance.
-2-
<PAGE>
(b) PIC further agrees that, during the Term of this Agreement, it shall
not directly or indirectly (i) solicit, entice, persuade or seek to induce any
person who is or was an employee of, or consultant to, Rockwood on the date
hereof or at any time during the Term of this Agreement or the six-month period
prior to the date hereof, to terminate his or her employment or consultancy with
Rockwood, or (ii) solicit, entice, persuade or seek to induce, for its own
account or for the account of any other person, any person who is or was an
employee or consultant of Rockwood on the date hereof or at any time during the
term of this Agreement or the six-month period prior to the date hereof, for
employment with any insurance company writing workers compensation or related
lines of insurance, or (iii) approach any such employee or consultant for any of
the foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
4. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) The Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
the Corporation hereunder shall be binding on its successors or assigns, whether
by merger, consolidation or acquisition of all or substantially all of its
business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of
-3-
<PAGE>
the breach of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 4(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to be
executed by their duly authorized representative on the date first above
written.
PIC INSURANCE GROUP, INC.
By:________________________________
Name:
Title:
FRONT ROYAL, INC.
By:________________________________
Name: J. Adam Abram
Title: Chief Executive Officer
-4-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
THIS AGREEMENT is made this 31st day of December, 1996, between Front
Royal, Inc., a North Carolina corporation with its principal offices at 2200
Gateway Boulevard, Suite 205, Morrisville, NC 27560 (the "Corporation"), and
Charles M. Lederman, an individual residing at 4 Woodworth Court, Wayne, PA
19087 ("McCarthy").
WHEREAS, Lederman has been a director of Rockwood Casualty Insurance
Company ("RCIC") for more than two years;
WHEREAS, the Corporation acquired RCIC from PIC Insurance Group, Inc. and
Tri Rock Limited Partnership simultaneously with the execution of this
Agreement;
WHEREAS, Lederman has resigned his position as a director, officer and
employee of RCIC;
WHEREAS, the Corporation wishes to be protected against competition from
McCarthy in the business of workers compensation insurance and related lines of
insurance;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on December
31, 1996 and continue through December 30, 2001.
2. Covenant Not to Compete. Lederman hereby agrees that for the term of
this Agreement he shall not, directly or indirectly, engage in, or have any
interest in (other than as a passive investor with an interest of less than 5%),
any person, firm, corporation, partnership, limited liability company, or other
entity or business that engages in the business of workers compensation and
related lines of insurance within Delaware, Indiana, Maryland, Pennsylvania,
Virginia, or West Virginia. In the event of a breach or a threatened breach of
this covenant not to compete, the Corporation shall have the right to have this
covenant specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Corporation. If any of the covenants contained in this
Article are held to be unenforceable by a court of competent jurisdiction
because of the duration of such provision or the area covered thereby, the
Corporation and Lederman agree that the court making such determination shall
have the power to reduce the duration and/or area of such provision and to
enforce such provision in its reduced form.
3. Covenant Not to Solicit. Lederman agrees and covenants that for the term
of this Agreement he shall not, directly or indirectly, solicit for his own
account or for the account of another, or assist any other person in soliciting,
for the purpose of placing workers compensation insurance or related insurance
lines with an insurance company other
<PAGE>
than RCIC, any of the agents or brokers who placed workers compensation
insurance business with RCIC and are identified on Exhibit B hereto. Nothing in
this Article shall prohibit Lederman from soliciting any of the agents or
brokers identified on Exhibit B for his own account or for the account of
another, for the purpose of placing any line of insurance which is unrelated to
workers compensation insurance.
Lederman further agrees that, during the term of this Agreement, he shall
not directly or indirectly (i) solicit, entice, persuade or seek to induce any
person who is or was an employee of, or consultant to, RCIC on the date hereof
or at any time during the term of this Agreement or the six month period prior
to the date hereof, to terminate his or her employment or consultancy with RCIC,
or (ii) solicit, entice, persuade or seek to induce any person who is or was an
employee of, or consultant to, RCIC on the date hereof or at any time during the
term of this Agreement or the six month period prior to the date hereof, for
employment with any insurance company writing workers compensation or related
lines of insurance, or (iii) approach any such employee or consultant for any of
the foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
Lederman further agrees and covenants that for the term of this Agreement
he shall not, directly or indirectly, solicit for his own account or for the
account of another, any workers compensation insurance or related lines
insurance business from any of the accounts of RCIC which are identified on
Exhibit C hereto. Nothing in this Article shall prohibit Lederman from
soliciting for his own account or for the account of another, insurance business
unrelated to workers compensation insurance from the accounts of RCIC which are
identified on Exhibit C.
4. Consideration. In consideration of the covenant not to compete with RCIC
and not to solicit its employees or agents during the term of this Agreement,
the Corporation shall grant to Lederman warrants to purchase 200,000 shares of
Class A, Common Stock of Front Royal, Inc. Said warrants shall be exercisable at
$2.50 per share and shall be substantially in the form attached hereto as
Exhibit A.
5. General.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof.
-2-
<PAGE>
(d) The Corporation may assign its rights, together with its obligations
hereunder (other than its obligation to issue the warrants to McCarthy), in
connection with any sale, transfer or other disposition of all or substantially
all of its business or assets; in any event, the obligations of the Corporation
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
IN WITNESS WHEREOF, the parties here executed this Agreement as of the date
first above written.
FRONT ROYAL INC.
By:
---------------------------
Title:
-------------------------------
CHARLES M. LENDERMAN, FCAS
-3-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
THIS AGREEMENT is made this 31st day of December, 1996, between Front
Royal, Inc., a North Carolina corporation with its principal offices at 2200
Gateway Boulevard, Suite 205, Morrisville, NC 27560 (the "Corporation"), and
Timothy I. McCarthy, Sr., an individual residing at 4 Woodworth Court, Wayne, PA
19087 ("McCarthy").
WHEREAS, McCarthy has been a director of Rockwood Casualty Insurance
Company ("RCIC") for more than two years;
WHEREAS, the Corporation acquired RCIC from PIC Insurance Group, Inc. and
Tri Rock Limited Partnership simultaneously with the execution of this
Agreement;
WHEREAS, McCarthy has resigned his position as a director of RCIC;
WHEREAS, the Corporation wishes to be protected against competition from
McCarthy in the business of workers compensation insurance and related lines of
insurance;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on December
31, 1996 and continue through December 30, 2001.
2. Covenant Not to Compete. McCarthy hereby agrees that for the term of
this Agreement he shall not, directly or indirectly, engage in, or have any
interest in (other than as a passive investor with an interest of less than 5%),
any person, firm, corporation, partnership, limited liability company, or other
entity or business that engages in the business of workers compensation and
related lines of insurance within Delaware, Indiana, Maryland, Pennsylvania,
Virginia, or West Virginia. In the event of a breach or a threatened breach of
this covenant not to compete, the Corporation shall have the right to have this
covenant specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Corporation. If any of the covenants contained in this
Article are held to be unenforceable by a court of competent jurisdiction
because of the duration of such provision or the area covered thereby, the
Corporation and McCarthy agree that the court making such determination shall
have the power to reduce the duration and/or area of such provision and to
enforce such provision in its reduced form.
3. Covenant Not to Solicit. McCarthy agrees and covenants that for the term
of this Agreement he shall not, directly or indirectly, solicit for his own
account or for the account of another, or assist any other person in soliciting,
for the purpose of placing workers compensation insurance or related insurance
lines with an insurance company other
<PAGE>
than RCIC, any of the agents or brokers who placed workers compensation
insurance business with RCIC and are identified on Exhibit B hereto. Nothing in
this Article shall prohibit NcCarthy from soliciting any of the agents or
brokers identified on Exhibit B for his own account or for the account of
another, for the purpose of placing any line of insurance which is unrelated to
workers compensation insurance.
McCarthy further agrees that, during the term of this Agreement, he shall
not directly or indirectly (i) solicit, entice, persuade or seek to induce any
person who is or was an employee of, or consultant to, RCIC on the date hereof
or at any time during the term of this Agreement or the six month period prior
to the date hereof, to terminate his or her employment or consultancy with RCIC,
or (ii) solicit, entice, persuade or seek to induce any person who is or was an
employee of, or consultant to, RCIC on the date hereof or at any time during the
term of this Agreement or the six month period prior to the date hereof, for
employment with any insurance company writing workers compensation or related
lines of insurance, or (iii) approach any such employee or consultant for any of
the foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
McCarthy further agrees and covenants that for the term of this Agreement
he shall not, directly or indirectly, solicit for his own account or for the
account of another, any workers compensation insurance or related lines
insurance business from any of the accounts of RCIC which are identified on
Exhibit C hereto. Nothing in this Article shall prohibit McCarthy from
soliciting for his own account or for the account of another, insurance business
unrelated to workers compensation insurance from the accounts of RCIC which are
identified on Exhibit C.
4. Consideration. In consideration of the covenant not to compete with RCIC
and not to solicit its employees or agents during the term of this Agreement,
the Corporation shall grant to McCarthy warrants to purchase 200,000 shares of
Class A, Common Stock of Front Royal, Inc. Said warrants shall be exercisable at
$2.50 per share and shall be substantially in the form attached hereto as
Exhibit A.
5. General.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof.
-2-
<PAGE>
(d) The Corporation may assign its rights, together with its obligations
hereunder (other than its obligation to issue the warrants to McCarthy), in
connection with any sale, transfer or other disposition of all or substantially
all of its business or assets; in any event, the obligations of the Corporation
hereunder shall be binding on its successors or assigns, whether by merger,
consolidation or acquisition of all or substantially all of its business or
assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
IN WITNESS WHEREOF, the parties here executed this Agreement as of the date
first above written.
FRONT ROYAL INC.
By:___________________________
Title:
______________________________
TIMOTHY MCCARTHY, SR.
-3-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
PETER C. DOZZI
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of December 31, 1996,
among FRONT ROYAL, INC., a North Carolina corporation with its principal offices
at 2200 Gateway Boulevard, Suite 205, Morrisville, NC 27560 ("FRI"), ROCKWOOD
CASUALTY INSURANCE COMPANY, a Pennsylvania stock insurance company with its
principal offices at 654 Main Street, Rockwood, Pennsylvania 15557 ("Rockwood";
together with FRI, the "Corporations"), and PETER C. DOZZI whose principal
address is 2000 Lincoln Avenue, Pittsburgh, Pennsylvania 15235 ("Dozzi").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of a Stock Purchase Agreement, dated as of December 6,
1996 (the "Stock Purchase Agreement"), among Trirock Limited Partnership
("Trirock") and PIC Insurance Group, Inc. ("PIC"), as sellers, and FRI, as
buyer, FRI purchased from Trirock 250,000 shares of Class A Common Stock, no par
value, of Rockwood, constituting 50% of all of the issued and outstanding shares
of Class A Common Stock;
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Stock Purchase Agreement) that this Agreement be executed and delivered and
in full force and effect;
WHEREAS, the Corporations wish to be protected against competition from
each of the general partners of Trirock, in the business of writing or issuing
workers compensation and related lines of insurance ("Competitive Business");
and
WHEREAS, Dozzi is a general partner of Trirock.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on
the date hereof and continue through the tenth anniversary of the date
hereof (the "Term").
2. Covenant Not to Compete. (a) Dozzi covenants and agrees that (i)
the Corporations will suffer substantial damage which will be difficult to
compute if, after consummation of the Closing, Dozzi should engage in any
Competitive Business and (ii) the provisions of this Paragraph 2 are
reasonable and necessary for the protection of the Corporations.
<PAGE>
(b) Without the prior written consent of the Corporations, (1) during
the first 30 months of the Term of this Agreement, Dozzi shall not, in the
States of Delaware, Indiana, Maryland, Pennsylvania, Virginia or West
Virginia, and (2) during the remainder of the Term of this Agreement, Dozzi
shall not, in the States of Delaware, Indiana, Maryland, Virginia or West
Virginia or in Bedford, Blair, Fayette, Fulton, Indiana or Somerset
Counties in the Commonwealth of Pennsylvania, directly or indirectly: (i)
enter into the employ of or render any services to any person, firm,
corporation, partnership, limited liability company or other entity or
business engaged in any Competitive Business; (ii) engage in any
Competitive Business for his own account; or (iii) become associated with
or interested in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee,
trustee, consultant, advisor or in any other relationship or capacity. Mere
passive ownership of stock representing 5% or less of the capital stock of
a publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal
making such determination shall have the power to modify such scope,
duration or area, or all of them, and such modification or provisions shall
then be applicable in such modified form.
(d) If Dozzi commits a breach, or threatens to commit a breach, of any
of the provisions of clause (b) above, the Corporations shall have the
right and remedy, in addition to all other remedies at law and in equity:
(i) to have the provisions of this Paragraph 2 specifically enforced by any
court having equity jurisdiction; and (ii) to require Dozzi to account for
and pay over to the Corporations all compensation, profits, monies,
accruals, increments, or other benefits derived or received by Dozzi as the
result of any transactions constituting a breach of any of the provisions
of clause (b) above and Dozzi hereby agrees to account for and pay over
such benefits to the Corporations.
(e) Nothing in this Agreement shall prohibit Dozzi from purchasing
insurance coverage, including workers compensation insurance, from an
insurer engaged in any Competitive Business, directly or indirectly for his
own account.
3. Covenant Not to Solicit. (a) Dozzi covenants and agrees that for
the Term of this Agreement he shall not, directly or indirectly, solicit
for his own account or for the account of another, or assist any other
person in soliciting, for the purpose of placing workers compensation
insurance or related insurance lines with an insurance company other than
Rockwood, any of the agents or brokers who placed workers compensation
business with Rockwood and are identified on Exhibit A hereto.
-2-
<PAGE>
Nothing in this Paragraph 3 shall prohibit Dozzi from soliciting any of the
agents or brokers identified on Exhibit A for his own account or for the
account of another, for the purpose of placing any line of insurance which
is unrelated to workers compensation insurance.
(b) Dozzi further agrees that, during the Term of this Agreement, he
shall not directly or indirectly (i) solicit, entice, persuade or seek to
induce any person who is or was an employee of, or consultant to, Rockwood
on the date hereof or at any time during the Term of this Agreement or the
six-month period prior to the date hereof, to terminate his or her
employment or consultancy with Rockwood, or (ii) solicit, entice, persuade
or seek to induce, for his own account or for the account of any other
person, any person who is or was an employee or consultant of Rockwood on
the date hereof or at any time during the term of this Agreement or the
six-month period prior to the date hereof, for employment with any
insurance company writing workers compensation or related lines of
insurance, or (iii) approach any such employee or consultant for any of the
foregoing purposes, or (iv) authorize or assist in the taking of any such
actions by any third party.
4. Consideration. (a) In consideration of the covenant not to compete
set forth in Paragraph 2 and the covenant not to solicit set forth in
Paragraph 3, the Corporations shall pay to Dozzi $239,430.00 in the
aggregate, of which (i) $29,148.00 shall be paid each year for the first
five (5) years of the Term of this Agreement and (ii) $18,738.00 shall be
paid each year for the second five (5) years of the Term of this Agreement.
Such consideration shall be due and payable by the Corporations
notwithstanding the death of Dozzi at any time during the Term of this
Agreement, and upon his death, the rights to any consideration due and
payable hereunder shall inure to the benefit of Dozzi's heirs and legal
representatives.
(b) In the event the purchase option under the terms of the Lease,
dated December __, 1996, between Rockwood and Rockwood Asset Management,
Inc. is exercised by Rockwood, the Corporations shall prepay, and at any
other time the Corporations may prepay, the consideration due under
Paragraph 4(a) for the balance of the Term. The amount of any such
prepayment shall be equal to the present value of the future payments due
hereunder, determined using an 8.5% per annum discount rate, a mid-year
convention and straight line interpolation from the last month end.
5. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
-3-
<PAGE>
(b) The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and supersedes all
prior agreements, arrangements and understanding, written or oral, relating
to the subject matter hereof.
(d) Each Corporation may assign its rights, together with its
obligations hereunder, in connection with any sale, transfer or other
disposition of all or substantially all of its business or assets; in any
event, the obligations of each Corporation hereunder shall be binding on
its successors or assigns, whether by merger, consolidation or acquisition
of all or substantially all of its business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant
contained in this Agreement.
(f) Any and all notices or other communications or deliveries required
or permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement,
or to such other address as a party may provide in accordance with this
Section 5(f). Any notice or other communications or deliveries hereunder
shall be deemed given and effective (i) upon receipt if delivered
personally or by courier, or (ii) three days after mailing as provided
above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have executed and delivered this
Agreement on the date first above written.
_____________________________
Peter C. Dozzi
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE
COMPANY
By:___________________________
Name:
Title:
-5-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
PREMIER AUTO INSURANCE COMPANY
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of
December 31, 1996, between FRONT ROYAL, INC., a North Carolina corporation with
its principal offices at 2200 Gateway Boulevard, Suite 205, Morrisville, NC
27560 (the "Corporation"), and PREMIER AUTO INSURANCE COMPANY, a Pennsylvania
stock insurance company with its principal offices at 502 West Office Center
Drive, Fort Washington, Pennsylvania 19034 ("Premier").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, and pursuant to the terms of a Stock Purchase Agreement, dated as of
December 6, 1996 (the "Stock Purchase Agreement"), among PIC Insurance Group,
Inc. ("PIC") and Trirock Limited Partnership ("Trirock"), as sellers, and the
Corporation, as buyer, the Corporation purchased from PIC (a) 250,000 shares of
Class A Common Stock, no par value, of Rockwood Casualty Insurance Company
("Rockwood"), constituting 50% of all of the issued and outstanding shares of
Class A Common Stock and (b) 571,961 shares of Class B Common Stock, no par
value, of Rockwood, constituting all of the issued and outstanding shares of
Class B Common Stock of Rockwood;
WHEREAS, it is a condition to consummation of the Closing (as
defined in the Stock Purchase Agreement) that this Agreement be executed and
delivered and in full force and effect; and
WHEREAS, the Corporation wishes to be protected against
competition from Premier in the business of writing or issuing workers
compensation and related lines of insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the mutual covenants and
promises herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Term of the Agreement. The term of this Agreement
shall commence on the date hereof and continue through the tenth anniversary of
the date hereof (the "Term").
2. Covenant Not to Compete. (a) Premier covenants and
agrees that (i) the Corporation will suffer substantial damage which will be
difficult to compute if, after consummation of the Closing, Premier should
engage in any Competitive Business and (ii) the provisions of this Paragraph 2
are reasonable and necessary for the protection of the Corporation.
<PAGE>
(b) During the Term of this Agreement, without the prior
written consent of the Corporation, Premier shall not, in the States of
Delaware, Indiana, Pennsylvania, Maryland, Virginia or West Virginia, directly
or indirectly: (i) enter into the employ of or render any services to any
person, firm, corporation, partnership, limited liability company or other
entity or business engaged in any Competitive Business; (ii) engage in any
Competitive Business for its own account; or (iii) become associated with or
interested in any Competitive Business as a partner, shareholder, creditor,
principal, agent, employee, trustee, consultant, advisor or in any other
relationship or capacity. Mere passive ownership of stock representing 5% or
less of the capital stock of a publicly held company shall not be deemed a
breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration or area, or all of them, and such modification or provisions shall then
be applicable in such modified form.
(d) If Premier commits a breach, or threatens to commit a
breach, of any of the provisions of clause (b) above, the Corporation shall have
the right and remedy, in addition to all other remedies at law and in equity:
(i) to have the provisions of this Paragraph 2 specifically enforced by any
court having equity jurisdiction; and (ii) to require Premier to account for and
pay over to the Corporation all compensation, profits, monies, accruals,
increments, or other benefits derived or received by Premier as the result of
any transactions constituting a breach of any of the provisions of clause (b)
above and Premier hereby agrees to account for and pay over such benefits to the
Corporation.
3. Covenant Not to Solicit. (a) Premier covenants and agrees
that for the Term of this Agreement it shall not, directly or indirectly,
solicit for its own account or for the account of another, or assist any other
person in soliciting, for the purpose of placing workers compensation insurance
or related insurance lines with an insurance company other than Rockwood, any of
the agents or brokers who placed workers compensation business with Rockwood and
are identified on Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit
Premier from soliciting any of the agents or brokers identified on Exhibit A for
its own account or for the account of another, for the purpose of placing any
line of insurance which is unrelated to workers compensation insurance.
(b) Premier further agrees that, during the Term of this
Agreement, it shall not directly or indirectly (i) solicit, entice, persuade or
seek to induce any person who is or was an
-2-
<PAGE>
employee of, or consultant to, Rockwood on the date hereof or at any time during
the Term of this Agreement or the six-month period prior to the date hereof, to
terminate his or her employment or consultancy with Rockwood, or (ii) solicit,
entice, persuade or seek to induce, for its own account or for the account of
any other person, any person who is or was an employee or consultant of Rockwood
on the date hereof or at any time during the term of this Agreement or the
six-month period prior to the date hereof, for employment with any insurance
company writing workers compensation or related lines of insurance, or (iii)
approach any such employee or consultant for any of the foregoing purposes, or
(iv) authorize or assist in the taking of any such actions by any third party.
4. Consideration. (a) In consideration of the covenant not to
compete set forth in Paragraph 2 and the covenant not to solicit set forth in
Paragraph 3, the Corporation shall pay to Premier $300,000.00 per annum for the
Term of this Agreement. Such annual payment shall be paid, in advance, in four
equal installments on the first business day of each January, April, July and
October commencing January 1997.
(b) In the event the purchase option under the terms of the
Lease, dated December 31, 1996, between Rockwood and Rockwood Asset Management,
Inc. is exercised by Rockwood, the Corporation shall prepay, and at any other
time the Corporation may prepay, the consideration due under Paragraph 4(a) for
the balance of the Term. The amount of any such prepayment shall be equal to the
present value of the future payments due hereunder, determined using an 8.5% per
annum discount rate, a mid-year convention and straight line interpolation
from the last month end.
5. General. (a) This Agreement shall be governed by
and construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania applicable to agreements made and to be performed entirely in
Pennsylvania.
(b) The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understanding, written or
oral, relating to the subject matter hereof.
(d) The Corporation may assign its rights, together with its
obligations hereunder, in connection with any sale, transfer or other
disposition of all or substantially all of its business or assets; in any event,
the obligations of the Corporation hereunder shall be binding on its successors
or
-3-
<PAGE>
assigns, whether by merger, consolidation or acquisition of all or substantially
all of its business or assets.
(e) This Agreement may be amended, modified, superseded,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any time
or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries
required or permitted by this Agreement shall be in writing and shall be
delivered personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 5(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
IN WITNESS WHEREOF, the parties hereunder have caused this
Agreement to be executed by their duly authorized representative on the date
first above written.
PREMIER AUTO INSURANCE COMPANY
By:________________________________
Name:
Title:
FRONT ROYAL, INC.
By:________________________________
Name: J. Adam Abram
Title: Chief Executive Officer
-4-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
TERRENCE S. JACOBS
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of
December 31, 1996, among FRONT ROYAL, INC., a North Carolina corporation with
its principal offices at 2200 Gateway Boulevard, Suite 205, Morrisville, NC
27560 ("FRI"), ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania stock
insurance company with its principal offices at 654 Main Street, Rockwood,
Pennsylvania 15557 ("Rockwood"; together with FRI, the "Corporations"), and
TERRENCE S. JACOBS whose principal address is 200 Route 22, Delmont,
Pennsylvania 15626-0300 ("Jacobs").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, and pursuant to the terms of a Stock Purchase Agreement, dated as of
December 6, 1996 (the "Stock Purchase Agreement"), among Trirock Limited
Partnership ("Trirock") and PIC Insurance Group, Inc. ("PIC"), as sellers, and
FRI, as buyer, FRI purchased from Trirock 250,000 shares of Class A Common
Stock, no par value, of Rockwood, constituting 50% of all of the issued and
outstanding shares of Class A Common Stock;
WHEREAS, it is a condition to consummation of the Closing (as
defined in the Stock Purchase Agreement) that this Agreement be executed and
delivered and in full force and effect;
WHEREAS, the Corporations wish to be protected against
competition from each of the general partners of Trirock, in the business of
writing or issuing workers compensation and related lines of insurance
("Competitive Business"); and
WHEREAS, Jacobs is a general partner of Trirock.
NOW, THEREFORE, in consideration of the mutual covenants and
promises herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Term of the Agreement. The term of this Agreement
shall commence on the date hereof and continue through the tenth anniversary of
the date hereof (the "Term").
2. Covenant Not to Compete. (a) Jacobs covenants and
agrees that (i) the Corporations will suffer substantial damage which will be
difficult to compute if, after consummation of the Closing, Jacobs should engage
in any Competitive Business and (ii) the provisions of this Paragraph 2 are
reasonable and necessary for the protection of the Corporations.
<PAGE>
(b) Without the prior written consent of the Corporations, (1)
during the first 30 months of the Term of this Agreement, Jacobs shall not, in
the States of Delaware, Indiana, Maryland, Pennsylvania, Virginia or West
Virginia, and (2) during the remainder of the Term of this Agreement, Jacobs
shall not, in the States of Delaware, Indiana, Maryland, Virginia or West
Virginia or in Bedford, Blair, Fayette, Fulton, Indiana or Somerset Counties in
the Commonwealth of Pennsylvania, directly or indirectly: (i) enter into the
employ of or render any services to any person, firm, corporation, partnership,
limited liability company or other entity or business engaged in any Competitive
Business; (ii) engage in any Competitive Business for his own account; or (iii)
become associated with or interested in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity.
Mere passive ownership of stock representing 5% or less of the capital stock of
a publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration or area, or all of them, and such modification or provisions shall then
be applicable in such modified form.
(d) If Jacobs commits a breach, or threatens to commit a
breach, of any of the provisions of clause (b) above, the Corporations shall
have the right and remedy, in addition to all other remedies at law and in
equity: (i) to have the provisions of this Paragraph 2 specifically enforced by
any court having equity jurisdiction; and (ii) to require Jacobs to account for
and pay over to the Corporations all compensation, profits, monies, accruals,
increments, or other benefits derived or received by Jacobs as the result of any
transactions constituting a breach of any of the provisions of clause (b) above
and Jacobs hereby agrees to account for and pay over such benefits to the
Corporations.
(e) Nothing in this Agreement shall prohibit Jacobs from
purchasing insurance coverage, including workers compensation insurance, from an
insurer engaged in any Competitive Business, directly or indirectly for his own
account.
3. Covenant Not to Solicit. (a) Jacobs covenants and agrees
that for the Term of this Agreement he shall not, directly or indirectly,
solicit for his own account or for the account of another, or assist any other
person in soliciting, for the purpose of placing workers compensation insurance
or related insurance lines with an insurance company other than Rockwood, any of
the agents or brokers who placed workers compensation
-2-
<PAGE>
business with Rockwood and are identified on Exhibit A hereto. Nothing in this
Paragraph 3 shall prohibit Jacobs from soliciting any of the agents or brokers
identified on Exhibit A for his own account or for the account of another, for
the purpose of placing any line of insurance which is unrelated to workers
compensation insurance.
(b) Jacobs further agrees that, during the Term of this
Agreement, he shall not directly or indirectly (i) solicit, entice, persuade or
seek to induce any person who is or was an employee of, or consultant to,
Rockwood on the date hereof or at any time during the Term of this Agreement or
the six-month period prior to the date hereof, to terminate his or her
employment or consultancy with Rockwood, or (ii) solicit, entice, persuade or
seek to induce, for his own account or for the account of any other person, any
person who is or was an employee or consultant of Rockwood on the date hereof or
at any time during the term of this Agreement or the six-month period prior to
the date hereof, for employment with any insurance company writing workers
compensation or related lines of insurance, or (iii) approach any such employee
or consultant for any of the foregoing purposes, or (iv) authorize or assist in
the taking of any such actions by any third party.
4. Consideration. (a) In consideration of the covenant not to
compete set forth in Paragraph 2 and the covenant not to solicit set forth in
Paragraph 3, the Corporations shall pay to Jacobs $333,960.00 in the aggregate,
of which (i) $40,656.00 shall be paid each year for the first five (5) years of
the Term of this Agreement and (ii) $26,136.00 shall be paid each year for the
second five (5) years of the Term of this Agreement. Such consideration shall be
due and payable by the Corporations notwithstanding the death of Jacobs at any
time during the Term of this Agreement, and upon his death, the rights to any
consideration due and payable hereunder shall inure to the benefit of Jacobs'
heirs and legal representatives.
(b) In the event the purchase option under the terms of the
Lease, dated December __, 1996, between Rockwood and Rockwood Asset Management,
Inc. is exercised by Rockwood, the Corporations shall prepay, and at any other
time the Corporations may prepay, the consideration due under Paragraph 4(a) for
the balance of the Term. The amount of any such prepayment shall be equal to the
present value of the future payments due hereunder, determined using an 8.5% per
annum discount rate, a mid-year convention and straight line interpolation from
the last month end.
5. General. (a) This Agreement shall be governed by
and construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania applicable to agreements made and to be performed entirely in
Pennsylvania.
-3-
<PAGE>
(b) The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understanding, written or
oral, relating to the subject matter hereof.
(d) Each Corporation may assign its rights, together with its
obligations hereunder, in connection with any sale, transfer or other
disposition of all or substantially all of its business or assets; in any event,
the obligations of each Corporation hereunder shall be binding on its successors
or assigns, whether by merger, consolidation or acquisition of all or
substantially all of its business or assets.
(e) This Agreement may be amended, modified, superseded,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any time
or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries
required or permitted by this Agreement shall be in writing and shall be
delivered personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 5(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have executed and
delivered this Agreement on the date first above written.
-----------------------------
Terrence S. Jacobs
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE
COMPANY
By:___________________________
Name:
Title:
-5-
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1593 EVERGREEN INS. ASSOC., INC. CQ-2278-NR 19 69,521.00 113,909.00 98,904.00
1593 EVERGREEN INS. ASSOC., INC. CQ-503742688 37 6,942,916.00 8,982,380.00 8,244,772.00
1593 EVERGREEN INS. ASSOC., INC. 47 0.00 1,733.00 0.00
1593 TOTAL 7,012,437.00 9,098,021.00 8,343,677.00
1473 RESCHINI AGENCY, INC. CQ-503784761 37 3,785,013.00 3,130,419.00 2,382,920.00
0259 CENTURY UNDERWRITERS, INC. 19 0.00 0.00 8,863.00
0259 CENTURY UNDERWRITERS, INC. CQ-503307166 37 2,353,727.00 3,362,256.00 3,769,199.00
0259 TOTAL 2,353,727.00 3,362,256.00 3,778,062.00
0127 GATEWAY/PENNSY UND. INC. CQ-28074 19 365.00 585.00 0.00
0127 GATEWAY/PENNSY UND. INC. CQ-503174162 37 1,708,094.00 1,427,883.00 777,725.00
0127 TOTAL 1,708,459.00 1,428,468.00 777,725.00
1315 W. N. TUSCANO AGENCY, INC. 19 634.00 634.00 556.00
1315 W. N. TUSCANO AGENCY, INC. CQ-575197298 37 1,080,122.00 1,699,009.00 1,682,120.00
1315 TOTAL 1,080,756.00 1,699,643.00 1,682,676.00
0054 BLOOM INSURANCE AGENCY, INC. CQ-503514522 37 1,006,623.00 1,236,895.00 1,126,081.00
2153 MID STATE INS. UND., INC. BL-12549 07 29,883.00 31,221.00 14,586.00
2153 MID STATE INS. UND., INC. CQ-6354-C 19 226,871.00 429,092.00 352,552.00
2153 MID STATE INS. UND., INC. CQ-503845111 37 640,197.00 900,181.00 1,326,085.00
2153 MID STATE INS. UND., INC. AGT-251682000 45 8,840.00 5,473.00 12,403.00
2153 TOTAL 905,791.00 1,365,967.00 1,705,626.00
2138 GEORGE CLYMER INS. AGY., INC./ CQ-503044853 37 746,775.00 1,443,730.00 1,734,737.00
2138 GEORGE CLYMER INS. AGY., INC./ 45 4,018.00 0.00 0.00
2138 TOTAL 750,793.00 1,443,730.00 1,734,737.00
1440 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 734,950.00 752,054.00 659,446.00
2201 STEFKOVICH & SOROKES, INC. T/A CQ-503917985 37 711,899.00 380,761.00 0.00
2190 ENGLE-HAMBRIGHT & DAVIES, INC. CQ-571004731 37 610,897.00 259,648.00 0.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 513,199.00 671,915.00 598,345.00
1700 BEALL GARNER SCREEN&GEARE INC CQ-503930324 37 82,151.00 64,061.00 56,063.00
1700 TOTAL 595,350.00 735,976.00 654,408.00
1612 MALLALIEU-GOLDER INS AGY INC CQ-575591353 37 578,282.00 583,674.00 193,610.00
1937 ATLANTIC/SMITH CROPPER&DEELEY BL-12513 07 1,173.00 1,760.00 451.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 512,327.00 540,674.00 273,055.00
1937 ATLANTIC/SMITH CROPPER&DEELEY CQ-388082018 37 2,135.00 0.00 0.00
1937 ATLANTIC/SMITH CROPPER&DEELEY AGT-213528875 45 0.00 250.00 250.00
1937 TOTAL 515,635.00 542,684.00 273,756.00
1910 MPT INC T/A MAFD INS. AGY./ AGT-12710 07 40,714.00 32,160.00 15,144.00
1910 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 412,802.00 573,494.00 396,916.00
1910 MPT INC T/A MAFD INS. AGY./ ORDERED 37 38,203.00 14,502.00 46,426.00
1910 TOTAL 491,719.00 620,156.00 458,486.00
1356 RICHARD B. RYON INSURANCE CQ-575740880 37 489,276.00 576,009.00 570,234.00
1960 HAY & LANGRALL, L.L.C./ CQ-7522-C 19 450,441.00 164,715.00 0.00
1960 HAY & LANGRALL, L.L.C./ ORDERED 45 1,990.00 0.00 0.00
1960 TOTAL 452,431.00 164,715.00 0.00
1425 BURNS & BURNS ASSOC., INC. T/A CQ-503359388 37 448,173.00 600,408.00 540,880.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-0317-C 19 451,927.00 495,105.00 648,002.00
1810 BENJAMIN F. BROWN INS AGY INC CQ-051940225 37 (6,822.00) 2,522.00 4,300.00
1810 BENJAMIN F. BROWN INS AGY INC TO BE RELICENSED 45 1,256.00 0.00 0.00
1810 TOTAL 446,361.00 497,627.00 652,302.00
1636 THE KNEPPER AGENCY, INC. CQ-5927-C 19 33,556.00 47,977.00 45,005.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1636 THE KNEPPER AGENCY, INC. CQ-503939992 37 376,878.00 431,720.00 483,321.00
1636 TOTAL 410,434.00 479,697.00 528,326.00
2224 CONSTRUCTION INS CONSULT., INC CQ-503783501 37 401,489.00 0.00 0.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-5596-C 19 14,522.00 16,657.00 14,859.00
1626 JAMES L. SMITH INS. AGENCY INC CQ-503076220 37 380,647.00 381,824.00 626,303.00
1626 TOTAL 395,169.00 398,481.00 641,162.00
2194 HIGGINS ASSOCIATES CQ-575072032 37 391,285.00 85,764.00 0.00
2013 YODER-HERSHBERGER INSURANCE CQ-60289 19 147,384.00 140,885.00 6,245.00
2013 YODER-HERSHBERGER INSURANCE CQ-361793308 37 236,897.00 275,272.00 407,238.00
2013 TOTAL 384,281.00 416,157.00 413,483.00
1903 THE JACOBS COMPANY, INC. CQ-5153-C 19 377,559.00 361,780.00 1,730.00
2150 J. C. JONES ASSOCIATES/ CQ-325916845 37 374,907.00 587,302.00 808,034.00
1487 CHARLES P. LEACH AGENCY, INC. CQ-503349456 37 318,280.00 512,275.00 584,763.00
1487 CHARLES P. LEACH AGENCY, INC. 47 0.00 0.00 4,123.00
1487 TOTAL 318,280.00 512,275.00 588,886.00
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 19 0.00 (191.00) (19.00)
8175 COAL DEFERRED PREMIUM ACCT.-I ACCOUNT ONLY 37 315,633.00 (375,389.00) 951,706.00
8175 TOTAL 315,633.00 (375,580.00) 951,687.00
1703 GONDER INSURANCE AGENCY, INC. CQ-2539-C 19 297,170.00 318,271.00 195,291.00
1703 GONDER INSURANCE AGENCY, INC. 47 0.00 0.00 (122.00)
1703 TOTAL 297,170.00 318,271.00 195,169.00
1981 MARTENS-JOHNSON INS AGY, INC/ CQ-4352-C 19 276,598.00 0.00 0.00
1016 H. R. WOOLRIDGE COMPANY CQ-501217777 37 274,930.00 178,890.00 192,213.00
2133 CONCEPT INS. ASSOC., INC. CQ-503805996 37 266,518.00 716,867.00 15,576.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-7485-C 19 31,550.00 10,711.00 1,200.00
1504 BRUMBAUGH INSURANCE GROUP, INC CQ-503998583 37 216,584.00 1,313,714.00 1,834,532.00
1504 TOTAL 248,134.00 1,324,425.00 1,835,732.00
1978 MPT INC T/A MAFD INS. AGY./ CQ-0241-M 19 234,666.00 0.00 0.00
2018 DON R MYERS & CONSTANCE I NORK CQ-503999256 37 221,605.00 336,154.00 136,618.00
2204 INTERCONTINENTAL SERV AGY INC CQ-575399626 37 215,457.00 1,128.00 0.00
2165 ECHNOZ, SCALZOTT & SCHUTZMAN CQ-503612160 37 203,144.00 475,365.00 514,484.00
1456 SCOTT D. WATSON INS. AGENCY CQ-342994692 37 200,588.00 594,356.00 667,274.00
2259 CENTURY UNDERWRITERS, INC./ CQ-503307166 37 197,877.00 248,815.00 246,048.00
0258 SEATON & BOWMAN, INC. CQ-503395123 37 193,244.00 232,781.00 236,292.00
1752 ALL INSURANCE RESOURCE, INC. CQ-1786-C 19 190,222.00 204,850.00 172,640.00
1752 ALL INSURANCE RESOURCE, INC. 37 (909.00) 1,432.00 2,113.00
1752 TOTAL 189,313.00 206,282.00 174,753.00
1824 MAYER, STEINBERG & YOSPE, INC/ CQ-0100-C 19 185,852.00 262,078.00 259,860.00
1190 INTERSTATE INS. MGMT., INC. CQ-4604-C 19 7,978.00 7,065.00 6,974.00
1190 INTERSTATE INS. MGMT., INC. CQ-503537470 37 175,997.00 305,893.00 266,942.00
1190 TOTAL 183,975.00 312,958.00 273,916.00
2221 EVERGREEN INS. ASSOC., INC./ CQ-503742688 37 181,350.00 22,165.00 0.00
1287 JOHN A. FIESTA AGENCY, INC. CQ-503819287 37 180,514.00 213,947.00 204,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1037 HELMBOLD & STEWART, INC. CQ-503530632 37 177,520.00 293,932.00 428,575.00
1455 GARDINER A. WARNER LTD., INC. 07 2,139.00 4,201.00 0.00
1455 GARDINER A. WARNER LTD., INC. CQ-573695256 37 173,227.00 133,751.00 77,736.00
1455 TOTAL 175,366.00 137,952.00 77,736.00
1654 NEW HORIZONS INS. AGENCY, INC. 07 320.00 0.00 0.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-2867-C 19 178,847.00 590,300.00 306,795.00
1654 NEW HORIZONS INS. AGENCY, INC. CQ-503772626 37 (7,327.00) 65,385.00 121,226.00
1654 NEW HORIZONS INS. AGENCY, INC. 45 2,441.00 145,102.00 42,050.00
1654 TOTAL 174,281.00 800,787.00 470,071.00
1804 PATUXENT INSURANCE GROUP 07 0.00 0.00 (695.00)
1804 PATUXENT INSURANCE GROUP CQ-2995-P 19 171,891.00 165,209.00 192,438.00
1804 TOTAL 171,891.00 165,209.00 191,743.00
1748 ROSSMANN-HURT-HOFFMAN, INC. CQ-0118-C 19 159,470.00 49,797.00 26,484.00
2193 LANCHESTER INSURANCE, LTD. T/A CQ-575563343 37 159,067.00 12,107.00 0.00
1806 APPLIED INS. SERVICES, INC. CQ-2984-C 19 158,457.00 166,740.00 164,715.00
1806 APPLIED INS. SERVICES, INC. 37 0.00 (250.00) 250.00
1806 TOTAL 158,457.00 166,490.00 164,965.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ-0134-C 19 145,323.00 240,207.00 107,548.00
1708 WRIGHT-GARDNER INSURANCE, INC. CQ--51049391 37 12,723.00 23,345.00 17,919.00
1708 TOTAL 158,046.00 263,552.00 125,467.00
1825 INSURANCE, INCORPORATED AGT-44178 07 4,987.00 0.00 0.00
1825 INSURANCE, INCORPORATED CQ-0127-C 19 147,280.00 235,798.00 335,327.00
1825 INSURANCE, INCORPORATED 37 0.00 0.00 3,169.00
1825 INSURANCE, INCORPORATED AGT-220442455 45 4,337.00 3,475.00 5,722.00
1825 TOTAL 156,604.00 239,273.00 344,218.00
1281 THE GUTHRIE AGENCY CQ-349018583 37 154,586.00 235,050.00 271,738.00
1669 FETTERMAN, MILLINGHAUSEN & CQ-575927708 37 153,825.00 67,729.00 15,907.00
2074 COORDINATED UNDERWRITERS, INC. CQ-503943465 37 153,004.00 141,817.00 128,472.00
1801 LASSEN, MARINE & WEBSTER, INC. 07 250.00 0.00 0.00
1801 LASSEN, MARINE & WEBSTER, INC. CQ-2225-C 19 150,960.00 153,810.00 96,284.00
1801 TOTAL 151,210.00 153,810.00 96,284.00
1943 INS. MARKETING SPECIALISTS INC CQ-2164-C 19 144,908.00 137,435.00 3,451.00
1943 INS. MARKETING SPECIALISTS INC 37 1,067.00 0.00 0.00
1943 INS. MARKETING SPECIALISTS INC 45 1,224.00 633.00 0.00
1943 TOTAL 147,199.00 138,068.00 3,451.00
2670 MIAMI VALLEY E&S AGY OF WV INC 37 50.00 0.00 0.00
2670 MIAMI VALLEY E&S AGY OF WV INC AGT-000007794 47 146,272.00 67,208.00 7,751.00
2670 TOTAL 146,322.00 67,208.00 7,751.00
1777 HARVEY O. RILEY INS AGENCY INC CQ-1979-C 19 139,783.00 189,259.00 159,435.00
1777 HARVEY O. RILEY INS AGENCY INC 37 350.00 0.00 0.00
1777 TOTAL 140,133.00 189,259.00 159,435.00
1421 FIORE LOUIS NARDO T/A CQ-386791889 37 138,289.00 135,560.00 116,340.00
2118 J. C. JONES ASSOCIATES CQ-325916845 37 133,779.00 168,454.00 161,749.00
1891 ATLANTIC INS. MGMT., INC. CQ-3352-C 19 133,425.00 92,859.00 17,551.00
2072 C. I. M. C. O. CORPORATION CQ-575561439 37 124,504.00 176,339.00 139,421.00
2086 HARRY BLACKWOOD, INC. CQ-503103374 37 122,280.00 154,108.00 160,819.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1615 SALTZMAN ASSOCIATES, INC. 19 66,120.00 67,660.00 67,590.00
1615 SALTZMAN ASSOCIATES, INC. CQ-573286083 37 55,430.00 45,650.00 51,779.00
1615 TOTAL 121,550.00 113,310.00 119,369.00
0078 BURNS & BURNS ASSOC., INC. CQ-503359388 37 121,153.00 216,719.00 273,945.00
1401 W. W. LEE & SON, LTD. CQ-05333376 37 117,088.00 238,316.00 258,711.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-2929-C 19 2,937.00 1,627.00 3,447.00
1650 WHITE HALL AGENT'S AGENCY INC. CQ-575536970 37 113,869.00 130,583.00 108,391.00
1650 TOTAL 116,806.00 132,210.00 111,838.00
1192 HAUSER AGENCY, INC. CQ-503014010 37 116,321.00 114,063.00 98,546.00
1192 HAUSER AGENCY, INC. 47 (147.00) 772.00 647.00
1192 TOTAL 116,174.00 114,835.00 99,193.00
0181 KONHAUS-ROBERTSON AGENCY CQ-13036-NR 19 82,103.00 101,017.00 78,518.00
0181 KONHAUS-ROBERTSON AGENCY CQ-511542267 37 32,490.00 45,960.00 53,768.00
0181 TOTAL 114,593.00 146,977.00 132,286.00
1925 BARNES & BOLLINGER INSURANCE CQ-4110-C 19 111,918.00 239,806.00 148,993.00
1925 BARNES & BOLLINGER INSURANCE CQ-539892665 37 320.00 0.00 0.00
1925 TOTAL 112,238.00 239,806.00 148,993.00
1926 STANLEY J. PAGE INS., INC. T/A CQ-5944-C 19 112,231.00 61,108.00 16,254.00
1926 STANLEY J. PAGE INS., INC. T/A 37 0.00 0.00 903.00
1926 TOTAL 112,231.00 61,108.00 17,157.00
1507 C. W. HOWARD INS. AGENCY, INC. CQ-503592437 37 111,607.00 135,436.00 117,560.00
1013 H G M, INC. T/A CQ-503650051 37 111,434.00 161,875.00 161,589.00
1180 MURRAY INS. AGY., INC. CQ-575364004 37 108,935.00 137,329.00 96,137.00
1242 EBENSBURG INSURANCE AGENCY CQ-365055001 37 106,491.00 170,521.00 172,987.00
1721 C. I. SNYDER INS. AGY., INC. CQ-7501-C 19 100,753.00 90,316.00 44,390.00
1721 C. I. SNYDER INS. AGY., INC. BL-536540411 37 3,941.00 0.00 0.00
1721 C. I. SNYDER INS. AGY., INC. 45 797.00 0.00 0.00
1721 TOTAL 105,491.00 90,316.00 44,390.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-36664-NR 19 14,442.00 0.00 0.00
2119 CONSOLIDATED NAT. INSURERS INC CQ-575011887 37 88,425.00 180,956.00 184,692.00
2119 TOTAL 102,867.00 180,956.00 184,692.00
1820 PRICE-HERMAC INS. AGY., INC. CQ-1156-C 19 102,719.00 108,519.00 100,197.00
2130 FRANKLIN INS. AGY., INC. CQ-503894394 37 100,464.00 180,645.00 163,147.00
0679 THE REINARD AGENCY, INC. CQ-573942894 37 97,437.00 272,900.00 234,401.00
2081 THE MADDEN INS. GROUP, INC. CQ-575034414 37 97,187.00 118,836.00 55,505.00
1094 BARNETT INSURANCE, INC. CQ-503179416 37 96,136.00 101,490.00 74,270.00
2035 DUBLER INSURANCE AGENCY CQ-383981633 37 95,820.00 154,585.00 156,821.00
1928 SCALLA & ASSOCIATES CQ-40084 19 95,081.00 130,037.00 76,465.00
0058 BROOKVILLE INS. AGY., INC. T/A CQ-503394328 37 94,987.00 115,013.00 95,537.00
1823 MAYER, STEINBERG & YOSPE, INC. CQ-0100-C 19 94,930.00 123,603.00 135,705.00
1597 PHILLIPS-MITZEL, INC. 07 1,363.00 1,704.00 487.00
1597 PHILLIPS-MITZEL, INC. 19 4,215.00 6,217.00 627.00
1597 PHILLIPS-MITZEL, INC. CQ-573671794 37 86,429.00 100,238.00 37,211.00
1597 PHILLIPS-MITZEL, INC. 45 0.00 487.00 432.00
1597 TOTAL 92,007.00 108,646.00 38,757.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2114 GARY E. FAYE AND ASSOCIATES CQ-348784815 37 89,857.00 139,485.00 103,281.00
1938 SANTUCCI & ASSOC INS AGY INC CQ-6144-C 19 87,950.00 44,457.00 16,390.00
1938 SANTUCCI & ASSOC INS AGY INC 37 1,626.00 15,508.00 0.00
1938 TOTAL 89,576.00 59,965.00 16,390.00
1592 BAILY INSURANCE AGENCY, INC. CQ-503705321 37 89,524.00 119,713.00 100,086.00
2172 TRANS SERVICE INS. AGY., INC. CQ-503866291 37 88,006.00 111,884.00 0.00
1766 GRIFFITH/ALLIED RISK MGMT INC CQ-5636-C 19 87,771.00 108,633.00 157,431.00
1211 THE YORKE AGENCY, INC. CQ-503553506 37 87,480.00 109,389.00 91,228.00
1339 BEST INSURANCE GROUP, INC./ CQ-2306-C 19 649.00 649.00 1,244.00
1339 BEST INSURANCE GROUP, INC./ CQ-503780751 37 86,622.00 136,077.00 197,228.00
1339 TOTAL 87,271.00 136,726.00 198,472.00
0280 HARRY J. NEDLEY D/B/A BARTON MINING-PA RISK 19 35,761.00 24,398.00 37,094.00
0280 HARRY J. NEDLEY D/B/A CQ-510992291 37 51,173.00 70,217.00 80,978.00
0280 TOTAL 86,933.00 94,614.00 118,072.00
2115 TYROL INSURANCE AGENCY, INC. CQ-575394819 37 86,642.00 66,745.00 60,631.00
0711 LIBERTY FINANCIAL SERVICES INC 19 3,035.00 0.00 0.00
0711 LIBERTY FINANCIAL SERVICES INC CQ-503920213 37 83,165.00 55,398.00 20,315.00
0711 TOTAL 86,200.00 55,398.00 20,315.00
2220 WATSON INSURANCE AGENCY, INC. CQ-503306339 37 84,867.00 0.00 0.00
1229 ALTANY INSURANCE AGENCY, INC. CQ-503512030 37 84,002.00 106,352.00 149,565.00
2010 DAVIS INSURANCE AGENCY, INC. CQ-575399660 37 82,184.00 117,816.00 81,938.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-6161-C 19 61,473.00 22,449.00 0.00
1944 MOSCKER INSURANCE AGENCY, INC. CQ-537893147 37 19,893.00 15,655.00 0.00
1944 TOTAL 81,366.00 38,104.00 0.00
1613 ROBERT C. WILLIAMS INS AGY INC CQ-591488954 37 80,774.00 64,059.00 36,450.00
1946 HANKOFF INSURANCE GROUP, INC. CQ-5632-C 19 79,937.00 94,047.00 0.00
1946 HANKOFF INSURANCE GROUP, INC. 37 232.00 0.00 0.00
1946 TOTAL 80,169.00 94,047.00 0.00
1657 LOUIS SAVADOVE & ASSOC., INC. CQ-575532411 37 79,196.00 99,447.00 50,361.00
0602 MARKEE-BLACK AGENCIES, INC. 07 9.00 0.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. 19 1,772.00 189.00 0.00
0602 MARKEE-BLACK AGENCIES, INC. CQ-575101233 37 76,130.00 145,910.00 59,112.00
0602 TOTAL 77,911.00 146,099.00 59,112.00
1448 KERWICK INS. AGENCY, INC. CQ-575145183 37 77,715.00 382,655.00 529,509.00
1883 DIEHL & DIEHL INSURANCE, INC. CQ-3951-C 19 77,669.00 87,310.00 74,896.00
1920 CHESAPEAKE SPECIAL RISKS, LTD. CQ-60117 19 77,431.00 13,175.00 17,918.00
2011 LAUREL INS MANAGEMENT INC 19 0.00 174.00 473.00
2011 LAUREL INS MANAGEMENT INC CQ-503755880 37 77,296.00 199,210.00 325,132.00
2011 TOTAL 77,296.00 199,384.00 325,605.00
1827 BROTHERS INS. ASSOCIATES, INC. CQ-3697-C 19 77,066.00 72,614.00 35,630.00
2034 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 74,962.00 126,040.00 156,104.00
1855 WERNER AGENCY, LTD. CQ-4239-C 19 74,201.00 125,648.00 108,602.00
1855 WERNER AGENCY, LTD. AGT-521326462 45 262.00 738.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1855 TOTAL 74,463.00 126,386.00 108,602.00
2040 PENN CENTER INS MGMT CORP T/A CQ-575585229 37 74,459.00 78,825.00 41,435.00
1847 CREELMAN INS ASSOC INC T/A CQ-1157-C 19 74,116.00 103,921.00 91,958.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 07 23.00 1,487.00 668.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 19 52,986.00 49,581.00 46,743.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 37 20,463.00 113,257.00 156,510.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 45 0.00 569.00 0.00
6175 DIRECT COLLECTION OF ACTIVE ACCOUNT ONLY 47 0.00 0.00 224.00
6175 TOTAL 73,472.00 164,894.00 204,146.00
0022 KERIN & COMPANY INC T/A CQ-20367-NR 19 0.00 0.00 (2,223.00)
0022 KERIN & COMPANY INC T/A CQ-503306339 37 73,346.00 118,960.00 124,322.00
0022 TOTAL 73,346.00 118,960.00 122,099.00
0678 KEITH D. & SUSAN R. SHIELDS CQ-503863844 37 73,024.00 75,495.00 89,334.00
1436 POE & BROWN OF PA, INC. 07 0.00 (3,053.00) 4,585.00
1436 POE & BROWN OF PA, INC. CQ-575435268 37 72,374.00 200,316.00 249,581.00
1436 TOTAL 72,374.00 197,263.00 254,166.00
7005 CALLISTUS SMITH AGENCY, INC. AGT-35-1129708 13 71,881.00 71,881.00 64,690.00
0687 L.A. ANDERSON & ASSOC INC T/A CQ-575382257 37 71,696.00 141,568.00 79,901.00
1671 MOSHOLDER INSURANCE AGENCY CQ-15086-NR 19 0.00 0.00 1,101.00
1671 MOSHOLDER INSURANCE AGENCY CQ-531542143 37 71,156.00 68,760.00 67,032.00
1671 TOTAL 71,156.00 68,760.00 68,133.00
2037 THE WARREN A GINGRICH AGY, INC CQ-573991754 37 70,422.00 128,410.00 144,367.00
1884 WARING-AHEARN INS. AGENCY INC. CQ-0828-C 19 70,000.00 73,682.00 47,388.00
1420 BEST INSURANCE GROUP, INC./ CQ-501955461 37 69,851.00 89,459.00 136,617.00
1549 TRIGGIANI INSURANCE AGENCY CQ-345516748 37 69,698.00 96,309.00 75,981.00
2188 CHARLES S NENNER INS ASSOC INC CQ-575721202 37 69,022.00 57,558.00 0.00
2195 LITTLE MICHAELS & KENNEDY, INC CQ-573238101 37 67,390.00 33,145.00 0.00
1019 EDWARD E. REITER INS. AGENCY CQ-340019516 37 67,253.00 102,084.00 101,011.00
2113 HARRIS AND DEZOMBA INS. AGENCY CQ-346516113 37 66,363.00 64,904.00 44,610.00
2206 KEVANE INSURANCE 07 132.00 329.00 0.00
2206 KEVANE INSURANCE CQ-389056453 37 65,946.00 5,625.00 0.00
2206 TOTAL 66,078.00 5,954.00 0.00
1346 DILLON-HANEY AGENCY, INC. CQ-575395190 37 65,360.00 74,964.00 39,461.00
1624 W-M-J AGENCY, INC. CQ-1328-C 19 44,906.00 19,660.00 25,056.00
1624 W-M-J AGENCY, INC. CQ-573840804 37 19,879.00 29,584.00 41,405.00
1624 TOTAL 64,785.00 49,244.00 66,461.00
2161 GEORGE CLYMER INS. AGY., INC. CQ-503044853 37 64,237.00 166,732.00 180,225.00
0950 JOSEPH H. TYSON & CO. INC. CQ-573737311 37 63,205.00 76,838.00 59,626.00
0031 ANDREW F. RODGERS INS AGY INC CQ-503952337 37 62,851.00 125,640.00 153,370.00
1688 CHARLES K. BANTLEY INSURANCE 19 319.00 0.00 0.00
1688 CHARLES K. BANTLEY INSURANCE CQ-517782560 37 62,525.00 109,052.00 86,914.00
1688 TOTAL 62,844.00 109,052.00 86,914.00
1763 FORD & ASSOC. INS. AGY., INC. CQ-3809-C 19 62,309.00 93,924.00 90,576.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1274 JOHN P. MEEHAN AGENCY, INC. CQ-573895509 37 61,960.00 85,770.00 130,155.00
2068 BEALL GARNER SCREEN&GEARE INC CQ0503930324 37 61,599.00 44,525.00 44,815.00
1706 KELLER-STONEBRAKER INS., INC. CQ00104-C 19 55,704.00 92,056.00 208,991.00
1706 KELLER-STONEBRAKER INS., INC. CQ-503013043 37 5,193.00 8,850.00 18,910.00
1706 TOTAL 60,897.00 100,906.00 227,901.00
2186 A I A ASSOCIATE, INC. CQ-575654303 37 60,496.00 42,692.00 0.00
0862 INSURANCE OFFICE OF PITTSBURGH CQ-503512832 37 59,572.00 82,336.00 73,144.00
2176 FIRST NAT. FIN. SERVICES, INC. CQ-575739701 37 59,186.00 55,945.00 771.00
1109 WALBECK GROUP, INC. T/A CQ-503656756 37 58,475.00 65,856.00 76,379.00
1936 WILLIAMSON & ASSOCIATES T/A CQ-60007 19 56,618.00 53,741.00 38,034.00
1936 WILLIAMSON & ASSOCIATES T/A 45 1,530.00 1,381.00 0.00
1936 TOTAL 58,148.00 55,122.00 38,034.00
1830 W. RAY HUFF & ASSOCIATES, INC. CQ-1587-C 19 58,122.00 71,594.00 86,131.00
1830 W. RAY HUFF & ASSOCIATES, INC. 45 0.00 250.00 250.00
1830 TOTAL 58,122.00 71,844.00 86,381.00
2088 M & K UNDERWRITING ASSOC., INC CQ-573231512 37 57,560.00 71,372.00 78,426.00
1389 SELTZER INS. AGENCY, INC. CQ-575323420 37 57,351.00 57,244.00 52,303.00
1817 RIPPLE INSURANCE AGENCY, INC. CQ-3142-C 19 56,762.00 45,800.00 61,163.00
1771 TOMCO INSURANCE CORPORATION CQ-2222-C 19 56,282.00 92,781.00 73,206.00
1081 TRUXEL-LAUGHLIN INS. AGY., INC CQ-501242316 37 55,727.00 50,417.00 32,973.00
1716 MATTERHORN INS. AGENCY, INC. CQ-0213-C 19 55,682.00 68,035.00 103,687.00
1716 MATTERHORN INS. AGENCY, INC. CQ-053359845 37 0.00 417.00 265.00
1716 TOTAL 55,682.00 68,452.00 103,952.00
1576 SUNDAHL & CO., INC. T/A CQ-503962463 37 55,238.00 84,556.00 56,154.00
0846 BLOCK INSURANCE AGENCY, INC. CQ-573076123 37 54,402.00 54,690.00 35,776.00
2135 MOUNTAIN INSURANCE AGENCY CQ-342740085 37 54,201.00 57,768.00 40,523.00
2135 MOUNTAIN INSURANCE AGENCY 47 0.00 50.00 0.00
2135 TOTAL 54,201.00 57,818.00 40,523.00
2102 BRETT INSURANCE AGENCY, INC. CQ-503974614 37 53,887.00 72,456.00 29,937.00
1982 CARL J. MEIL, JR., INC. CQ-0181-C 19 53,765.00 0.00 0.00
2137 STAR INSURANCE AGENCY, INC. CQ-503927261 37 53,612.00 28,611.00 10,390.00
1049 HENRY DUNN, INC. CQ-573874973 37 53,423.00 76,655.00 66,282.00
1958 DEMETRIOU INS. SERVICES, INC. CQ-4809-C 19 52,889.00 9,405.00 0.00
1321 KENNETT INSURANCE SERV., INC. CQ-573210099 37 52,767.00 38,857.00 46,343.00
2046 WILLIAM A. MCGINLEY AGENCY CQ-363555745 37 52,518.00 62,116.00 66,510.00
2055 SPODEK INSURANCE AGENCY INC. CQ-503770366 37 52,429.00 84,802.00 100,485.00
2070 ALLEGHENY VALLEY AGENCY CQ-503072898 37 51,033.00 86,081.00 14,655.00
6196 GAINES & CRITZER, LTD. AGT-541432601 45 50,865.00 202,045.00 208,516.00
1610 WALTER W SOBEK&RONALD N SMITH CQ-503784918 37 50,652.00 89,558.00 70,580.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2225 MID STATE INS. UND., INC. CQ-6354-C 19 5,437.00 0.00 0.00
2225 MID STATE INS. UND., INC. CQ-503845111 37 44,034.00 0.00 0.00
2225 MID STATE INS. UND., INC. AGT-251682000 45 784.00 0.00 0.00
2225 TOTAL 50,255.00 0.00 0.00
1725 TODD INSURANCE AGENCY, INC. CQ-1445-C 19 50,240.00 73,979.00 63,722.00
1632 O'NEILL INSURANCE AGENCY, INC. CQ-503520663 37 50,182.00 62,769.00 60,053.00
2183 LECHNER & STAUFFER, INC CQ-573843839 37 48,960.00 31,987.00 0.00
0880 THE RYERS AGENCY, INC. CQ-573203158 37 47,866.00 320,982.00 249,238.00
1452 SWIFT-HOPKINS, INC. T/A CQ-503347739 37 47,772.00 43,199.00 44,480.00
1360 LASTER, SAMANS & LEVIN, INC. CQ-575173733 37 47,369.00 107,605.00 23,098.00
2210 CSI SERVICES, INC. TO BE LICENSED 07 20,441.00 0.00 0.00
2210 CSI SERVICES, INC. CQ-503680948 37 26,405.00 0.00 0.00
2210 TOTAL 46,846.00 0.00 0.00
2166 ATLANTIC STAR CORPORATION CQ-575732578 37 46,265.00 29,300.00 0.00
1447 MEYER & ECKENRODE INS GRP INC CQ-503718484 37 46,186.00 113,601.00 110,662.00
1247 MORRY HOFFMAN AGENCY, INC. CQ-503171199 37 46,108.00 32,334.00 33,779.00
1468 JEFFERSON INSURANCE AGENCY CQ-501069961 37 45,150.00 63,867.00 74,178.00
2512 BUSINESS INS. SERVICES, INC. AGT-05951 07 27,685.00 23,061.00 21,940.00
2512 BUSINESS INS. SERVICES, INC. CQ-505084981 37 16,817.00 18,328.00 317.00
2512 TOTAL 44,502.00 41,389.00 22,257.00
2128 ROBERT S. STROBEL INS., INC. CQ-575034049 37 43,868.00 44,432.00 45,286.00
2191 C. L. MILLER INS. AGY., INC. CQ-575526885 37 43,256.00 12,835.00 0.00
2187 ATLANTIC STAR CORPORATION CQ-575732578 37 42,129.00 23,910.00 0.00
2189 COHENS' INSURANCE AGENCY 19 2,104.00 0.00 0.00
2189 COHENS' INSURANCE AGENCY CQ-383541653 37 39,377.00 6,585.00 0.00
2189 TOTAL 41,481.00 6,585.00 0.00
1913 J. R. H. INSURANCE, INC. T/A CQ-74578 19 33,821.00 46,868.00 49,544.00
1913 J. R. H. INSURANCE, INC. T/A CQ-053600290 37 4,823.00 2,152.00 1,731.00
1913 J. R. H. INSURANCE, INC. T/A 45 2,388.00 3,321.00 2,527.00
1913 TOTAL 41,032.00 52,341.00 53,802.00
1517 LEWIS CASUALTY, INC. CQ0575894570 37 41,026.00 55,642.00 69,879.00
0033 FREEHOLD/ALEXANDER INS., INC. CQ-575743339 37 40,988.00 2,522.00 6,880.00
2144 BEST INSURANCE GROUP, INC./ CQ-510581199 37 40,968.00 23,817.00 18,407.00
1691 TEETER INS. AGENCY, INC. CQ-503039905 37 40,950.00 81,801.00 41,546.00
1148 AFFOLDER & ASSOC. INS. CENTER CQ-368592376 37 40,751.00 77,595.00 70,924.00
1602 BROKERS SURPLUS AGY N.A., INC. CQ-345710597 37 40,705.00 29,333.00 39,245.00
1537 B & W INSURANCE AGENCY, INC. CQ-503501968 37 40,540.00 80,111.00 58,302.00
0212 ALLMAN & COMPANY, INC. CQ-573903756 37 40,451.00 59,249.00 21,338.00
0947 F. P. TROHA CQ-368745152 37 40,439.00 39,978.00 30,142.00
2168 LINDSAY INSURANCE GROUP, INC. CQ0575882492 37 40,312.00 74,331.00 24,382.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1336 WASSON INSURANCE AGENCY, INC. CQ-503522506 37 39,844.00 49,937.00 22,193.00
1948 HENRY M. MURRAY AGENCY, INC. CQ-0115-C 19 39,745.00 21,105.00 0.00
1947 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 39,034.00 35,178.00 0.00
1778 HARRIS & ASSOCIATES, INC. CQ-2101-C 19 38,570.00 38,579.00 66,835.00
1778 HARRIS & ASSOCIATES, INC. 37 306.00 318.00 163.00
1778 TOTAL 38,876.00 38,897.00 66,998.00
2167 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 38,676.00 35,063.00 0.00
1739 INS. MANAGEMENT ASSOC., INC. CQ-5236-C 19 38,257.00 17,128.00 10,541.00
2012 FISHER-WIDMANN-FLICK INS. & CQ-503546769 37 37,493.00 32,395.00 57,181.00
0094 BEYNON & COMPANY, INCORPORATED CQ-501292021 37 37,364.00 62,416.00 61,061.00
2184 SANDERS INSURANCE AGENCY, INC. CQ-503904573 37 35,762.00 20,060.00 0.00
2069 RICHARD BURKETT AGENCY CQ-322746172 37 35,547.00 28,091.00 56,270.00
2021 R. JAMES SMATHERS AGENCY, INC. CQ-575939272 37 35,524.00 48,298.00 51,591.00
2132 KOSTRUBANIC INS. AGY., INC. CQ-503039778 37 35,288.00 60,104.00 64,066.00
1942 WILSON, YOUNG & SCHEIDE CQ-5527-C 19 35,225.00 26,092.00 2,103.00
1382 ALLEGHENY INS. AGY., INC. CQ-503323931 37 34,995.00 29,150.00 33,378.00
1134 A. J. KUZNESKI, JR., INC. CQ-503340732 37 34,571.00 52,072.00 103,064.00
1843 HAY & LANGRALL, L.L.C. CQ-7522-C 19 34,382.00 95,107.00 86,319.00
2097 MCV, INC. CQ-503531681 37 34,243.00 34,481.00 17,048.00
2121 VALLEY AGENCY COMPANY CQ-575857594 37 34,160.00 36,837.00 52,221.00
2645 MOUNTAINEER BROKERS, INC. CQ-35734-NR 19 33,157.00 37,801.00 26,128.00
2645 MOUNTAINEER BROKERS, INC. AGT-000029091 47 778.00 (2,070.00) 69,909.00
2645 TOTAL 33,935.00 35,731.00 96,037.00
1140 CONSOLIDATED INS. AGENCIES INC CQ-573614825 37 32,899.00 31,122.00 10,964.00
2212 CSI SERVICES, INC./CEN CHESTER CQ-503680948 37 32,337.00 0.00 0.00
0210 SENTINEL INS. AGENCY, INC. CQ-573805281 37 32,201.00 33,484.00 54,458.00
0287 JOHN E. GADSBY CQ-518597173 37 31,845.00 42,363.00 47,776.00
2005 ROSS INSURANCE AGENCY CQ-575614734 37 31,748.00 27,990.00 25,060.00
1595 HARRY T. TRIOLO, JR. T/A CQ-512917932 37 31,518.00 108,361.00 80,075.00
1641 BEST INSURANCE GROUP, INC./ 19 0.00 100.00 100.00
1641 BEST INSURANCE GROUP, INC./ CQ-503091243 37 31,478.00 43,141.00 81,689.00
1641 TOTAL 31,478.00 43,241.00 81,789.00
2197 FRANK L. MCKENZIE INSURANCE CQ-343593461 37 31,471.00 14,676.00 0.00
1715 BRENDLER INS. AGENCY, INC. CQ-0625-C 19 31,358.00 173,176.00 54,620.00
2106 HURST-WEISS INS. AGY., INC. CQ-501087691 37 31,211.00 19,357.00 25,656.00
1431 SNYDER MOORE AGENCIES, INC. CQ-573892165 37 31,101.00 41,684.00 26,932.00
1299 VANDERSLICE-DOCKX-WILDEMORE, CQ-573638041 37 30,928.00 32,419.00 11,899.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2043 VANDINE'S INSURANCE SHOPPE CQ-533743279 37 30,392.00 85,602.00 104,814.00
1482 BROWNSON INSURANCE AGENCY CQ-349744175 37 30,145.00 44,712.00 17,377.00
2154 INS. MANAGEMENT CONCEPTS INC. CQ-503994440 37 30,108.00 188,177.00 188,149.00
1672 L. J. KUDER, INC. CQ-503348001 37 29,706.00 74,461.00 56,870.00
2129 JOHN VOLPE & ASSOCIATES, INC. CQ-575812911 37 29,613.00 51,315.00 62,546.00
1566 ROBERT SNYDER AGENCY CQ-503091194 37 29,010.00 27,265.00 43,595.00
1851 V. W. BROWN INS. SERVICE, INC. CQ-1524-C 19 28,660.00 27,792.00 15,181.00
1851 V. W. BROWN INS. SERVICE, INC. 37 282.00 0.00 0.00
1851 TOTAL 28,942.00 27,792.00 15,181.00
2208 CURRAN FINANCIAL GROUP, INC. CQ-575009216 37 28,889.00 0.00 0.00
1902 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 28,559.00 12,214.00 1,363.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,381.00 25,776.00 28,232.00
1919 KELLY-MURRAY INS. AGY., INC./ CQ-575883984 37 4,777.00 0.00 0.00
1919 TOTAL 28,158.00 25,776.00 28,232.00
2606 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 21,850.00 23,369.00 26,280.00
2606 BEALL GARNER SCREEN&GEARE INC AGT-000033109 47 6,102.00 910.00 3,603.00
2606 TOTAL 27,952.00 24,279.00 29,883.00
1881 JONES & ASSOC. INS. AGY., INC. CQ-2650-C 19 27,915.00 44,114.00 52,376.00
1881 JONES & ASSOC. INS. AGY., INC. 45 0.00 364.00 508.00
1881 TOTAL 27,915.00 44,478.00 52,884.00
1640 DONOHUE-REYNOLDS, INC. CQ-575521449 37 27,691.00 1,427.00 92,252.00
2095 BUSH AGENCIES, INC. CQ-503712010 37 27,669.00 31,967.00 29,358.00
1188 ARLAN S. TEMELES CQ-510594487 37 26,640.00 42,005.00 43,923.00
2008 HARRY A. SNYDER INS., INC. CQ-503821169 37 26,506.00 45,601.00 46,486.00
2136 HOPWOOD INSURANCE AGENCY, INC. 07 0.00 0.00 (682.00)
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-40350-NR 19 197.00 728.00 4,510.00
2136 HOPWOOD INSURANCE AGENCY, INC. CQ-575008312 37 26,243.00 78,150.00 128,685.00
2136 TOTAL 26,440.00 78,878.00 132,513.00
1935 THE WYVILL INS. GR., INC.T/A CQ-6694-C 19 25,165.00 39,843.00 38,900.00
1935 THE WYVILL INS. GR., INC.T/A 45 950.00 0.00 0.00
1935 TOTAL 26,115.00 39,843.00 38,900.00
0913 FISCHER INSURANCE AGENCY, INC. CQ-573059952 37 26,016.00 95,188.00 99,560.00
1359 INSURANCE ASSOCIATES OF PA CQ-328743134 37 25,912.00 22,341.00 10,995.00
1882 WAGNER INS. ASSOC., INC. T/A CQ-3411-C 19 25,849.00 34,743.00 32,628.00
2200 HOCKLEY & O'DONNELL INS. AGY. CQ-575168683 37 25,734.00 2,551.00 0.00
1646 PAUL SPROWLS AGENCY, INC. CQ-503351875 37 25,479.00 45,958.00 58,144.00
2160 C. S. C. INS. PROF., INC. T/A CQ-503926575 37 25,435.00 18,363.00 20,162.00
1673 BITTEL & COMPANY CQ-503954589 37 25,146.00 25,558.00 12,318.00
2031 ROBERT E. DALTON GENERAL INS. CQ-361596321 37 25,117.00 37,141.00 21,491.00
2223 REED, WERTZ & ROADMAN, INC. CQ-503784413 37 24,823.00 0.00 0.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1794 CECIL INS. & BONDING AGY., INC CQ-7540-C 19 24,727.00 19,730.00 26,667.00
6005 ROBERTS-FUNAI INS. AGY., INC. AGT-541063588 45 23,649.00 21,256.00 28,117.00
1922 BES & ASSOCIATES, INC. CQ-6341-C 19 23,584.00 22,421.00 18,724.00
1687 D. E. LOVE ASSOCIATES, INC. CQ-575635438 37 23,436.00 513.00 8,729.00
2022 FAYETTE REALTY COMPANY CQ-503795244 37 23,177.00 32,410.00 15,779.00
1961 KELLY-MURRAY INS. AGY., INC./ CQ-5934-C 19 23,152.00 11,364.00 0.00
1866 A & W INS. SERVICES, INC. CQ-2300-C 19 23,062.00 13,068.00 15,087.00
2203 INS. MANAGEMENT CONCEPTS INC./ CQ-503994440 37 23,011.00 9,873.00 0.00
2001 W. H. BARTON INSURANCE AGENCY, CQ-36974676 37 22,667.00 25,344.00 25,412.00
1914 CHESAPEAKE INS. ASSOC., INC. CQ-4687-C 19 22,643.00 16,223.00 1,863.00
0776 WILLIAM R. KARSCHNER & SONS CQ-575157275 37 22,381.00 28,441.00 26,055.00
1228 BERK INSURANCE AGENCY, INC. CQ0575946638 37 21,990.00 56,517.00 39,680.00
2103 JAMES J CANAVAN INS ASSOC INC CQ-573817512 37 21,823.00 3,552.00 3,634.00
1377 BUSINESS INS. SPECIALISTS, LTD CQ-399780545 37 21,743.00 33,041.00 44,629.00
1385 QUALITY INSURANCE PLANS, INC. CQ-573806099 37 21,506.00 33,799.00 43,248.00
1931 COMMERCIAL INS. MANAGERS, INC. CQ-5943-C 19 21,116.00 21,437.00 19,642.00
1661 K. H. WAGNER AGENCY, INC. CQ-503307499 37 20,446.00 23,200.00 22,637.00
2207 CENTURY INS. CONSULTANTS, LTD. CQ-503037447 37 20,385.00 6,077.00 0.00
1939 T & L SERVICES, INC. CQ-7037-C 19 20,011.00 35,383.00 12,838.00
1939 T & L SERVICES, INC. 45 368.00 1,476.00 250.00
1939 TOTAL 20,379.00 36,859.00 13,088.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-5699-C 19 1,199.00 1,428.00 0.00
0007 ADLEN-O'BRIEN INS. AGY., INC. CQ-573862946 37 19,019.00 13,011.00 12,188.00
0007 TOTAL 20,218.00 14,439.00 12,188.00
2117 INTERVEST SERVICES, INC. CQ-503009593 37 20,023.00 58,396.00 37,943.00
1904 JOHN M. MORGAN, INC. CQ-1151-C 19 19,055.00 34,759.00 23,648.00
1904 JOHN M. MORGAN, INC. 45 960.00 0.00 0.00
1904 TOTAL 20,015.00 34,759.00 23,648.00
1916 CRAWFORD, SLEVIN & HICKS, INC. CQ-3318-C 19 19,906.00 25,932.00 47,430.00
1916 CRAWFORD, SLEVIN & HICKS, INC. 45 0.00 0.00 989.00
1916 TOTAL 19,906.00 25,932.00 48,419.00
1521 BIDDLE & CO. INSURANCE BROKERS CQ-571841721 37 19,828.00 30,362.00 39,840.00
1085 GARDNER FINANCIAL SERV., INC. CQ-575699135 37 19,473.00 12,410.00 21,887.00
1505 CVD INSURANCE, INC. D/B/A CQ-503003155 37 18,899.00 22,236.00 38,409.00
2015 THE DILLSBURG AGENCY INC CQ-573207091 37 18,734.00 17,338.00 37,666.00
0948 ASSURED SERVICES INS. AGY. INC CQ-573892923 37 18,648.00 27,346.00 10,485.00
2059 WILLIAMSON AGENCY, INC. CQ-503086294 37 18,535.00 20,411.00 28,454.00
1921 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 18,359.00 662,517.00 1,139,576.00
1921 BENJAMIN F. BROWN INS AGY INC/ AGT-520845992 45 0.00 11,313.00 14,226.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1921 TOTAL 18,359.00 673,830.00 1,153,802.00
1249 OMA R. CONN D/B/A CQ-385790648 37 18,311.00 18,495.00 22,586.00
1261 PAIST & NOE, INC. CQ-575357850 37 18,266.00 46,819.00 52,301.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-0104-C 19 9,281.00 12,211.00 10,870.00
2158 CHARLES S GARDNER IN AG INCT/A CQ-503013043 37 8,976.00 8,938.00 8,517.00
2158 TOTAL 18,257.00 21,149.00 19,387.00
1770 SWOPE-OFFUTT & COMPANY, INC. CQ-0979-C 19 18,233.00 43,372.00 40,937.00
1770 SWOPE-OFFUTT & COMPANY, INC. 37 0.00 0.00 (552.00)
1770 TOTAL 18,233.00 43,372.00 40,385.00
1731 LUCAS INSURANCE, INC. CQ-0243-C 19 17,467.00 13,798.00 16,006.00
1731 LUCAS INSURANCE, INC. 37 385.00 0.00 0.00
1731 TOTAL 17,852.00 13,798.00 16,006.00
6207 MARK A. WEBB D/B/A AGT-228829132 45 17,762.00 40,836.00 26,598.00
1861 LOWE-TILLSON INS. & ASSOC, INC CQ-1446-C 19 17,221.00 12,228.00 13,458.00
1861 LOWE-TILLSON INS. & ASSOC, INC 45 0.00 0.00 500.00
1861 TOTAL 17,221.00 12,228.00 13,958.00
1956 LKM INSURANCE ASSOCIATES, INC. CQ-7509-C 19 17,131.00 5,344.00 0.00
2214 CSI SERVICES, INC./ CQ-503680948 37 17,054.00 0.00 0.00
1912 MPT, INC. T/A CQ-0241-M 19 16,904.00 11,634.00 13,687.00
6068 ASHLEY-HOLLAND-TAYLOR, INC AGT-541245605 45 16,548.00 15,984.00 7,505.00
1831 HORENBERG INS. SERVICES, INC. CQ-1166-C 19 16,502.00 17,032.00 32,391.00
1831 HORENBERG INS. SERVICES, INC. AGT-520957121 45 0.00 9,124.00 10,254.00
1831 TOTAL 16,502.00 26,156.00 42,645.00
2198 SMC BUSINESS COUNCILS SFTY GR CQ-503680948 37 16,482.00 12,867.00 0.00
1889 CHARLES P. PHELAN INS., INC. CQ-1447-C 19 16,346.00 42,906.00 34,323.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-5934-C 19 13,007.00 20,504.00 20,564.00
1918 KELLY-MURRAY INS. AGY., INC. CQ-575883984 37 3,265.00 10,515.00 2,826.00
1918 TOTAL 16,272.00 31,019.00 23,390.00
1676 STINE DAVIS&PECK OF PA INC T/A CQ-503018507 37 16,208.00 22,781.00 18,674.00
1145 MORRIS INSURANCE AGENCY CQ-365515158 37 15,956.00 77,450.00 63,251.00
1949 THE HOGANS AGENCY, INC. CQ-1090-C 19 15,910.00 16,673.00 0.00
2134 ASSOC. OF RISK TRANSFER, INC. CQ-503815376 37 15,894.00 7,276.00 58,250.00
0113 YORKWRIGHT INSURANCE, INC. CQ-575725836 37 15,862.00 16,983.00 6,910.00
1955 SMITH INSURANCE SERVICES, INC. CQ-6167-C 19 15,516.00 0.00 0.00
1605 GERALD A. MASLIN CQ-341340070 37 15,299.00 20,791.00 33,708.00
1406 VASSAL INS. SERVICES, LTD. CQ-575091196 37 15,243.00 21,719.00 83,585.00
1785 DEPRISTO INSURANCE AGENCY CQ-47481 19 15,037.00 30,537.00 40,239.00
1785 DEPRISTO INSURANCE AGENCY 45 0.00 0.00 1,746.00
1785 TOTAL 15,037.00 30,537.00 41,985.00
1732 I. R. O., INCORPORATED CQ-0650-C 19 14,934.00 25,108.00 42,127.00
1639 CHRISTI INS. GROUP, INC. CQ-575513909 37 14,197.00 24,686.00 1,670.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1898 R. M. PYLES, INC. T/A CQ-7426-C 19 13,889.00 10,505.00 8,089.00
1685 DAVIES, KREISHER & MCCOY CQ-575825298 37 13,221.00 3,835.00 20,799.00
1244 GLENDALE INSURANCE AGENCY, INC CQ-573631158 37 12,777.00 13,621.00 11,457.00
2202 WAGNER-HUFFNAGLE & ASSOC., INC CQ-575845218 37 12,562.00 1,073.00 0.00
1411 MCKEEVER-EGAN INS., INC. D/B/A CQ-573291276 37 12,400.00 14,318.00 4,395.00
1449 R L OVERHOLSER & SONS AGY P.C. CQ-503847362 37 12,316.00 42,663.00 32,181.00
1402 NEWMAN-LAMB AGENCY CQ-510510541 37 12,262.00 12,394.00 14,697.00
1980 MARTENS-JOHNSON INS AGY, INC CQ-4352-C 19 12,242.00 0.00 0.00
1915 GOSNELL INSURANCE, INC. CQ-1177-C 19 12,077.00 16,206.00 15,049.00
1959 INSURANCE BROKERS OF MARYLAND CQ-7511-C 19 11,969.00 2,594.00 0.00
6007 GEORGE B. TAYLOR, INC. CQ-540943214 45 11,812.00 14,315.00 18,133.00
1704 HERSHBERGER AGENCY, INC. CQ-1794-C 19 7,770.00 25,882.00 19,453.00
1704 HERSHBERGER AGENCY, INC. CQ-053184523 37 3,676.00 6,341.00 5,180.00
1704 HERSHBERGER AGENCY, INC. 47 261.00 251.00 614.00
1704 TOTAL 11,707.00 32,474.00 25,247.00
0175 ROCKWOOD CASUALTY INSURANCE CO HOME OFFICE ACT. 37 11,673.00 29,038.00 35,939.00
1951 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 11,554.00 1,879.00 0.00
1753 THE DUNHILL - DCA GROUP CQ-4571-C 19 11,474.00 34,779.00 23,326.00
6031 JULIUS STRAUS & SONS, INC. T/A AGT-540143185 45 11,358.00 15,101.00 14,954.00
1429 E. H. DEVINE CO., INC. CQ-573254617 37 11,335.00 26,353.00 25,603.00
1226 JOSEPH J. JOYCE ASSOC., INC. CQ-575825187 37 11,064.00 47,949.00 21,713.00
2529 HECKMAN INS. AGY., INC. AGT-27170 07 8,664.00 16,971.00 3,568.00
2529 HECKMAN INS. AGY., INC. CQ-031754188 37 2,289.00 720.00 0.00
2529 TOTAL 10,953.00 17,691.00 3,568.00
1772 INDEPENDENT CENTER FOR INS INC CQ-2898-C 19 10,611.00 9,517.00 10,588.00
1510 FLANIGAN, O'HARA & GENTRY, INC 19 461.00 280.00 0.00
1510 FLANIGAN, O'HARA & GENTRY, INC CQ-575340519 37 10,016.00 17,073.00 11,423.00
1510 FLANIGAN, O'HARA & GENTRY, INC 45 133.00 135.00 0.00
1510 TOTAL 10,610.00 17,488.00 11,423.00
0020 HENDERSON BROTHERS, INC. CQ-501097671 37 10,396.00 18,500.00 31,022.00
2065 HRB ASSOCIATES, INC. CQ-575564487 37 10,259.00 44,573.00 44,611.00
0013 SAMUEL MILLER T/A CQ-573674739 37 10,212.00 16,168.00 16,388.00
1983 REEVES INSURANCE AGENCY, INC. CQ-2228-C 19 10,170.00 0.00 0.00
2222 EXCHANGE UNDERWRITERS, INC. CQ-503508499 37 10,081.00 0.00 0.00
1755 FAIRWAY INSURANCE, INC. CQ-2827-C 19 9,681.00 20,243.00 17,205.00
1755 FAIRWAY INSURANCE, INC. 45 160.00 0.00 0.00
1755 TOTAL 9,841.00 20,243.00 17,205.00
2178 B. G. BALMER & COMPANY, INC. CQ-573639844 37 9,792.00 9,208.00 0.00
1565 FITZSIMMONS AGENCY, INC. CQ-503304329 37 9,641.00 12,608.00 21,473.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1156 POSSE-WALSH, INC. CQ-575045152 37 9,337.00 1,889.00 4,819.00
1976 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 9,208.00 1,010.00 0.00
0729 TOWLES & CO., INC. CQ-575738775 37 9,199.00 14,633.00 17,355.00
6121 ROGER HILL INSURANCE AGENCY AGT-227602674 45 9,167.00 14,882.00 12,264.00
1193 PETER B. VOGEL CQ-553350388 37 8,942.00 18,208.00 14,323.00
1527 CLA AGY., INC. & ISU/CLA GROUP CQ-573260912 37 8,407.00 31,546.00 44,472.00
2170 J. RICHARD JORDAN INS., INC. 07 1,286.00 1,286.00 0.00
2170 J. RICHARD JORDAN INS., INC. CQ-573429103 37 6,847.00 27,039.00 0.00
2170 TOTAL 8,133.00 28,325.00 0.00
2205 VOLPE INSURANCE AGENCY, INC. CQ-575995192 37 8,070.00 1,388.00 0.00
2180 HEBERLING INS. SERVICES, INC. CQ-503630689 37 7,867.00 0.00 0.00
1974 ATLANTIC/SMITH CROPPER&DEELEY/ CQ-6886-C 19 7,399.00 0.00 0.00
1845 ALL RISKS, LTD. CQ-0950-C 19 7,376.00 48,951.00 46,206.00
1362 EVERETT W. SECHLER T/A CQ-386742439 37 7,303.00 8,928.00 42,607.00
1368 STAMRITT, INC. T/A CQ-346797428 37 7,279.00 24,581.00 17,766.00
2174 CHAPEL INS. ASSOCIATES, INC BL-322914819 37 7,254.00 9,844.00 0.00
1757 CREATIVE INSURANCE, INC. CQ-4728-C 19 7,245.00 4,133.00 3,288.00
1594 BEST INSURANCE GROUP, INC./ 19 507.00 811.00 483.00
1594 BEST INSURANCE GROUP, INC./ CQ-503530946 37 6,736.00 12,427.00 1,847.00
1594 TOTAL 7,243.00 13,238.00 2,330.00
6003 BUCOVA INSURANCE AGENCY, INC. AGT-540281712 45 7,204.00 6,134.00 5,770.00
2087 PAUL HERTEL & COMPANY, INC. CQ-571825543 37 7,102.00 9,170.00 12,493.00
1240 BOB SALSBURG ASSOCIATES, INC. CQ-573424437 37 6,923.00 9,877.00 11,520.00
0032 AGENCIES INTERNATIONAL, INC. CQ-575368267 37 6,771.00 12,006.00 9,431.00
2506 W. C. UNGERER INSURANCE AGENCY AGT-07177 07 6,694.00 6,231.00 7,160.00
1533 COLESON, INC. CQ-573269839 37 6,371.00 10,437.00 14,501.00
6012 THE BLANKENSHIP ASSUR. AGY LTD AGT-541425613 45 6,289.00 7,274.00 9,939.00
2228 DUNLOP INSURANCE, INC. CQ-575923256 37 6,226.00 0.00 0.00
0630 AMERICAN DIVERSIFIED SER. INC. CQ-575585804 37 6,190.00 8,570.00 4,603.00
6038 J. C. MONTGOMERY INS. CORP. AGT-540307551 45 6,169.00 7,336.00 7,899.00
2171 FIRST FIN. INS. CONSUL., INC. CQ-503547864 37 5,901.00 6,528.00 1,950.00
1528 JACK HOFFMAN ASSOCIATES, INC. CQ-573272659 37 5,766.00 4,850.00 6,713.00
1950 GRAU & RUSSELL ASSOC. D/B/A CQ-2906-P 19 5,748.00 894.00 0.00
1924 BEALL GARNER SCREEN&GEARE INC CQ-0297-C 19 5,659.00 2,994.00 3,837.00
2229 PETER J. ZIKOS INSURANCE CQ-388595494 37 5,626.00 0.00 0.00
6103 LEE-CURTIS INS. SERVICE, INC. CQ-540789706 45 5,562.00 6,136.00 6,645.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
2232 MICHAEL A DIGIACOMO & ASC INC CQ-575046822 37 5,451.00 0.00 0.00
1957 BRICKER INSURANCE AGENCY, INC. CQ-1967-C 19 5,448.00 4,494.00 0.00
1712 BROWN INSURANCE AGENCY CQ-40127 19 5,435.00 2,094.00 14,368.00
1718 ABC ASSOCIATES, INC. T/A CQ-38564 19 5,420.00 17,499.00 17,156.00
1170 NEWTON-LEHMAN AGENCY 19 (7,498.00) 17,509.00 18,701.00
1170 NEWTON-LEHMAN AGENCY CQ-362749472 37 12,711.00 20,909.00 23,303.00
1170 TOTAL 5,213.00 38,418.00 42,004.00
2528 ATLANTIC/SMITH CROPPER&DEELEY AGT-05271 07 372.00 (1,171.00) (2,825.00)
2528 ATLANTIC/SMITH CROPPER&DEELEY CQ-6886-C 19 4,809.00 11,180.00 129.00
2528 TOTAL 5,181.00 10,009.00 (2,696.00)
6108 SALZBERG INS. AGY., INC. AGT-540701144 45 5,134.00 6,472.00 11,625.00
6123 H. F. THOMPSON INS. AGY., INC. AGT-540888357 45 5,057.00 8,683.00 10,332.00
2146 BEST INSURANCE GROUP, INC./ CQ-503002042 37 4,999.00 4,476.00 0.00
1491 ROBERT F. GREENWOOD ASSOC INC. CQ-575338899 37 4,948.00 30,814.00 60,566.00
0610 SIDNEY F. SETZMAN CQ-300130291 37 4,744.00 7,233.00 11,448.00
1906 G. LEROY ROWE T/A CQ-43373 19 4,726.00 15,266.00 18,618.00
2182 J. C. JONES ASSOCIATES/ CQ-325916845 37 4,654.00 3,859.00 0.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ CQ-0118-C 19 4,597.00 7,147.00 13,112.00
1832 ROSSMANN-HURT-HOFFMAN, INC./ AGT-52037120 45 (98.00) (114.00) 808.00
1832 TOTAL 4,499.00 7,033.00 13,920.00
7297 HOPPES AGENCY, INC. BOND RUN-OFF ACCOUNT 13 4,235.00 6,626.00 6,580.00
1713 EL-MAR ASSOCIATES, INC. CQ-4127-C 19 3,681.00 9,377.00 27,140.00
2071 ALLAN A JONES & RICHARD V BURT CQ-575504056 37 3,526.00 18,314.00 28,168.00
1789 WALSH INS. AGENCY, INC. CQ-4105-C 19 3,468.00 8,876.00 15,679.00
2179 FROST & CONN, INCORPORATED CQ-503581354 37 3,398.00 7,074.00 0.00
2127 SIDNEY K. CUCKLER, INC. CQ-031716689 37 3,187.00 25,432.00 32,496.00
1622 HENRY J. KASKY CQ-363787639 37 3,110.00 25,713.00 112,571.00
1953 FREDERICK UNDERWRITERS, INC. CQ-0322-C 19 2,977.00 0.00 0.00
2152 OWEN INCORPORATED CQ-575139239 37 2,920.00 7,687.00 9,548.00
2502 SMYRNA INSURANCE SERVICE, LTD. CQ-36325 19 2,678.00 0.00 0.00
2124 GEORGE I. LAROSE INS., LTD. CQ-575105111 37 2,526.00 1,714.00 3,432.00
1424 COMBINED UNDERWRITERS, INC. CQ-573836182 37 2,525.00 20,362.00 11,853.00
2233 WHETSTONE INS. ASSOC., INC. CQ-503571176 37 2,437.00 0.00 0.00
0875 CLAYCOMB-DIETZ INS. AGY. CQ-533913151 37 2,424.00 7,815.00 12,334.00
6195 SMITH INSURANCE AGENCY, INC. AGT-541499606 45 2,327.00 11,581.00 8,887.00
2520 DRASS INSURANCE AGENCY, INC. AGT-05287 07 2,292.00 14,812.00 56,682.00
2520 DRASS INSURANCE AGENCY, INC. CQ-7283-C 19 0.00 0.00 1,382.00
2520 TOTAL 2,292.00 14,812.00 58,064.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1969 RIPPLE INSURANCE AGENCY, INC./ CQ-3142-C 19 2,090.00 0.00 0.00
2209 MCKEIGHAN INS. AGENCY, INC. CQ-573041483 37 1,961.00 0.00 0.00
2504 FIRST STATE INS. AGENCY, INC. AGT-09437 07 1,598.00 12,011.00 17,456.00
2504 FIRST STATE INS. AGENCY, INC. CQ-26677-NR 19 222.00 4,630.00 3,881.00
2504 FIRST STATE INS. AGENCY, INC. CQ-031384604 37 0.00 (832.00) 2,722.00
2504 TOTAL 1,820.00 15,809.00 24,059.00
0043 PENN WEBER INS. ASSOCIATES INC CQ-575941028 37 1,807.00 4,470.00 11,304.00
1563 ANDREW R KING&DENNIS F FEEHAN CQ-382917198 37 1,764.00 6,261.00 (1,124.00)
1973 JONES & ASSOC. INS. AGY., INC/ CQ-325916845 19 1,749.00 3,112.00 0.00
2169 SMITH INSURANCE ASSOCIATES INC CQ-575887844 37 1,738.00 1,148.00 0.00
6018 CLINCH VALLEY INS. AGENCY, INC AGT-540661210 45 1,730.00 1,488.00 4,690.00
6173 I.N.S., INC. T/A AGT-541444138 45 1,684.00 2,709.00 337.00
2156 MCMAHON INS. SERVICES, INC. CQ-503047254 37 1,654.00 6,437.00 1,539.00
1933 M. T. DONAHOE & ASSOC., INC. CQ-4462-C 19 1,650.00 24,050.00 11,218.00
2145 BEST INSURANCE GROUP, INC./ CQ-573460639 37 1,596.00 1,570.00 657.00
2094 GEORGE ROSS INS. AGENCY, INC. CQ-503947474 37 1,569.00 14,828.00 30,997.00
6022 BUTLER-HARTSELL INS. AGY., INC AGT-540762874 45 1,344.00 1,442.00 1,266.00
2177 CADWALADER & ASSOCIATES, INC. CQ-575027327 37 1,275.00 7,487.00 10,980.00
1846 PATRICK BERNARD CASSADY T/A CQ-27474 19 1,256.00 (54.00) 7,251.00
2142 BEST INSURANCE GROUP, INC./ CQ-323586962 37 1,223.00 1,223.00 686.00
6203 D & J INSURANCE AGENCY AGT-414649115 45 1,147.00 1,323.00 4,899.00
6184 RICHARDSON-HARRIS-BOATWRIGHT AGT-541032363 45 1,140.00 0.00 0.00
6135 STAUNTON INS. AGENCY, INC. AGT-540560271 45 1,138.00 3,187.00 1,407.00
6209 OLD DOMINION INS AGY INC OF VA AGT-223378958 19 1,134.00 0.00 0.00
6171 HUFFMAN INSURANCE AGENCY, INC. AGT-540985979 45 1,032.00 1,895.00 2,129.00
1952 CARROLL COUNTY INS. AGY., INC. CQ-0322-C 19 951.00 0.00 0.00
2111 JACK M. SHUCK AGENCY, INC. CQ-503759230 37 941.00 11,419.00 5,619.00
2226 BURNS & BURNS ASSOC., INC. CQ-503359388 37 917.00 0.00 0.00
2108 BEST INSURANCE GROUP, INC./ CQ-503323873 37 875.00 204.00 456.00
2227 DAVID B. PECK & COMPANY CQ-575672335 37 738.00 0.00 0.00
1965 GRIFFITH/ALLIED RISK MGMT INC/ CQ-5636-C 19 726.00 0.00 0.00
1979 FIRST INS. GROUP OF MD, INC. CQ-4104-C 19 708.00 0.00 0.00
2143 BEST INSURANCE GROUP, INC./ CQ-513758461 37 583.00 400.00 294.00
6158 THRIFT INSURANCE CORP. CQ-540406340 45 500.00 451.00 443.00
1962 BEALL GARNER SCREEN&GEARE INC/ CQ-0297-C 19 480.00 0.00 0.00
1749 NORKEN & SON INS. ASSOC. INC. CQ-1556-C 19 477.00 7,614.00 5,737.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
6008 C. R. PATE & COMPANY AGT-540834856 45 446.00 1,387.00 4,996.00
6147 SAVAGE & MCPHERSON INS AGY INC AGT-541082045 45 442.00 1,364.00 7,845.00
2527 INSURACO, INC. AGT-07832 07 369.00 744.00 0.00
1560 W. B. ROWE AGENCY CQ-389581325 37 317.00 27,059.00 92,867.00
1894 MELVILLE SCOTT & SON AGY, INC CQ-0118-C 19 301.00 4,715.00 17,270.00
2185 GALLAGHER-DELESTIENNE, INC T/A CQ-503085330 37 276.00 1,825.00 0.00
7110 ROBBINS-MATHERLY-DILS AGY INC AGT-01340420 13 240.00 0.00 240.00
7107 JOHN L. KILEY AGENCY, INC. AGT-01477590 13 185.00 350.00 595.00
6102 CAHILL INS. AGY., INC. AGT-540788356 45 109.00 1,303.00 3,704.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ065515 19 102.00 0.00 392.00
1826 TIMOTHY B. CLOSE INS. AGY. CQ-578452719 37 0.00 6.00 1,100.00
1826 TOTAL 102.00 6.00 1,492.00
1644 PAUL E. ANTHONY INS. AGENCY CQ-514397879 37 13.00 4,648.00 12,700.00
1930 FRANEY & PARR INSURANCE, LTD. CQ-1312-C 19 5.00 5,091.00 6,435.00
1710 ATLANTIC INS. ASSOC., INC. AGT-05271 07 0.00 0.00 (3,330.00)
1710 ATLANTIC INS. ASSOC., INC. CQ-1609-C 19 0.00 10,236.00 185,593.00
1710 TOTAL 0.00 10,236.00 182,263.00
2157 THE DEMEDIO AGENCY, INC. CQ-575876621 37 0.00 1,287.00 7,499.00
2162 THE OXFORD AGENCY, INC. AGT-1753605 37 0.00 (728.00) 15,942.00
0064 PARNELL, COWHER, & COMPANY AGT-1765000 37 0.00 643.00 5,046.00
0205 SUBURBAN ASSOCIATES, INC. AGT-2239200 37 0.00 (10,483.00) 88,620.00
1126 ROBINSON-CONNER OF PA, INC. AGT-1926232 37 0.00 0.00 5,655.00
1277 PENNSY UNDERWRITERS AGY., INC. CQ-503196880 37 (6,472.00) 876,420.00 1,414,130.00
1437 PHILIP J. HARVEY & CO., INC. CQ-341786605 37 0.00 341.00 2,980.00
1444 GRAFF, SCHUTZMAN & SCALZOTT AGT-4415393 37 0.00 (2,077.00) 24,814.00
1453 W. J. KELLAR AGENCY, INC. AGT-1224695 37 0.00 0.00 2,003.00
1488 EDWARD'S INS. AGY., INC. T/A AGT-0688500 37 0.00 0.00 2,256.00
1542 MCGROARTY & BRADBURN INS., INC AGT-7523222 37 0.00 0.00 13,698.00
1550 J. DONALD PORTER AGENCY, INC. AGT-4333416 37 0.00 0.00 257.00
1663 WILLIAM H. MORRIS AGENCY, INC. AGT-4501485 37 0.00 0.00 5,868.00
1668 MARTIN GROSSMAN INS. AGY., INC AGT-4402396 37 0.00 (6,003.00) 70,499.00
1741 COSMOPOLITAN INS. AGY., INC. CQ-0541-C 19 0.00 0.00 270.00
1744 BAY AREA INS. AGENCY, INC. CQ-0360-C 19 0.00 0.00 1,427.00
1864 MICHAEL INSURANCE, INC. CQ-2903-C 19 0.00 0.00 2.00
1872 WYE INSURANCE AGENCY, INC. CQ-2455-C 19 0.00 0.00 8,880.00
1878 HARRINGTON INSURANCE INC. CQ-1649-C 19 0.00 (1,788.00) 11,013.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
1879 SMITH, CROPPER & DEELEY, INC. CQ-0295-C 19 0.00 0.00 1,423.00
1890 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 0.00 4,194.00
1909 COMMERCIAL SPECIALIST INS. AGY CQ-712496 19 0.00 110.00 1,613.00
1917 CHESAPEAKE UNDERWRITERS, INC. CQ-5869-C 19 0.00 0.00 (2,765.00)
1923 BENJAMIN F. BROWN INS AGY INC/ CQ-0317-C 19 0.00 91.00 33,278.00
1927 PAUL C. STEM GENERAL INSURANCE CQ-50222 19 0.00 0.00 250.00
1940 COOPER INSURANCE AGENCY CQ-51319 19 (298.00) 784.00 596.00
1971 CREELMAN INS. ASSOC., INC./ CQ-1157-C 19 (122.00) 505.00 0.00
2024 ROLLINS HUDIG HALL OF PA, INC. BL-14035 1066300 37 0.00 0.00 281,201.00
2042 GILKYSON AND LIPPERT, INC. AGT-0879375 37 0.00 0.00 (2,888.00)
2052 LINDSAY-SMITH AGENCY, INC. AGT-4501542 37 0.00 330.00 18,941.00
2060 MCKEE-WESLEY INS SERVICES INC. AGT-1546125 37 0.00 0.00 (202.00)
2077 HUFFMAN-WHIPKEY INS. AGY, INC. AGT-4404325 37 0.00 0.00 75.00
2083 WILFRED E. HELWIG AGENCY, INC. AGT-1037850 37 0.00 (3,027.00) 13,400.00
2112 WALTER'S RELIABLE INSURANCE AGT-2374650 37 0.00 (1,833.00) 8,955.00
2122 LISHEGO & ASSOCIATES, INC. AGT-4226562 37 (90,469.00) (106,101.00) 181,164.00
2125 ROCKWOOD INS. SERVICES, INC. CQ-5025-C 19 0.00 0.00 (814.00)
2125 ROCKWOOD INS. SERVICES, INC. AGT-4521062 37 0.00 (1,082.00) 12,541.00
2125 TOTAL 0.00 (1,082.00) 11,727.00
2131 TRI-COUNTY AGENCIES, INC. AGT-4627575 37 (1,862.00) 14,758.00 21,016.00
2139 S. K. KENZER AGENCY, INC. AGT-6010095 37 0.00 30.00 9,987.00
2159 J. R. H., INSURANCE, INC. T/A AGT-4527834 37 0.00 321.00 1,876.00
2163 PORTER INSURANCE, INC. AGT-4333416 37 (258.00) 7,345.00 46,378.00
2164 MCMAHON INS. SERVICES, INC. AGT-7522906 37 0.00 (1,068.00) 0.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 07 (45,095.00) 35,336.00 11,324.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 19 16,321.00 (170,327.00) 464,695.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 37 (73,471.00) 827,569.00 (193,987.00)
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 45 8,246.00 (24,459.00) 7,506.00
2175 PREMS WRTN BUT NOT DUE ACCOUNT ACCOUNT ONLY 47 0.00 (1,614.00) 176.00
2175 TOTAL (93,999.00) 666,505.00 289,714.00
2192 COCCO INSURANCE ASSOCIATES CQ-575718838 37 (1,764.00) 4,270.00 0.00
2196 HARTZELL INS. ASSOC., INC. CQ-519014697 37 (688.00) 11,996.00 0.00
2509 THE INSURANCE MARKET INC. AGT-08192 07 0.00 0.00 697.00
2514 C EDGAR WOOD INC T/A L&W AGY AGT-05003 07 0.00 0.00 (41.00)
2514 C EDGAR WOOD INC T/A L&W AGY CQ-0696-NR 19 0.00 812.00 8,188.00
2514 TOTAL 0.00 812.00 8,147.00
2530 R. E. EVANS INSURANCE, INC. AGT-23318 07 0.00 0.00 (817.00)
6014 STREET INSURANCE AGENCY, INC. AGT-541065438 45 0.00 0.00 5,813.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RCIC AGENTS WITH PREMIUM IN 94 95 96 RANKED BY 1996 PREMIUM AS OF 10/31/96 S#6775
AGENT NAME LICENSE STATE 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
7175 CANCELLED AGENTS DIRECT BILL ACCOUNT ONLY 37 0.00 (2,151.00) (22,913.00)
7255 ALLIED AGENCY, INC. AGT-35-0141395 13 0.00 0.00 (190.00)
GRAND TOTAL 47,579,315.00 59,529,603.00 57,534,224.00
</TABLE>
<PAGE>
Draft 12/4/96
AMENDED AND RESTATED
LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT (the "Agreement") made as of
the 31st day of December, 1996, between Rockwood Asset Management, Inc., a
Pennsylvania corporation, with its principal place of business located at 200
U.S. Route 22, Delmont, Pennsylvania 15626, Attention: Terrence S. Jacobs
("Licensor"), and Rockwood Casualty Insurance Company, a Pennsylvania insurance
corporation, with its principal place of business located at 654 Main Street,
Rockwood, Pennsylvania 15557 ("Licensee").
WITNESSETH:
WHEREAS, Licensor and Licensee are parties to that certain License
Agreement, dated as of July 1, 1994 (the "Original License Agreement"), pursuant
to which Licensor granted to Licensee an exclusive license to use the
proprietary computer application software system (the "Software"), including all
tangible and intangible portions thereof, as described in Exhibit "A" attached
hereto and made a part hereof; and
WHEREAS, Licensor and Licensee desire and deem it in their best interest
to amend certain Sections of the Original License Agreement and restate the
terms of the Original License Agreement, as amended;
NOW, THEREFORE, in consideration of the premises, the parties, intending
to be legally bound hereby, agree that the Original License Agreement is amended
and restated in its entirety as follows:
SECTION 1. License. Licensor hereby grants to Licensee for the term of
this Agreement an exclusive license to use the Software, subject to all of the
terms and conditions set forth in this Agreement (the "License"). The License
extends only to the uses expressly authorized in this Section or in other
portions of this Agreement. The Licensee may use the Software at, or from, any
other location of Licensee, with any computer processing unit; provided,
however, that except as otherwise expressly permitted in this Agreement, the
Licensee shall use the Software solely for the purpose of Licensee's insurance
business. In the event that Licensee moves any data contained in disks, tapes or
other computer storage mediums or other tangible forms ("Tangible
Manifestations") of the Software to any location other than 654 Main Street,
Rockwood, Pennsylvania (the "Facility"), Licensee shall give Licensor notice
thereof within 15 business days after
<PAGE>
such move, which notice shall include the proposed location thereof.
SECTION 2. Fees. Licensee shall pay to Licensor an annual licensee fee for
the Software of Eight Thousand Dollars ($8,000.00) payable each year in four (4)
equal quarterly installments of Two Thousand Dollars ($2,000.00) each on the
first business day of January, April, August and December, commencing with the
first installment of license fee due and payable on January 2, 1997.
SECTION 3. Extent of Licensee. The rights granted to Licensee under
Section 1 hereof may be sold, assigned, sublicensed, encumbered or transferred
(collectively, a "Transfer") in any manner without the prior written consent of
Licensor, provided that within ten business days of any such Transfer, Licensee
shall give Licensor notice thereof, and, further provided, that any such
transferee agrees to be bound by the terms and conditions of this Agreement as
if it were the licensee hereunder. No such Transfer shall release Licensee from
its obligations under this Agreement.
SECTION 4. Term of the Agreement. This Agreement shall commence as of the
date hereof, and shall continue for an initial term ending December 31, 1999,
unless otherwise terminated pursuant hereto by Licensor. If Licensee is not in
default under any terms or conditions hereof and the Licensee has not been
sooner terminated, Licensee shall have the right to extend the term of this
Agreement for an indefinite period for a price of One Dollar ($1.00) upon
written notice to Licensor within thirty (30) days prior to November 30, 1999.
SECTION 5. Licensee's Data.
(a) Licensee acknowledges that the License and delivery and installation
of the Software does not include the input of Licensee's data necessary for
Licensee's operation of the Software for its business. Licensee shall be solely
responsible, and at Licensee's sole expense, for the initial input of the data
into the Software and for all of its data input and entry thereafter throughout
the term of this Agreement.
(b) Licensor shall treat Licensee's data as confidential under terms
reasonably similar to those set forth in Section 8 below. Upon the termination
of this Agreement, Licensor's sole responsibility with respect to Licensee's
data shall be to return, within fifteen (15) business days after receipt of a
written request from Licensee, all Tangible Manifestations of such data then
remaining in Licensor's possession and as were requested in such written
request.
-2-
<PAGE>
SECTION 6. Licensee's Use. Licensee may use the Software for any purpose
whatsoever and, at Licensee's sole expense, modify the Software, which
modifications shall inure to the benefit of Licensor and Licensee.
SECTION 7. Ownership. The transactions provided for in this Agreement are
licenses only, and Licensor shall at all times remain the owner of the Software
and all portions thereof. Licensee shall, upon Licensor's request at any time
and from time to time, take such action and execute and deliver or file such
documents or instruments as Licensor may in its sole discretion deem necessary
or appropriate to confirm Licensor's ownership of all portions of the Software.
SECTION 8. Confidentiality. Licensee acknowledges and agrees that the
Software and all Tangible Manifestations and all portions thereof constitutes
proprietary confidential information and trade secrets belonging to the
Licensor, in which Licensee has no rights or interest whatsoever, except as
expressly granted by this Agreement. Subject to its right to Transfer pursuant
to Section 3, Licensee shall at all times treat all portions of the Software as
confidential and shall not in any manner disclose or make available all or any
portion of the Software to any third party or, to the extent within its
reasonable control, permit others to do so, except that portions of the Software
may be made available to Licensee's auditors and examiners upon a written
certification by the auditors or examiners that disclosure is necessary and a
written agreement by the auditors or examiners to abide and be bound by the
confidentiality terms hereof. Licensee shall not copy all or any portion of the
Software, except as may be actually necessary for Licensee to use the Software
or exercise any of its rights under this Agreement. Licensee shall store all
Tangible Manifestations of the Software in a secure place, except when being
used, and shall limit access to such material to those of its employees who
reasonably require such access for Licensee to use the Software. Upon the
termination of this Agreement for any reason whatsoever and regardless of fault,
Licensee shall, within fifteen (15) business days, return to Licensor all
Tangible Manifestations of the Software and, at Licensor's option, either return
or destroy all copies of such material.
SECTION 9. Notices. Any notices required or permitted to be given under
this Agreement shall be deemed sufficiently given (a) three days after mailing
by registered or certified mail, postage prepaid, or (b) upon receipt if
delivered by overnight courier or by hand, in each case addressed to the party
to be notified at its address set forth hereinabove, or to such other addresses
as may be furnished in writing hereafter to the notifying part.
-3-
<PAGE>
SECTION 10. Termination.
(a) Except as otherwise provided herein, this Agreement shall remain in
full force and effect during the initial and extended term of this Agreement.
(b) If Licensee makes any assignment of assets or business for the benefit
of creditors, or if a trustee or receiver is appointed to administer or conduct
its business or affairs, or if it is adjudged in any legal proceeding to be
either a voluntary or involuntary bankrupt, then the rights granted herein shall
forthwith cease and terminate without prior notice or legal action by Licensor.
(c) In the event that Licensee defaults under any of the terms and
conditions of the Agreement or fails to pay when due all payments called for
under Section 2 hereof, then all the minimum annual payments called for under
Section 2 hereof, shall become immediately due and payable to Licensor. Licensor
hereby agrees that this right shall not be exercised unless Licensor shall have
given Licensee at least ten (10) days prior written notice of its intention to
terminate this Agreement and the opportunity during such period for Licensee to
remedy such default. If Licensee shall correct such default during said notice
period, such notice shall be of no further force and effect. The failure of
Licensor to insist upon strict and/or prompt performance of the terms and
conditions of this Agreement or any of them, and/or the acceptance of such
performance thereafter shall not constitute or be construed as a waiver of
Licensor's right to enforce the same strictly thereafter according to the terms
hereof in the event of a continuing or subsequent default on the part of
Licensee.
SECTION 11. Entire Agreement. This Agreement represents the entire
understanding and agreement among the parties hereto and there exists no
representations, warranties or oral agreements not set forth herein. The
provisions of this Agreement may not be altered or amended except by written
instrument signed subsequent to the date hereof by all parties hereto.
SECTION 12. Continuity. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors or assigns, but shall not
inure to the benefit of a successor or any assignee of the Licensee without
prior written consent of Licensor.
SECTION 13. Counterparts. This Agreement may be executed in one or more
counterparts, and if executed in more than one counterpart the executed
counterparts shall constitute a single instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, Licensor and Licensee have caused this Agreement to be
executed for their respective corporations' named by their duly authorized
officers.
ROCKWOOD ASSET MANAGEMENT, INC.,
Licensor
By: ________________________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE COMPANY,
Licensee
By: ________________________________________
Name:
Title:
-5-
<PAGE>
Exhibit A
Numerous programs have been developed to store data and provide statistical
information for external and internal management reports as follows:
General System Number-of Programs
-------------- ------------------
Premiums 743
Claims 481
General Accounting 127
Miscellaneous 31
<PAGE>
Draft 12/2/96
Schedule I
(Timothy McCarthy)
NEITHER THIS WARRANT NOR THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES REPRESENTED BY
THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND NEITHER SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER
MANNER TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS THEREOF AND IN COMPLIANCE WITH THE REGISTRATION
PROVISIONS OF APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
THIS WARRANT AND THE SECURITIES ISSUABLE ON EXERCISE OF THIS WARRANT ARE SUBJECT
TO A SHAREHOLDER AND REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER 31,
1996. A COPY OF SUCH SHAREHOLDER AND REGISTRATION RIGHTS AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF FRONT ROYAL, INC.
FRONT ROYAL, INC.
CLASS A COMMON STOCK PURCHASE WARRANT
Dated December 31, 1996
FRONT ROYAL, INC., a North Carolina corporation (the "Company"), hereby
certifies that, for value received, Timothy McCarthy, or his registered assigns
("Holder"), is entitled, subject to the terms set forth below, to the purchase
from the Company from time to time up to a total of 200,000 shares of Class A
Common Stock, no par value (the "Class A Common Stock"), of the Company (each
such share, a "Warrant Share" and all such shares, the "Warrant Shares") at the
exercise price of $2.50 per share (as adjusted from time to time as provided in
Section 7, the "Exercise Price") at any time after the date hereof and until and
including the later of (i) December 31, 2001 and (ii) the second anniversary of
an "Initial Public Offering" as defined in the Shareholder and Registration
Rights Agreement referred to above (the "Expiration Date"), all subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose, in the name of the
record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, and the Company shall not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges. a. The Company shall register
the transfer of any portion of this Warrant upon records to be maintained by the
Company for that purpose,
-1-
<PAGE>
upon surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration of transfer, a new warrant to purchase
Class A Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder.
b. This Warrant is exchangeable, upon the surrender hereof by the
Holder at the office of the Company specified in or pursuant to Section
3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants. a. This Warrant shall be exercisable
by the registered Holder on any business day before 5:00 P.M., New York time, at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:00 P.M., New York time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value.
b. Subject to Sections 2(b), 4 and 8, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at 2200 Gateway Blvd.,
Suite 205, Morrisville, North Carolina, 27560, Attention: Chief Financial
Officer, or at such other address as the Company may specify in writing to
the then registered Holder, and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to
purchase hereunder, in lawful money of the United States of America, in
cash or by certified or official bank check or checks, all as specified by
the Holder in the Form of Election to Purchase, the Company shall promptly
(but in no event later than 30 days thereafter) issue and cause to be
delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise. Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
c. This Warrant shall be exercisable, either as an entirety or, from
time to time, for part of the number of Warrants evidenced hereby so long
as at least 5,000 Warrant Shares are purchased in any one exercise. If
less than all of the Warrants Shares which may be purchased under this
Warrant are exercised at any time, the Company shall issue, at its
expense, a New Warrant evidencing the right to purchase the remaining
number of Warrant Shares for which no exercise has been evidenced by this
Warrant.
4. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares in a name other than that of the Holder,
and the Company shall not be required to issue or deliver the certificates for
Warrant Shares unless or until the
-2-
<PAGE>
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company may in its discretion issue in exchange and substitution
for and upon cancellation hereof, or in lieu of and substitution for this
Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company will at all times reserve
and keep available out of the aggregate of its authorized but unissued Class A
Common Stock or its authorized and issued Class A Common Stock held in its
treasury, for the purpose of enabling it to issue Warrant Shares upon exercise
of this Warrant, the number of Warrant Shares which are then deliverable upon
the exercise of this Warrant, as adjusted pursuant to Section 7 below.
7. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 7. Upon each such adjustment of the Exercise
Price pursuant to this Section 7, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. All determinations with respect to adjustments hereunder shall
be made by the Board of Directors in good faith.
a. If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend or otherwise make any distributions on
shares of its Class A Common Stock payable in shares of its capital stock
(whether payable in shares of such Class A Common Stock or of capital
stock of any other class), (ii) subdivide outstanding shares of Class A
Common Stock into a larger number of shares, (iii) combine outstanding
shares of Class A Common Stock into a smaller number of shares, or (iv)
issue by reclassification of shares of Class A Common Stock any shares of
capital stock of the Company, then the Exercise Price shall be adjusted by
multiplying it by a fraction the numerator of which shall be the number of
shares of Class A Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Class A Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
7(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or reclassification.
b. If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all holders of Class A Common Stock (and
not to the Holder) entitling them to subscribe for or purchase shares of
Class A Common Stock at a price per share less than the Exercise Price at
the record date mentioned below, then the Exercise Price shall be adjusted
by multiplying it by a fraction, the denominator of which shall be the
number of shares of Class A Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus
the number of
-3-
<PAGE>
additional shares of Class A Common Stock offered for subscription or
purchase, and the numerator of which shall be the number of shares of
Class A Common Stock (excluding treasury shares, if any) outstanding on
the date of issuance of such rights or warrants plus the number of shares
which the aggregate offering price of the total number of shares so
offered would purchase at the Exercise Price. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon
the expiration without exercise of any right or warrant to purchase Class
A Common Stock, the issuance of which resulted in an adjustment in the
Exercise Price pursuant to this Section 7(b), the Exercise Price shall
immediately upon such expiration be recomputed and effective immediately
upon such expiration be increased to the price which it would have been
(but reflecting any other adjustments in the Exercise Price made pursuant
to the provisions of this Section 7 after the issuance of such rights or
warrants) had the adjustment of the Exercise Price made upon the issuance
of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Class A Common
Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
c. In case of any reclassification of the Class A Common Stock, any
consolidation or merger of the Company with or into another person, the
sale or transfer of all or substantially all of the assets of the Company
or any compulsory share exchange pursuant to which the Class A Common
Stock is converted into other securities, cash or property, the Holder
shall have the right thereafter to exercise this Warrant to purchase only
the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Class A Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange,
and the Holder shall be entitled upon such event to receive such amount of
securities or property as the shares of the Class A Common Stock which may
be purchased by exercise of this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange
would have been entitled.
d. In case:
(i) the Company shall take a record of the holders of its
Class A Common Stock (or other Stock or securities at the time
receivable upon the exercise of this Warrant) for the purpose of
entitling them to receive any dividend or other distribution, or any
right to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed
to the Holder or Holders a notice specifying, as the case may be, (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such
dividend, distribution or right, or (B) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if
any is to be fixed, as of which the holders of record of Class A Common
Stock (or such stock or securities at the time
-4-
<PAGE>
receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Class A Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at
least fifteen days prior to the date therein specified.
e. In any case in which any adjustment under this Section 7 is
required to be made effective as of the record date for a specified event,
the Company may elect to defer until occurrence of such event (A) issuing
to the Holder, if an exercise under this Warrant is made after such record
date, the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise over and above the Warrant Shares and other
capital stock of the Company, if any, issuable upon such exercise on the
basis of the Exercise Price prior to adjustment and (B) paying to the
Holder any amount in cash in lieu of a fractional share pursuant to
Section 8 hereof, provided, however, that the Company shall deliver to the
Holder a due bill or other appropriate instrument evidencing the Holder's
right to receive such additional Warrant Shares, other capital stock
and/or cash upon the occurrence of the event requiring such adjustment.
f. Any determination that the Company or the Board of Directors must
make pursuant to this Section 7 shall be conclusive if made in good faith.
8. Fractional Shares. The Company shall not be required to issue
fractional Warrant Shares on the exercise of this Warrant. The number of full
Warrant Shares which shall be issuable upon the exercise of this Warrant shall
be computed on the basis of the aggregate number of Warrant Shares purchasable
on exercise of this Warrant so presented. If any fraction of a Warrant Share
would, except for the provisions of this Section 8, be issuable on the exercise
of this Warrant, the Company shall pay an amount in cash equal to the Exercise
Price multiplied by such fraction.
9. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by registered
or certified mail, postage prepaid, addressed as follows: (1) if to the Company,
to FRONT ROYAL, INC., 2200 Gateway Blvd., Suite 205, Morrisville, North
Carolina, 27560, Attention: Chief Financial Officer, or to facsimile no. (919)
469-3557; or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
10. Any notice or other communications or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if
delivered via facsimile at the facsimile number specified in this Section 10,
(ii) four (4) days after deposit in the United States mails, (iii) the date when
posted, if sent by nationally recognized overnight courier service or (iv) upon
actual receipt by the party to whom such notice is required to be given.
10. Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
b. Subject to Section 10(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company, the
Holder and any registered holder of Warrant
-5-
<PAGE>
Shares any legal or equitable right, remedy or cause under this Warrant; this
Warrant shall be for the sole and exclusive benefit of the Company, the Holder
and any other registered holder of Warrant Shares.
c. This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of North Carolina without regard
to the principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
e. In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
FRONT ROYAL, INC.
By:______________________________________
Name: J. Adam Abram
Title: Chief Executive Officer
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To Front Royal, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Class A Common Stock ("Class A Common Stock"), no par value, of Front
Royal, Inc. and encloses herewith $________ in cash (or encloses herewith
evidence of payment of such sum), which sum represents the Exercise Price (as
defined in the Warrant) for the number of shares of Class A Common Stock to
which this Form of Election to Purchase relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Class A
Common Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
______________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
If the number of shares of Class A Common Stock issuable upon this
exercise shall not be all of the shares of Class A Common Stock which the
undersigned is entitled to purchase in accordance with the enclosed Warrant, the
undersigned requests that a New Warrant (as defined in the Warrant) evidencing
the right to purchase the shares of Class A Common Stock not issuable pursuant
to the exercise evidenced hereby be issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Dated: _____________, 19 Name of Holder:
(Print)______________________________
(By:)________________________________
(Title:)
-7-
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase the ____________ shares of Class A Common Stock of FRONT
ROYAL, INC. to which the within Warrant relates and appoints ________________
attorney to transfer said right on the books of FRONT ROYAL, INC. with full
power of substitution in the premises.
Dated:
_______________, 199___
__________________________________________________
(Signature must conform in all respects to name of
holder asspecified on the face of the Warrant)
__________________________________________________
Address
In the presence of:
__________________________________
<PAGE>
STOCK PURCHASE AGREEMENT
between
ROCKWOOD CASUALTY INSURANCE COMPANY
as Seller
and
FORT WASHINGTON HOLDINGS, INC.
as Buyer
Dated as of December 31, 1996
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of December 31, 1996, between ROCKWOOD
CASUALTY INSURANCE COMPANY, a Pennsylvania stock insurance company ("Seller"),
and FORT WASHINGTON HOLDINGS, INC., a Pennsylvania corporation ("Buyer").
RECITALS
--------
WHEREAS, Seller owns, beneficially and of record, 1,000 shares of common
stock, no par value, (the "Premier Common Stock"), of Premier Auto Insurance
Company, a Pennsylvania stock insurance company (the "Company"), constituting
100% of all of the issued and outstanding shares of Premier Common Stock; and
WHEREAS, Seller desire to sell, and Buyer desires to purchase, all of the
outstanding capital stock of the Company.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, it is agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1 "Affiliate" shall mean, with respect to a specified person or entity,
another person or entity that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person or entity specified.
1.2 "Agreement" shall mean this Stock Purchase Agreement, together with the
Exhibits and Schedules attached hereto and the Disclosure Schedules, as the same
may be amended from time to time in accordance with the terms hereof.
1.3 "Business Day" shall mean any day except a Saturday, Sunday or any day
on which United States chartered banking institutions are required by Law to
close.
1.4 "Buyer" shall mean Fort Washington Holdings, Inc.
1.5 "Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 2.3.
1.6 "Closing Date" shall mean December 31, 1996.
<PAGE>
1.7 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.8 "Commissioner" shall mean the Pennsylvania Insurance Commissioner, her
predecessors and successors.
1.9 "Company" shall mean Premier Auto Insurance Company, a Pennsylvania
stock insurance company.
1.10 "Contracts" shall mean all agreements, contracts and commitments,
written or oral, to which the Company is a party or by which the Company is
bound including, without limitation, equipment leases and Software Licenses.
1.11 "Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a person
or entity, whether through the ownership of voting securities, by contract or
otherwise.
1.12 "Department" shall mean the Pennsylvania Insurance Department.
1.13 "Disclosure Schedule of Buyer" shall mean the disclosure schedule,
dated the date hereof, furnished by Buyer to Seller and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
1.14 "Disclosure Schedule of Seller" shall mean the disclosure schedule,
dated the date hereof, furnished by Seller to Buyer and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
1.15 "Indemnity Claim" shall have the meaning set forth in Section 9.5.
1.16 "Intellectual Property" shall have the meaning set forth in Section
3.13(a) hereof.
1.17 "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations, permits,
licenses and orders promulgated thereunder.
1.18 "Lien" shall mean any lien, pledge, charge, security interest,
encumbrance, title retention agreement, restriction, advance, claim or option.
1.19 "Material Adverse Effect" shall mean (a) with respect to the Company,
reasonably likely to have a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise) or affairs of the
Company, (b) with respect to Seller, reasonably likely to have a material
adverse
-2-
<PAGE>
effect on the properties, business, results of operations, condition (financial
or otherwise) or affairs of Seller, and (c) with respect to Buyer, reasonably
likely to have a material adverse effect on the properties, business, results of
operations, condition (financial or otherwise) or affairs of Buyer.
1.20 "Non-Compete and Non-Solicitation Agreement" shall mean the agreement
between Buyer and Seller, Front Royal Insurance Company, Colony Insurance
Company, and Hamilton Insurance Company dated as of the Closing Date in the form
of Exhibit B.
1.21 "Pennsylvania Insurance Law" shall mean all of the statutes and
regulations of the Commonwealth of Pennsylvania applicable to insurance
companies, as in effect on the Closing Date.
1.22 "Permits" shall mean all licenses, permits and other governmental
authorizations, registrations and approvals required to conduct the business of
the Company.
1.23 "Permitted Lien" shall mean any lien described in the Disclosure
Schedule of Seller.
1.24 "Pledge Agreement" shall mean the Pledge Agreement from Buyer to
Seller securing the Term Note, substantially in the form of Exhibit A.
1.25 "Premier Common Stock" shall mean the common stock, no par value, of
the Company.
1.26 "Purchased Stock" shall have the meaning set forth in Section 2.1.
1.27 "Purchase Price" shall have the meaning set forth in Section 2.2
hereof.
1.28 "SAP" shall mean statutory accounting practices required, prescribed
or permitted by the Commissioner, consistently applied throughout the specified
period and in the comparable period in the immediately preceding year.
1.29 "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
1.30 "Seller" shall mean Rockwood Casualty Insurance Company.
1.31 "Software Licenses" shall mean all licenses related to software used
by the Company, including, without limitation, those listed in the Disclosure
Schedule of Seller.
1.32 "Subsidiary" of any person or entity shall mean any corporation or
other business entity a majority of the voting
-3-
<PAGE>
stock (or other beneficial interests) of which, entitled to vote for the
election of directors (or their counterparts), is owned by such person or entity
or a Subsidiary of such person or entity.
1.33 "Surplus" shall mean the statutory surplus of the Company determined
in accordance with SAP.
1.34 "Term Note" shall mean the Term Note from Buyer to Seller,
substantially in the form of Exhibit C.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include the other gender, (b) words using the singular or
plural number also include the plural or singular number, respectively, (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement, (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement, (e) the phrase "in the
ordinary course of business and consistent with past practice" refers to the
business, operations, affairs, and practice of the Company consistent with past
practices of such business, operations, and affairs, (f) the term "including"
and other forms of such term, with respect to any matter or thing, means
"including but not limited to" such matter or thing, (g) all reference to
"dollars" or "$" refer to currency of the United States of America, and (h) any
undefined term in this Agreement shall have the meaning customarily ascribed to
it by the casualty insurance industry.
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 Transfer of Stock. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties contained herein, on the
Closing Date, (a) Seller shall sell, convey, transfer, assign and deliver to
Buyer, and Buyer shall acquire from Seller, 1,000 shares of Premier Common
Stock, constituting 100% of the issued and outstanding shares of Premier Common
Stock (the "Purchased Stock"). In full payment for the Purchased Stock, Buyer
shall pay the Purchase Price, as provided in Section 2.2.
2.2 Purchase Price. (a) The consideration for the Purchased Stock (the
"Purchase Price") shall be as follows:
(i) Buyer shall pay a total sum equal to the Surplus of the Company as
of December 31, 1996, as follows:
(1) the sum of One Million Dollars (the "Cash Payment") in cash;
and
-4-
<PAGE>
(2) the Term Note for the remaining balance.
2.3 Closing. (a) The Closing will take place at the offices of [Robinson
Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York,
New York 10104], at 10:00 a.m., local time, on the Closing Date.
(b) At the Closing, Buyer shall deliver or cause to be delivered (i) the
Cash Payment by wire transfer of immediately available funds to an account or
accounts designated by Seller, (ii) the Term Note, and (iii) the Pledge
Agreement.
(c) At the Closing, Seller shall deliver one or more certificates
representing 1,000 shares of Premier Common Stock, constituting 100% of the
issued and outstanding shares of Premier Common Stock, accompanied by stock
powers duly endorsed in blank, with all required transfer taxes or stamps paid
for or affixed thereto, free and clear of all Liens;
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Organization and Good Standing. (a) Seller is a stock insurance company
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
(b) The Company is a stock insurance company duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. The Company has all requisite corporate power and authority to
conduct its business and to own or lease and to operate its properties.
3.2 Authority, Validity and Enforceability. Seller has full corporate power
and authority to execute, deliver and perform its obligations and to consummate
the transactions required of it under this Agreement. The execution, delivery
and performance by Seller of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Seller. No other action or proceeding on the part of
Seller is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and constitutes a valid, legal and binding
obligation of Seller, enforceable in accordance with its terms.
3.3 No Violation or Breach. The execution, delivery and performance by
Seller of this Agreement does not, and the consummation of the transactions
contemplated hereby will not
-5-
<PAGE>
(with or without the giving of notice or the lapse of time or both):
(a) violate or require any consent or approval under any provision of
the certificate of incorporation or bylaws of Seller or the Company; or
(b) except as set forth on Schedule 3.3 of the Disclosure Schedule of
Seller, violate or result in a default of, or require any consent or
approval under any judgment, settlement, consent, injunction, decree, order
or ruling of any court or governmental authority, to which Seller or the
Company is a party or is otherwise subject; or
(c) result in any Lien upon any properties, assets, business or
agreements of Seller or the Company howsoever arising, except for such
Liens which would not have a Material Adverse Effect with respect to either
Seller or the Company.
(d) except as set forth in Section 3.9, violate or result in a default
of, or require any consent or approval under, or result in the termination
of or loss of any right (including any right of acceleration, termination
or cancellation) in or with respect to, any Contract, Permit, equipment
lease or Software License, except for such violations or breaches which
would not have a Material Adverse Effect with respect to either Seller or
the Company; or
3.4 Title to Shares. Upon delivery to Buyer of certificates representing
the Premier Common Stock, Buyer will acquire good and valid title to the Premier
Common Stock, free and clear of all Liens other than (a) Liens that arise solely
as a result of Buyer's actions and (b) restrictions on transferability generally
imposed on transfers of securities by federal and state securities laws and
state insurance laws.
3.5 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Seller as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise,"
of Seller as of the Closing Date, as such terms are determined in accordance
with applicable federal and state laws governing determinations of the
insolvency of debtors.
3.6 Licenses and Permits. The Company has all Permits required to engage in
the business of writing insurance policies of the type specified on such
Schedule 3.6 except for such Permits, the absence, expiration or invalidity of
which, individually or in the aggregate, does not have a Material Adverse Effect
with respect to the Company. The Company is duly licensed and qualified to
transact those lines of insurance business in those states and jurisdictions
listed on such Schedule 3.6. Except as set forth on such Schedule 3.6, all such
-6-
<PAGE>
Permits are owned by the Company, are in full force and effect and none of the
Company or Seller has received any notice of any event, inquiry, investigation
or proceeding that could result in a penalty or fine in excess of $25,000.00,
singly or in the aggregate, or in the suspension, revocation or limitation on
any such Permit, and to the knowledge of Seller, there is no basis for any such
fine, penalty, suspension, revocation or limitation. The Company possesses the
minimum statutory capital and surplus as required by each such jurisdiction for
the type of insurance written by the Company in each jurisdiction set forth on
such Schedule 3.6.
3.7 Capitalization. (a) The authorized capital stock of the Company
consists of 1,000 shares of capital stock, no par value, all of which are
designated Premier Common Stock. 1,000 shares of Premier Common Stock are issued
and outstanding, all of which are owned of record and beneficially by Seller,
free and clear of any Liens except for the Lien created pursuant to this
Agreement. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(b) There are no outstanding securities, rights (pre-emptive or other),
subscriptions, calls, warrants, options, or other agreements (except for this
Agreement) that give any person or entity the right to (i) purchase or otherwise
receive or be issued any shares of capital stock of the Company (or any interest
therein) or any security convertible into or exchangeable for any shares of
capital stock of any of the Company (or any interest therein), (ii) receive any
dividend, voting or ownership rights similar to those accruing to a holder of
shares of capital stock of the Company, or (iii) participate in the equity,
income or election of directors or officers of the Company. Except as set forth
in Schedule 3.7 of the Disclosure Schedule of Seller, there are no proxies,
voting trusts or other agreements or understandings to which either Seller is a
party with respect to the voting of any of the Purchased Stock.
3.8 Subsidiaries. The Company has no Subsidiaries.
3.9 Consents. Except as set forth in Schedule 3.9 of the Disclosure
Schedule of Seller, no consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained, by Seller or the Company in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
3.10 Litigation. Except as set forth on Schedule 3.10 of the Disclosure
Schedule of Seller, there is no action, proceeding, investigation or claim
pending or, to the Seller's knowledge, threatened against or affecting the
Company or its assets before any court or governmental or regulatory authority
-7-
<PAGE>
or body that, if adversely determined, would have a Material Adverse Effect with
respect to the Company or which questions the validity of this Agreement or any
action taken or to be taken pursuant hereto or in connection with the purchase
and sale of the Purchased Stock.
3.11 No Brokers. Other than counsel, Seller and the Company have not
employed any finder, broker, agent or other intermediary in connection with the
negotiation of this Agreement or the consummation of any of the transactions
contemplated hereby.
3.12 Compliance with Other Instruments and Laws. Except as set forth on
Schedule 3.12 of the Disclosure Schedule of Seller, the Company is not in
violation of any term of its charter or by-laws or any Contract or of any
judgment, decree or order and the Company is not in violation of any Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except for
such violation that would not have a Material Adverse Effect with respect to the
Company.
3.13 Assets and Properties. (a) Schedule 3.13(a) of the Disclosure Schedule
of Seller contains an accurate and complete list of all domestic and foreign
letters patent, patents, patent applications, patent licenses, software licenses
and know-how licenses, trade names, trademarks, copyrights, unpatented
inventions, service marks, trademark registrations and applications, service
mark registrations and applications, and copyright registrations and
applications and software owned by the Company or its Affiliates and used by the
Company in connection with the operation of its business (collectively the
"Intellectual Property"). Unless otherwise indicated in such Schedule 3.13(a),
the Company owns the entire right, title and interest in and to the Intellectual
Property (including, without limitation, the exclusive right to use and license
the same), and, to the Seller's knowledge, no person is infringing on the
Company's ownership or use of the Intellectual Property.
(b) Schedule 3.13(b) of the Disclosure Schedule of Seller contains a list
of all debentures, notes, stocks, limited partnership interests, other
securities, mortgages, and other investment assets owned by the Company as of
[September 30], 1996. The Company had good and marketable title to all
debentures, notes, stocks, limited partnership interests, other securities,
mortgages, and other investment assets (excluding real property) owned by it as
of such date, free and clear of all Liens.
3.14 Bank Accounts. Schedule 3.14 of the Disclosure Schedule of Seller
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
the Company
-8-
<PAGE>
has an account or safe deposit box or maintains a banking, custodial, trading,
trust, or other similar relationship, (b) a true and complete list and
description of each such account, box and relationship, (c) a true and complete
list of all signatories for each such account and box and (d) a true and
complete list of all compensating balances required with respect to each such
account.
3.15 Charter Documents and Bylaws. Seller has heretofore made available to
Buyer true and complete copies of the articles of incorporation and bylaws of
the Company, as in effect on the date hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania.
4.2 Authority, Validity and Enforceability. Buyer has full corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions required of it contemplated hereby.
The execution, delivery and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by Buyer's Board of Directors. No other action or proceeding on the
part of the Buyer is necessary to authorize the Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer, and constitutes a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms.
4.3 No Violation or Breach. The execution, delivery and performance of this
Agreement by Buyer does not, and the consummation of the transactions required
by Buyer contemplated hereby, will not (with or without the giving of notice or
lapse of time or both):
(a) violate or require any consent or approval under, any provision of
the certificate of incorporation or bylaws of Buyer;
(b) except as set forth in Section 4.4 hereof, violate or result in a
default of, or require any consent or approval under any agreement, policy,
instrument, contract, commitment, license, franchise, permit or trust to
which Buyer is a party or is otherwise subject, except for such violations
or breaches
-9-
<PAGE>
which would not have a Material Adverse Effect with respect to Buyer; or
(c) violate or result in a default of, or require any consent or
approval under, any judgment, settlement, consent, injunction, decree,
order or ruling of any court or governmental authority to which Buyer is a
party or otherwise subject.
4.4 Consents. Except as set forth on Schedule 4.4 of the Disclosure
Schedule of Buyer, no consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority is required
to be obtained or made, and no consent of any third party is required to be
obtained, by Buyer, in connection with its execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
4.5 Purchase for Investment. Buyer is purchasing the Purchased Stock for
its own account for investment and not with a view to any distribution thereof
within the meaning of the Securities Act. Buyer acknowledges that the offer and
sale of the Purchased Stock pursuant hereto are intended to be exempt from the
Securities Act pursuant to Section 4(2) thereof, and the Purchased Stock may not
be resold or otherwise transferred except pursuant to an effective registration
statement or an exemption from registration thereunder, and pursuant to
registration or qualification (or exemption therefrom) under applicable state
securities laws.
4.6 Litigation. There is no action, proceeding, investigation or inquiry
pending or, to the knowledge of Buyer, threatened against Buyer which questions
the validity of this Agreement or any action taken or to be taken pursuant
hereto or thereto or in connection with the purchase and sale of the Purchased
Stock.
4.7 No Brokers. Other than counsel, Buyer has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Indebtedness. Without the prior written consent of Buyer, which shall
not be unreasonably withheld, the Company shall not:
(a) create, incur or assume any indebtedness for borrowed money;
-10-
<PAGE>
(b) mortgage, pledge or otherwise encumber or subject to any Lien any
of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts payable
and other liabilities incurred in the ordinary course of business.
5.2 Issuance of Stock. The Company shall not issue any shares of capital
stock of any class or grant any warrants, options or rights to subscribe for any
shares of capital stock of any class or securities convertible into or
exchangeable for, or which otherwise confer on the holder any right to acquire,
any shares of capital stock of any class.
5.3 Compliance with Law. The Company shall use its commercially reasonable
best efforts to comply in all material respects with all applicable Law and with
all orders of any court or of any federal, state, municipal or other
governmental department.
5.4 Cooperative; Best Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper and advisable under applicable Law (including, without
limitation, the Pennsylvania Insurance Law), to consummate and make effective
the transactions contemplated by this Agreement. Each of the parties hereto
agrees to make all required regulatory filings promptly after the date hereof
and to diligently pursue compliance with Pennsylvania Law.
5.5 Consents. Seller and Buyer shall diligently pursue obtaining consents
of all third parties and governmental authorities necessary to the consummation
of the transactions contemplated by this Agreement.
5.6 Publicity. All general notices, releases, statements and communications
to employees, suppliers, distributors and customers of the Company and to the
general public and the press relating to the transactions covered by this
Agreement shall be made only at such times and in such manner as may be mutually
agreed upon by Seller and Buyer.
5.7 Articles and Bylaws. Seller covenants and agrees that the Company shall
not amend its Articles of Incorporation or bylaws, except as may be necessary to
comply with the terms of this Agreement, or merge or consolidate with or into
any other corporation.
-11-
<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 6.7 [Regulatory Approvals],
may be waived by Buyer):
6.1 Compliance with Agreement. Seller shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken by Seller and the Company in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to Buyer and Buyer's counsel, and
Seller shall have made available to Buyer for examination the originals or true
and correct copies of all documents that Buyer may reasonably request in
connection with the transactions contemplated by this Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations and warranties made
by Seller in this Agreement shall be true and correct as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on the Closing Date, except as otherwise contemplated hereby and
except to the extent that such representations and warranties were made as of a
specified date and as to such representations and warranties the same shall
continue on the Closing Date to have been true and correct as of the specified
date.
6.5 Closing Under the Rockwood Casualty Purchase Agreement. The closing
shall have occurred under that certain Stock Purchase Agreement (the "Rockwood
Casualty Purchase Agreement") among PIC Insurance Group, Inc. and Trirock
Limited Partnership, as sellers, and Front Royal, Inc., as buyer, dated as of
December 6, 1996, for the acquisition by Front Royal, Inc. of the stock of
Seller.
6.6 Additional Deliveries at Closing. Seller shall have, or shall cause to
have, delivered to Buyer (a) certificates representing the Purchased Stock,
accompanied by stock powers
-12-
<PAGE>
duly endorsed in blank, with all required transfer taxes or stamps paid for or
affixed thereto, free and clear of all Liens, and (b) the Non-Compete and
Non-Solicitation Agreement, duly executed and delivered and dated as of the
Closing Date.
6.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies with jurisdiction over
Seller, the Company or Buyer to permit the sale of the Purchased Stock and the
other transactions contemplated hereby shall have been obtained and shall remain
in full force and effect (without any material term, condition or restriction
that is reasonably unacceptable to Buyer).
6.8 Consents. There shall have been obtained written consent with respect
to any contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect with respect to the Company.
6.9 Resignation of Directors and Officers. Each member of the Board of
Directors and each officer of the Company shall have resigned from such
positions effective on the Closing Date.
6.10 Policyholders' Surplus. The Surplus shall be equal to or greater than
Three Million Five Hundred Thousand Dollars ($3,500,000) as of December 31,
1996.
6.11 Books and Records. Seller shall have delivered to Buyer all minute
books, stock records and other corporate and financial records of the Company.
ARTICLE VII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 7.7 [Regulatory Approvals],
may be waived by Seller):
7.1 Compliance with Agreement. Buyer shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
7.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Buyer in connection
-13-
<PAGE>
with the transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Seller and
their respective counsel, and Buyer shall have made available to Seller for
examination the originals or true and correct copies of all documents that
Seller may reasonably request in connection with the transactions contemplated
by this Agreement.
7.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations and warranties made
by Buyer in this Agreement shall be true and correct in all material respects as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except as
otherwise contemplated hereby and except to the extent that such representations
and warranties were made as of a specified date and as to such representations
and warranties the same shall continue on the Closing Date to have been true and
correct as of the specified date.
7.5 Closing Under Rockwood Casualty Purchase Agreement. The closing shall
have occurred under the Rockwood Casualty Purchase Agreement for the acquisition
by Front Royal, Inc. of the stock of Seller.
7.6 Additional Deliveries at Closing. Buyer shall have, or shall cause to
have, delivered to Seller (a) the Cash Payment, (b) the following documents,
each duly executed and delivered and dated as of the Closing Date: (i) the Term
Note; and (ii) the Pledge Agreement, and (c) the certificates or other
instruments representing the Pledged Collateral (as defined in the Pledge
Agreement) pursuant to terms of the Pledge Agreement.
7.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over Seller, the Company
or Buyer to permit the sale of the Purchased Stock and the other transactions
contemplated hereby shall have been obtained and shall remain in full force and
effect (without any material term, condition or restriction that is reasonably
unacceptable to Seller).
7.8 Consents. There shall have been obtained written consent with respect
to any contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect with respect to Buyer.
-14-
<PAGE>
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Records. Buyer shall preserve and keep, free of charge, all books,
papers and records included in the assets of the Company relating to their
respective businesses for periods prior to the Closing Date for a period of not
less than five years following the Closing Date; provided, however, prior to the
fifth year following the Closing Date, Buyer may destroy such materials if Buyer
provides Seller 30 Business Days' prior notice that Buyer intends to destroy any
or all of such books, papers and records and Seller shall have the right to
review and remove any books, papers and records to be destroyed at Seller's
expense. Buyer agrees to permit Seller and its attorneys, accountants, agents
and designees access to such books, papers and records from and after the
Closing Date for all reasonable purposes. Any such examination shall be at the
expense of Seller, shall be performed at the place such books, papers and
records are regularly maintained and shall not unreasonably interfere with
Buyer's or the Company's normal business activities.
8.2 Access. Buyer and Seller and each of their authorized agents, officers
and representatives shall have reasonable access to the properties, books,
records, contracts, information and documents of the Company and each other to
conduct such examinations and investigations of its or their business as it
deems necessary, provided that such examinations and investigations: (a) shall
be germane to rights or obligations arising out of this Agreement, the
operations of the Company prior to the Closing Date or to the transactions
occurring between the Company and any Affiliates prior to the Closing Date; (b)
shall be conducted only in the presence of a designated representative of Buyer
or Seller, as appropriate; (c) shall be during normal business hours; (d) shall
not unreasonably interfere with operations and activities; and (e) shall be
subject to prior approval if the information or documents requested are, in the
reasonable opinion of an officer, of a nature that may compromise the
competitive position of Buyer or Seller. Buyer and Seller shall cooperate in all
reasonable respects with each other's examinations and investigations.
8.3 Cooperation. Buyer and Seller will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated
under this Agreement. Buyer promptly will furnish to Seller copies of the Forms
A filed with the Pennsylvania Insurance
-15-
<PAGE>
Department and all correspondence with the Pennsylvania Insurance Department
with respect thereto.
8.4 Confidentiality. Following the Closing, Seller shall keep confidential
all information concerning the business, operations, properties, assets and
financial affairs of the Company and may disclose such information only upon
receipt of prior written consent from Buyer, as required by law, or if such
disclosure is required (a) in connection with a Seller's filing of any state or
federal income tax returns, (b) in connection with filings made with the
Securities and Exchange Commission or any national securities exchange or (c) by
order of any judicial or administrative authority, provided, however, Seller
shall not be required to keep confidential information that (x) is or becomes
generally available to the public other than as a result of disclosure by
Seller, (y) is or becomes available to Seller on a nonconfidential basis from a
source other than Buyer, or (z) Seller or any of their Affiliates is required to
disclose pursuant to applicable law, rule, regulation or subpoena. Buyer
acknowledges and agrees that nothing in this Section 8.5 shall be deemed to
release it from any of its liabilities or obligations under this Agreement.
8.5 Use of Name. From and after the Closing Date, neither Seller nor any of
its Affiliates shall use the name "Somerset" or any names similar thereto or
variants thereof in connection with the casualty insurance business.
8.6 Non-Solicitation of Employees. Seller hereby agrees that for a period
commencing on the Closing Date and ending three years thereafter, neither Seller
nor any of its Affiliates shall solicit for employment by Seller or any of its
Affiliates any employees of the Company.
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. The right to enforce claims
for breaches of representations, warranties, covenants and agreements of Seller,
on the one hand, and Buyer, on the other hand, contained in this Agreement and
the respective obligations of the parties with respect thereto, shall survive
the making of this Agreement, any investigations made by or on behalf of the
parties hereto and the Closing Date, and shall continue in full force and effect
until the expiration of thirty (30) months from the Closing Date (except with
respect to Section 3.7 [Capitalization] and the indemnification provided
pursuant to Sections 9.2(c) and 9.3(c), to which there shall be no expiration),
at which respective times all such representations and warranties and
liabilities shall expire and terminate, except for any claims relating to any
specific breaches of any
-16-
<PAGE>
representations or warranties which are asserted in writing on or before the
applicable termination date. Each of the parties agrees to give notice to the
breaching party of any breach of any such representation, warranty, covenant, or
agreement, describing such breach in reasonable detail, as soon as practicable
after the discovery thereof; provided, however, that the failure to receive such
notice shall not relieve the breaching party from any liability in respect to
such breach unless and to the extent that the breaching party shall be prevented
from curing such breach as a direct result of its failure to receive a timely
notice. Any claim for indemnification for which notice has been given within the
prescribed period may be prosecuted to conclusion notwithstanding the subsequent
expiration of such period.
9.2 Indemnification by Seller. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 9.4, Seller agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
claims, suits, losses, expenses, damages, obligations, liabilities (including
costs and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of Seller to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by
Seller;
(c) any liabilities of Seller or its Affiliates (other than the
Company), except for (i) those liabilities incurred pursuant to this
Article IX or (ii) liabilities of Seller or its Affiliates which are
actually the primary obligation of the Company; or
(d) any joint liabilty of the Seller and the Company which is actually
the primary obligation of the Seller or any liability of the Company solely
to the extent it arises from the Company's joining in a consolidated,
unitary or combined tax return with the Seller.
9.3 Indemnification by Buyer. After the Closing Date, and subject to the
limitations set forth below, including, without limitation, the limitations
described in Section 9.4, Buyer agrees to and does hereby indemnify and hold
Seller and its Affiliates, officers, directors and employees harmless against
any Losses which result from or are related to any of the following:
(a) any breach or failure of Buyer to perform any of its covenants or
agreements set forth herein;
-17-
<PAGE>
(b) the inaccuracy of any representations or warranties made by Buyer
herein;
(c) any liabilities of Buyer or its Affiliates (other than the
Company), except for those liabilities of Buyer or its Affiliates incurred
pursuant to this Article IX; or
(d) the conduct of the Company's business after the Closing Date.
9.4 Limitation of Liability. Buyer shall not have any liability to
indemnify Seller in respect of Losses incurred by Seller pursuant to Sections
9.3(a) and (b), and Seller shall not have any liability to indemnify Buyer in
respect of Losses incurred by Buyer pursuant to Section 9.2(a), (b) or (d), in
either case unless and until the aggregate amount of such Losses exceeds
$25,000, in which event the party seeking indemnity may recover the full amount
of such Losses, other than the initial $25,000, provided that recovery by Buyer,
on the one hand, or Seller, on the other hand, in respect of such Losses shall
be limited to $2,300,000. Notwithstanding the foregoing, (i) Buyer may recover
all Losses whenever incurred by Buyer pursuant to Section 9.2(c) without regard
to the 30-month limitation set forth in Section 9.1 or the $25,000 limit
referenced above, and (ii) Seller may recover all Losses whenever incurred
pursuant to Section 9.3(c) without regard to the 30-month limitation set forth
in Section 9.1 or the $25,000 limit referenced above.
9.5 Notice of Indemnity Claims. If a party intends to assert a claim for
indemnification (an "Indemnified Party") under this Article IX (an "Indemnity
Claim"), the Indemnified Party shall promptly provide notice of such Indemnity
Claim, to the party from whom indemnification is sought (the "Indemnifying
Party") (and in any event within fifteen (15) days after becoming aware of such
Indemnity Claim). The failure to receive such notice shall not relieve the
Indemnifying Party from any liability in respect of such claim unless and to the
extent that the Indemnifying Party shall be prevented from curing such situation
as a direct result of its failure to receive timely notice. At the time the
Indemnity Claim is made and thereafter, the Indemnified Party shall provide the
Indemnifying Party with copies of any materials in its possession describing the
facts or containing information providing the basis for the Indemnity Claim. If
the Indemnity Claim involves a claim by a third party (a "Third Party Indemnity
Claim"), the Indemnifying Party may assume and control at its expense the
defense of the claim by the third party, provided that the Indemnifying Party
agrees in writing with respect to such Third Party Indemnity Claim that it is
obligated hereunder to indemnify and hold the Indemnified Party harmless in
accordance with the terms of this Article IX; and provided, further, that the
Indemnified Party shall be entitled to participate in the defense of such claim
at its own expense. The failure of the Indemnifying Party to assume the
-18-
<PAGE>
defense of any such claim shall not affect any indemnification obligation under
this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party, which
shall not unreasonably be withheld. A party shall not be liable under this
Article IX for any such settlement effected without its consent. In the event an
Indemnified Party fails to consent to a settlement of a Third Party Claim
recommended by the Indemnifying Party, then the amount of indemnification
payable with respect to such Third Party Claim shall not exceed the amount of
such settlement offer plus all Losses incurred with respect to such claim prior
to the date the Indemnified Party rejected the settlement offer.
9.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount of any
indemnification payable under any of the provisions of this Article IX shall be
(a) net of any federal or state income tax benefit realized or the then-present
value (based on a discount rate of 5%) of any such income tax benefit to be
realized by the Indemnified Party (or, where Buyer is the Indemnified Party, the
Company) by reason of the facts and circumstances giving rise to the
indemnification, and (b) increased by the amount of any federal or state income
tax required to be paid by the Indemnified Party on the accrual or receipt of
the indemnification payment. For purposes of the preceding sentence, the amount
of any state income tax benefit or cost shall take into account the federal
income tax effect of such benefit or cost.
9.7 Arbitration. Any dispute arising between the parties hereto as to any
matter covered by this Agreement, including any claim for indemnification
pursuant to Section 9.2 or 9.3, shall be submitted to arbitration in the
following manner:
(a) The party desiring to submit such controversy to arbitration shall
give to the other party notice in writing, stating with specificity the
matter upon which arbitration is sought. The written notice shall also name
the arbitrator selected by such party, which arbitrator shall be a present
or retired insurance company executive unaffiliated with such party.
(b) Within ten Business Days following the receipt of such notice, the
other party shall give written notice to the party desiring arbitration of
the arbitrator selected by it, which second arbitrator shall likewise be a
present or retired insurance company executive unaffiliated with such
party.
(c) Upon the appointment of the second arbitrator, the two arbitrators
so chosen shall select a third arbitrator, which third arbitrator shall
likewise be a present or retired insurance company executive unaffiliated
which such party.
-19-
<PAGE>
(d) The three arbitrators thus chosen shall give to each of the
parties hereto written notice of the time and place of hearing, which
hearing shall be held in Somerset County, Pennsylvania not less than ten
Business Days, nor more than 20 Business Days, after the selection of the
third arbitrator.
(e) At the time and place (in Somerset County, Pennsylvania)
appointed, the three arbitrators shall proceed with the hearing unless for
some good cause, of which a majority of the arbitrators shall be the judge,
it shall be postponed until some other day within a reasonable time. The
parties hereto shall have full opportunity to be heard on any question thus
submitted.
(f) The arbitrators shall be relieved of following judicial
formalities and the rules of evidence shall not apply to such hearing. The
determination by a majority of the arbitrators shall be made in writing and
a copy thereof delivered to each of the parties hereto. The arbitrators
shall in every case deliver their decision within 60 days after the
hearing, unless the parties shall otherwise agree to extend the time.
Unless the arbitrator determines otherwise, all costs and expenses of
arbitration and the reasonable legal fees and disbursements of the
prevailing party shall be paid by the other party.
(g) The determination of the arbitrator in any arbitration proceeding
hereunder shall bind Buyer and Seller, provided that each received notice
of such proceeding and the opportunity to participate therein and shall be
final and unappealable.
(h) Any award, judgment or determination of the arbitrators hereunder
may be entered for enforcement in the Court of Common Pleas in Somerset
County, Pennsylvania, or in the United States District Court for the
Western District of Pennsylvania, and each of the parties hereto consents
to venue and the personal jurisdiction of such courts in connection with
any such entry and enforcement.
9.8 Remedies Cumulative. Each indemnified party shall be entitled to the
indemnification provided in this Article IX from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
-20-
<PAGE>
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller, if the Closing Date shall not have occurred on
or before December 31, 1996 (provided that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or has resulted in the failure of the Closing Date to occur on or
before such date);
(c) by Buyer or Seller, if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the sale of the Purchased Stock and such order,
decree, ruling or other action shall have become final and nonappealable.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the
other, other than any provision of this Agreement that specifically sets forth
that it is to so survive.
10.3 Extension; Waiver. At any time prior to the Closing, the parties may
(a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, any party that knowingly waives any representation, warranty, agreement
or condition with respect to another party under subsection (b) and (c) shall
thereafter be barred from seeking indemnification from such other party for such
waived breach of any representation, warranty, agreement or condition. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
-21-
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein.
11.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses of their respective counsel, investment bankers, financial advisors,
accountants and other experts and the other expenses incident to the negotiation
and preparation of this Agreement and consummation of the transactions
contemplated hereby.
11.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Pennsylvania, without regard to the
conflicts of law rules thereof.
11.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
11.5 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action. Seller and Buyer will execute, and Buyer shall cause the
Company to execute, any additional instruments necessary to consummate the
transactions contemplated hereby.
11.6 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given (i) when delivered if delivered personally or by messenger or by overnight
delivery service, or (ii) three days after mailing when mailed by registered or
certified United States mail, postage prepaid, return receipt requested, or
(iii) when received if sent by telecopy (provided that a copy is mailed
concurrently therewith pursuant to the terms hereof), in all cases addressed to
the person for whom it is intended at its address set forth below or to such
other address as a party shall have designated by notice in writing to the other
party in the manner provided by this Section 11.6:
-22-
<PAGE>
If to Seller: Rockwood Casualty Insurance Company
c/o Front Royal, Inc.
2200 Gateway Blvd.
Suite 205
Morrisville, North Carolina 27560
Attention: J. Adam Abram
Chief Executive Officer
and
Gregg T. Davis
Chief Financial Officer
Telecopier No.: (919) 469-3557
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Telecopier No.: (212) 541-4630
If Buyer: Fort Washington Holdings, Inc.
502 West Office Center Drive
Suite 100
Fort Washington, Pennsylvania 19034
Attention: Charles M. Lederman
Telecopier No.: (610) 941-5012
With a copy to: Dilworth, Paxson, Kalish & Kauffman LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103-7595
Attention: Lawrence G. McMichael, Esq.
Telecopier No.: (215) 575-7200
11.7 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Article and
Section headings in this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
11.8 Interpretation. All references in this Agreement to contracts,
agreements, leases or other understandings or arrangements shall refer to oral
as well as written matters.
11.9 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
11.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Seller, Buyer and the Company assume no
-23-
<PAGE>
liability to any third party because of any reliance on the representations,
warranties and agreements of Seller and Buyer contained in this Agreement.
11.11 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties. The requirements of this
Section 11.11 may not be waived.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
ROCKWOOD CASUALTY INSURANCE
COMPANY
By:___________________________
Name:
Title:
FORT WASHINGTON HOLDINGS, INC.
By:___________________________
Name:
Title:
-24-
<PAGE>
================================================================================
PLEDGE
AGREEMENT
Dated as of December 31, 1996
between
FORT WASHINGTON HOLDINGS, INC.
and
ROCKWOOD CASUALTY INSURANCE COMPANY
================================================================================
<PAGE>
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT, dated as of December 31, 1996, between FORT WASHINGTON
HOLDINGS, INC., a Pennsylvania corporation ("Fort Washington"), CHARLES M.
LEDERMAN ("Lederman") and TIMOTHY I. MCCARTHY, SR. ("McCarthy"; together with
Fort Washington and Lederman, the "Pledgors"), and ROCKWOOD CASUALTY INSURANCE
COMPANY, a Pennsylvania stock insurance company (the "Pledgee")
W I T N E S S E T H:
WHEREAS, concurrently with the execution and deliver of this Agreement,
Fort Washington, as buyer, and the Pledgee, as seller, have consummated the
closing under a Stock Purchase Agreement, dated as of December 31, 1996 (the
"Stock Purchase Agreement"), pursuant to which Fort Washington has purchased and
the Pledgee has sold all of the issued and outstanding capital stock of Premier
Auto Insurance Company, a Pennsylvania stock insurance company ("Premier"), and
in partial consideration for the payment due thereunder, Fort Washington has
issued to the Pledgee a Term Note, dated the date hereof, in the principal
amount of $2,500,000 (the "Term Note");
WHEREAS, concurrently with the execution and deliver of this Agreement,
Lederman and McCarthy, the record and beneficial holders of all of the issued
and outstanding capital stock of Fort Washington, have each executed and
delivered to Front Royal, Inc., a North Carolina corporation ("Front Royal"), a
Non-Compete and Non-Solicitation Agreement, dated as of the date hereof,
pursuant to which Lederman and McCarthy have agreed not to engage in certain
activities described therein in consideration of which they each received from
Front Royal warrants to purchase 200 shares of Class A Common Stock, no par
value, of Front Royal (collectively, the "Warrants");
WHEREAS, it is a condition precedent to the consummation of the Stock
Purchase Agreement that the Pledgors shall have made the pledge contemplated by
this Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce the
Pledgee to consummate the transactions contemplated by the Stock Purchase
Agreement, the parties hereto hereby agree as follows:
SECTION 1. Pledge.
(a) Fort Washington hereby pledges with, hypothecates to, delivers and
transfers into the possession of the Pledgee, its successors and assigns, and
grants to the Pledgee, its successors and assigns a continuing first priority
security interest in, the
<PAGE>
following (collectively the "Fort Washington Pledged Collateral"):
(i) all of the issued and outstanding shares of capital stock of
Premier (the "Pledged Shares");
(ii) all additional shares of stock of Premier from time to time
acquired by the Pledgor in any manner;
(iii) the certificates representing the shares referred to in clauses
(i) and (ii) above; and
(iv) subject to Section 6, all dividends, cash, instruments, options,
rights and other property or proceeds, from time to time received,
receivable or otherwise distributed or distributable in respect of or in
exchange for any or all of the shares referred to in clauses (i) and (ii)
above.
(b) Lederman hereby pledges with, hypothecates to, delivers and transfers
into the possession of the Pledgee, its successors and assigns, and grants to
the Pledgee, its successors and assigns, a continuing first priority security
interest in, the following (collectively, the "Lederman Pledged Collateral"):
(i) all of the Warrants issued by Front Royal to Lederman pursuant to
the Non-Compete and Non-Solicitation Agreement dated as of the date hereof
(the "Lederman Warrants");
(ii) any additional warrants issued from time to time by Front Royal
with respect to the Warrants and any shares of capital stock of Front Royal
issued under or pursuant to the terms of the Warrants or such additional
warrants;
(iii) instruments representing the Warrants or such additional
warrants and any shares referred to in clauses (i) and (ii) above; and
(iv) subject to Section 6, all dividends, cash, instruments, options,
rights and other property or proceeds, from time to time received,
receivable or otherwise distributed or distributable in respect to or in
exchange for any or all of the foregoing referred to in clauses (i) and
(ii) above.
(c) McCarthy hereby pledges with, hypothecates to, delivers and transfers
into the possession of the Pledgee, its successors and assigns, and grants to
the Pledgee, its successors and assigns, a continuing first priority security
interest in, the following (collectively, the "McCarthy Pledged Collateral";
together with the Fort Washington Pledged Collateral and the Lederman Pledged
Collateral, the "Pledged Collateral"):
-2-
<PAGE>
(i) all of the Warrants issued by Front Royal to Lederman pursuant to
the Non-Compete and Non-Solicitation Agreement dated as of the date hereof
(the "McCarthy Warrants");
(ii) any additional warrants issued from time to time by Front Royal
with respect to the Warrants and any shares of capital stock of Front Royal
issued under or pursuant to the terms of the Warrants or such additional
warrants;
(iii) instruments representing the Warrants or such additional
warrants and any shares referred to in clauses (i) and (ii) above; and
(iv) subject to Section 6, all dividends, cash, instruments, options,
rights and other property or proceeds, from time to time received,
receivable or otherwise distributed or distributable in respect to or in
exchange for any or all of the foregoing referred to in clauses (i) and
(ii) above.
SECTION 2. Security for Obligations. This Agreement secures and the Pledged
Collateral is security for the indefeasible payment in full when due, whether at
the stated maturity, by acceleration or otherwise, of the obligations of Pledgee
pursuant to the Term Note and all obligations of each Pledgor now or hereafter
existing under this Agreement (all such obligations of the Pledgor being
referred to herein as the "Secured Obligations").
SECTION 3. Delivery of Pledged Collateral. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to and held
by or on behalf of the Pledgee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Pledgee in its judgment. In addition, the Pledgee shall have the right at any
time to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties.
(a) Fort Washington represents and warrants as follows:
(i) The Pledged Shares (A) have been duly authorized and validly
issued; (B) are fully paid and nonassessable and (C) constitute 100% of the
issued and outstanding shares of capital stock or equity interests of
Premier. There are no existing options, warrants, calls, commitments,
rights (pre-emptive or otherwise), or subscriptions of any character
whatsoever relating to any of the Pledged Shares.
-3-
<PAGE>
(ii) Fort Washington is the direct and beneficial owner of the Fort
Washington Pledged Collateral free and clear of any Lien (as defined in the
Stock Purchase Agreement) other than the Lien granted to the Pledgee
hereunder.
(iii) Fort Washington has full power, authority, legal right and
requisite corporate authority to pledge, assign, transfer, deliver, deposit
and set over the Fort Washington Pledged Collateral pledged to the Pledgee
as provided herein.
(iv) This Agreement has been duly authorized, executed and delivered
by Fort Washington and constitutes the legal, valid and binding obligation
of Fort Washington, enforceable against Fort Washington in accordance with
its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, or other similar laws affecting creditors' rights and remedies
generally or by the application of general principles of equity.
(v) The pledge of the Fort Washington Pledged Collateral pursuant to
this Agreement creates a valid and perfected first priority security
interest in the Fort Washington Pledged Collateral securing the payment of
the Secured Obligations, subject to no prior lien or to any agreement
purporting to grant to any third party a security interest in the property
or assets of Fort Washington which would include the Fort Washington
Pledged Collateral.
(vi) No consent, authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (A) for the pledge by Fort Washington of the Fort
Washington Pledged Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement by Fort Washington or
(B) for the exercise by the Pledgee of the voting or other rights provided
for in this Agreement or the remedies in respect of the Fort Washington
Pledged Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of the Fort Washington Pledged Collateral
by laws affecting the offering and sale of securities generally, and except
for any required approval of the Pennsylvania Insurance Commissioner.
(b) Lederman represents and warrants as follows:
(i) Lederman is the direct and beneficial owner of the Lederman
Pledged Collateral free and clear of any Lien other than the Lien granted
to the Pledgee hereunder.
(ii) Lederman has full power, authority, and legal right to pledge,
assign, transfer, deliver, deposit and set over the Lederman Pledged
Collateral pledged to the Pledgee as provided herein.
-4-
<PAGE>
(iii) This Agreement has been duly executed and delivered by Lederman
and constitutes the legal, valid and binding obligation of Lederman,
enforceable against Lederman in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, or other similar laws
affecting creditors' rights and remedies generally or by the application of
general principles of equity.
(iv) The pledge of the Lederman Pledged Collateral pursuant to this
Agreement creates a valid and perfected first priority security interest in
the Lederman Pledged Collateral securing the payment of the Secured
Obligations, subject to no prior lien or to any agreement purporting to
grant to any third party a security interest in the property or assets of
Lederman which would include the Lederman Pledged Collateral.
(v) No consent, authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (A) for the pledge by Lederman of the Lederman Pledged
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Lederman or (B) for the exercise by the
Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Lederman Pledged Collateral pursuant to this
Agreement, except as may be required in connection with the disposition of
the Lederman Pledged Collateral by laws affecting the offering and sale of
securities generally, and except for any required approval of the
Pennsylvania Insurance Commissioner.
(c) McCarthy represents and warrants as follows:
(i) McCarthy is the direct and beneficial owner of the McCarthy
Pledged Collateral free and clear of any Lien other than the Lien granted
to the Pledgee hereunder.
(ii) McCarthy has full power, authority, and legal right to pledge,
assign, transfer, deliver, deposit and set over the McCarthy Pledged
Collateral pledged to the Pledgee as provided herein.
(iii) This Agreement has been duly executed and delivered by McCarthy
and constitutes the legal, valid and binding obligation of McCarthy,
enforceable against McCarthy in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, or other similar laws
affecting creditors' rights and remedies generally or by the application of
general principles of equity.
(iv) The pledge of the McCarthy Pledged Collateral pursuant to this
Agreement creates a valid and perfected first priority security interest in
the McCarthy Pledged Collateral
-5-
<PAGE>
securing the payment of the Secured Obligations, subject to no prior lien
or to any agreement purporting to grant to any third party a security
interest in the property or assets of McCarthy which would include the
McCarthy Pledged Collateral.
(v) No consent, authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required either (A) for the pledge by McCarthy of the McCarthy Pledged
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by McCarthy or (B) for the exercise by the
Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the McCarthy Pledged Collateral pursuant to this
Agreement, except as may be required in connection with the disposition of
the McCarthy Pledged Collateral by laws affecting the offering and sale of
securities generally, and except for any required approval of the
Pennsylvania Insurance Commissioner.
(d) The representations and warranties set forth in this Section 4 shall
survive the execution and delivery of this Agreement.
SECTION 5. Further Assurances; Supplements.
(a) Each Pledgor agrees that at any time and from time to time, at the
expense of such Pledgor, such Pledgor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Pledgee may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Pledgee to exercise and enforce its rights and remedies hereunder
with respect to any Pledged Collateral.
(b) Each Pledgor will defend Pledgee's right, title, special property and
security interest in and to the Pledged Collateral pledged by it or him
hereunder and the Liens of the Pledgee thereon against the claim of any Person
(as defined in the Stock Purchase Agreement) and will maintain and preserve such
Liens so long as any Secured Obligations are outstanding.
(c) If any Pledgor shall become entitled to receive or shall receive any
certificate or other instrument (including, without limitation, any certificate
representing a stock dividend or distribution in connection with any
reclassification, increase or reduction in capital), option or right, whether in
addition to, in substitution of, or in exchange for any of the Pledged
Collateral, such Pledgor shall accept any such certificate or other instrument
as the Pledgee's agent, shall hold them in trust for the Pledgee, and shall
deliver them forthwith to the Pledgee in the exact form received, with such
Pledgor's endorsement when necessary and/or appropriate stock powers and other
instruments
-6-
<PAGE>
of transfer which may be necessary or desirable duly executed in blank, to be
held by the Pledgee, subject to the terms hereof, as further collateral for the
Secured Obligations and the same shall for all purposes be deemed to be Pledged
Collateral hereunder.
SECTION 6. Voting Rights; Dividends; Etc.
(a) As long as no Default (as defined in Section 11) shall have occurred
and be continuing and, in the case of Section 6(a)(i), as long as no notice
thereof shall have been given by the Pledgee to such Pledgor):
(i) Each Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral pledged by it
or him hereunder or any part thereof for any purpose not inconsistent with
the terms of this Agreement, the Stock Purchase Agreement or the Term Note;
provided, however, that no Pledgor shall exercise or refrain from
exercising any such right if such action would have an adverse effect on
the value of the Pledged Collateral or any part thereof.
(ii) Each Pledgor shall be entitled to receive and retain any and all
dividends paid in respect of the Pledged Collateral pledged by it or him
hereunder, other than any and all
(A) dividends paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-insurplus, and
(C) cash paid, payable or otherwise distributed in redemption of,
or in exchange for, any Pledged Collateral,
all of which shall be, and all of which shall be forthwith delivered to the
Pledgee to hold as Pledged Collateral and shall, if received by a Pledgor,
be received in trust for the benefit of the Pledgee, be segregated from the
other property or funds of such Pledgor, and be forthwith delivered to the
Pledgee as Pledged Collateral in the same form as so received (with any
necessary endorsement).
-7-
<PAGE>
(iii) The Pledgee shall execute and deliver (or cause to be executed
and delivered) to each Pledgor all such proxies and other instruments as
such Pledgor may reasonably request for the purpose of enabling such
Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) above and to receive the dividends which
it is authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of a Default:
(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant
to Section 6(a)(i) above shall cease upon notice from the Pledgee to the
Pledgor, and all such rights shall thereupon become vested in the Pledgee
who shall thereupon have the sole right to exercise such voting and other
consensual rights and any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to the
Pledged Collateral or any part thereof, and Pledgee may exercise such
powers in such manner as the Pledgee may elect, but the Pledgee shall have
no duty to exercise any of the aforesaid right, privileges or options and
shall not be responsible for any failure to do so or delay in doing so.
(ii) All rights of each Pledgor to receive the dividends which it or
he would otherwise be authorized to receive and retain pursuant to Section
6(a)(ii) above shall cease, and all such rights shall thereupon become
vested in the Pledgee who shall thereupon have the sole right to receive
and hold as Pledged Collateral such dividends.
(iii) All dividends which are received by any Pledgor contrary to the
provisions of paragraph (ii) of this Section 6(b) shall be received in
trust for the benefit of the Pledgee, shall be segregated from other funds
of such Pledgor and shall be forthwith paid over to the Pledgee as Pledged
Collateral in the same form as so received (with any necessary
endorsement).
(c) In order to permit the Pledgee to exercise the voting and other rights
which it may be entitled to exercise pursuant to Section 6(b)(i) above, and to
receive all dividends and distributions which it may be entitled to receive
under Section 6(b)(ii) above, each Pledgor shall, if necessary, upon written
notice of the Pledgee, from time to time execute and deliver to
-8-
<PAGE>
the Pledgee appropriate proxies, dividend payment orders and other instruments
as the Pledgee may reasonably request including, without limitation, the
irrevocable proxy in the form of Exhibit "A" hereto delivered by Fort Washington
to the Pledgee on the date hereof.
SECTION 7. Transfers and Other Liens; Additional Shares or Warrants.
(a) Each Pledgor agrees that it or he will not (i) sell, assign or transfer
or otherwise dispose of, or grant any option, warrant, subscription, call,
warrants or other agreements with respect to, any of the Pledged Collateral, or
(ii) create or permit to exist any Lien, security interest, or other charge or
encumbrance upon or with respect to any of the Pledged Collateral, except for
the Lien in favor of the Pledgee under this Agreement.
(b) Each Pledgor agrees that it or he will not cause, consent to or approve
(i) the issuance of any additional shares of any class of capital stock of
Premier, or (ii) the issuance of any warrants, stock or other securities to any
Pledgor in substitution for the Warrants, except in each instance to such
Pledgor, with delivery thereof to be made to the Pledgee to be held as
additional Pledged Collateral hereunder.
SECTION 8. Power of Attorney. Each Pledgor hereby authorizes the Pledgee
and does hereby make, constitute and appoint the Pledgee and any officer of
agent of the Pledgee, with full power of substitution, as such Pledgor's true
and lawful attorney-in-fact, with power, in its own name and in the name of such
Pledgor upon the occurrence and continuance of a Default, to endorse any notes,
checks, drafts, money orders or other instruments of payments in respect of the
Pledged Collateral that may come into possession of the Pledgee; to sign and
endorse any drafts against debtors, assignments, verifications and notices in
connection with accounts and other documents relating to the Pledged Collateral;
to pay or discharge taxes, liens, security interests or other encumbrances at
any time levied or places on or threatened against the Pledged Collateral; to
demand, collect, receipt for, comprise, settle and sue for monies due in respect
of the Pledged Collateral; and generally, to do, at Pledgee's option each at
such Pledgor's expense, at any time, or from time to time, all acts and things,
which the Pledgee deems necessary to protect, preserve and realize upon the
Pledged Collateral and Pledgee's security interest therein in order to effect
the intent of this Agreement all as fully and effectually as such Pledgor might
or would do; and such Pledgor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney shall
be irrevocable for the term of this Agreement and thereafter as long as any of
the Secured Obligations shall be outstanding.
-9-
<PAGE>
SECTION 9. Pledgee May Perform. If any Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the expenses of the Pledgee incurred in connection
therewith shall be payable by such Pledgor under Section 12 of this Agreement.
SECTION 10. Reasonable Care. The Pledgee shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Pledgee accords its own property, it being understood that the
Pledgee shall not have any responsibility for (i) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Collateral, whether or not the Pledgee has or is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any parties with respect to any Pledged Collateral.
SECTION 11. Remedies Upon Default. For purposes of this Agreement,
"Default" shall mean (i) any event which constitutes an "Event of Default" under
the Term Note and (ii) any breach or default under the terms of this Agreement,
which breach or default under this clause (ii) has not been cured within three
days after receipt of written notice of the occurrence thereof. If any Default
shall have occurred and be continuing:
(a) The Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party in default under the
Uniform Commercial Code (the "Code") in effect in the Commonwealth of
Pennsylvania at that time, and the Pledgee may also, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at any of
the Pledgee's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Pledgee may deem commercially reasonable and
the Pledgee may be the purchaser of any or all of the Pledged Collateral so
sold. Each purchaser at any such sale, including, without limitation, the
Pledgee, shall hold the property sold, absolutely, free and clear from any claim
or right of redemption of any Pledgor, each of whom specifically waives all
rights of redemption, stay or appraisal which it or he may has or may have under
any rule or law or statute now existing or hereafter adopted. Each Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten
(10) days' notice to such Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. The Pledgee shall not be obligated to make any sale of Pledged
Collateral regardless of notice of sale having been given. The Pledgee may
adjourn any public or private
-10-
<PAGE>
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. The Pledgor hereby waives any claims against the Pledgee
arising by reason of the fact that the price at which any Pledged Collateral may
have been sold at such a private sale was less than the price which might have
been obtained at a public sale, even if the Pledgee accepts the first offer
received and does not offer such Pledged Collateral to more than one offeree. In
addition, the Pledgee shall have the right to register, or cause to be
registered, any or all of the Pledged Collateral in the name of the Pledgee or
its nominee.
(b) The Pledgee hereby agrees that it shall exercise its rights and
remedies first with respect to the Fort Washington Pledged Collateral and, to
the extent that any Secured Obligations remain outstanding upon such exercise
and application of any proceeds thereof in accordance with the terms of Section
11(e) then with respect to any remaining Pledged Collateral.
(c) Each Pledgor recognizes that, by reason of certain requirements and
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act"), and applicable state securities laws, the Pledgee may with
respect to any sale of all or any part of the Pledged Collateral, limit
purchasers to those who will agree, among other things, to acquire such
securities for their own account, for investment, and not with a view to the
distribution or resale thereof. Each Pledgor acknowledges and agrees that any
such sale may result in prices and other terms less favorable to the seller than
if such sale were a public sale without such restrictions and, notwithstanding
such circumstances, agrees that any such sale shall be deemed to have been made
in a commercially reasonable manner. The Pledgee shall be under no obligation to
delay the sale of any of the Pledged Shares for the period of time necessary to
permit a Pledgor to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if such Pledgor
would agree to do so.
(d) If the Pledgee determines to exercise its right to sell any or all of
the Pledged Collateral, upon written request, each Pledgor shall, from time to
time, furnish to the Pledgee all such information as the Pledgee may request in
order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by the Pledgee as exempt transactions under
the Securities Act and rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
(e) Any cash held by the Pledgee as Pledged Collateral and all cash
proceeds received by the Pledgee in respect of any sale
-11-
<PAGE>
of, collection from, or other realization upon all or any part of the Pledged
Collateral shall be applied by the Pledgee:
First, to the payment of the costs and expenses of such sale,
including reasonable compensation to the Pledgee and its agents and
counsel, and all expenses, liabilities and advances made or incurred by the
Pledgee in connection therewith;
Next, to the Pledgee on account of the Secured Obligations in such
order as the Pledgee may elect; and
Finally, after indefeasible payment in full of all Secured
Obligations, to the payment to the appropriate Pledgor, or its or his
successors, assigns, heirs or legal representatives, or to whomsoever may
be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such proceeds.
SECTION 12. Expenses. Each Pledgor will upon demand pay to the Pledgee the
amount of any and all expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, which the Pledgee may incur in
connection with (a) the administration of this Agreement; (b) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of its Pledged Collateral; (c) the exercise or enforcement of any of the rights
of the Pledgee hereunder with respect to its Pledged Collateral; or (d) the
failure by such Pledgor to perform or observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. All rights of the Pledgee and
security interests hereunder, and all obligations of each Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Stock Purchase
Agreement, the Term Note or any other document, agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations, or any other amendment
or waiver of or any consent to any departure from the Stock Purchase
Agreement, the Term Note, or any other document, agreement or
instrument relating thereto;
(c) any exchange, release or nonperfection of any other collateral for all
or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, a Pledgor or a third party pledgor.
-12-
<PAGE>
SECTION 14. Indemnification. Fort Washington agrees to indemnify and hold
the Pledgee harmless from and against any taxes, liabilities, claims and
damages, including reasonable attorneys' fees and disbursements, and other
expenses incurred or arising by reason of the taking or the failure to take
action by the Pledgee, in good faith, in respect of any transaction effected
under this Agreement or in connection with the Lien provided for herein,
including, without limitation, any taxes payable in connection with the delivery
or registration of any of the Pledged Collateral as provided herein. The
obligations of Fort Washington under this Section 14 shall survive the
termination of this Agreement.
SECTION 15. Waiver. No delay on the Pledgee's part in exercising any power
of sale, Lien, option or other right hereunder, and no notice or demand which
may be given to or made upon any Pledgor by the Pledgee with respect to any
power of sale, Lien, option or other right hereunder, shall constitute a waiver
thereof, or limit or impair the Pledgee's right to take any action or to
exercise any power of sale, Lien, option, or any other right hereunder, without
notice or demand, or prejudice the Pledgee's rights hereunder or the rights of
the Pledgee under the Stock Purchase Agreement, the Term Note or any other
document agreement or instrument relating thereto as against any Pledgor in any
respect.
SECTION 16. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by any Pledgor herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 17. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing and deemed delivered (i) upon receipt
if by hand, overnight courier or telecopy (provided a copy is mailed by
certified mail, return receipt requested, postage prepaid) and (ii) three days
after mailing by certified mail, return receipt requested, postage prepaid, to
Fort Washington or to the Pledgee at the address provided for in the Stock
Purchase Agreement, and as to Lederman or McCarthy to 502 West Office Center
Drive, Suite 100, Fort Washington, Pennsylvania 19034, or as to any Person at
such other address as shall be designated by such Person in a written notice to
each other Person complying as to delivery with the terms of this Section.
SECTION 18. Continuing Security Interest. This Agreement shall create a
continuing first priority security interest in the Pledged Collateral, and shall
(a) remain in full force and effect until indefeasible payment in full of the
Secured Obligations; (b) continue to be effective or be reinstated, as the case
may
-13-
<PAGE>
be, if at any time payment and performance of the Secured Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by the obligee of the Secured
Obligations, all as though such payment or performance had not been made; (c) be
binding upon each Pledgor, its or his successors, assigns, heirs and legal
representatives; and (d) inure to the benefit of the Pledgee and its successors,
transferees and assigns. Upon the indefeasible payment in full of the Secured
Obligations, each Pledgor shall be entitled to the return, upon its request and
at its or his expense, of such of the Pledged Collateral pledged by it or him
hereunder as shall not have been sold or otherwise applied pursuant to the terms
hereof.
SECTION 19. Severability. If for any reason any provision or provisions
hereof are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or effect those portions of
this Agreement which are valid.
SECTION 20. Section Titles. The Section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
SECTION 21. Waiver of Jury Trial. The parties hereto hereby agree to waive
any right they may have to a jury trial in connection with any action, suit or
proceeding arising out of or related in any way to this Agreement.
SECTION 22. Governing Law; Terms. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania. Unless otherwise defined herein or in the Stock Purchase
Agreement, terms defined in Articles 8 and 9 of the Uniform Commercial Code in
the Commonwealth of Pennsylvania are used herein as therein defined.
IN WITNESS WHEREOF, each Pledgor has duly executed and delivered, or caused
this Agreement to be duly executed and
-14-
<PAGE>
delivered by its officer thereunto duly authorized, as of the date first above
written.
PLEDGORS:
FORT WASHINGTON HOLDINGS, INC.
By:
------------------------------------
Name:
Title:
---------------------------------------
Charles M. Lederman
---------------------------------------
Timothy I. McCarthy, Sr.
PLEDGEE:
ROCKWOOD CASUALTY INSURANCE COMPANY
By:
------------------------------------
Name:
Title:
-15-
<PAGE>
EXHIBIT "A"
TO
PLEDGE AGREEMENT
----------------
IRREVOCABLE PROXY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby make,
constitute and appoint ROCKWOOD CASUALTY INSURANCE COMPANY (the "Pledgee") and
each of Pledgee's officers and employees, its true and lawful attorney, for it
and in its name, place and stead, to act as its proxy in respect of all of the
shares of capital stock of PREMIER AUTO INSURANCE COMPANY, a Pennsylvania stock
insurance company (the "Corporation"), which it now or hereafter may own or hold
including, without limitation, the right, on its behalf, to demand the call by
any proper officer of the Corporation pursuant to the provisions of its
certificate of incorporation or bylaws and as permitted by law of a meeting of
its shareholders and at any such meeting of shareholders, annual, general or
special, to vote for the transaction of any and all business that may come
before such meeting, or at any adjournment thereof including, without
limitation, the right to vote for the sale of all or any part of the assets of
the Corporation and/or the liquidation and dissolution of the Corporation;
giving and granting to its said attorneys full power and authority to do and
perform each and every act and thing whether necessary or desirable to be done
in and about the premises, as fully as it might or could do if personally
present with full power of substitution, appointment and revocation, hereby
ratifying and confirming all that its said attorneys shall do or cause to be
done by virtue hereof.
THIS IRREVOCABLE PROXY SHALL ONLY BE EFFECTIVE UPON THE OCCURRENCE AND DURING
THE CONTINUATION OF A "DEFAULT" AS THAT TERM IS DEFINED IN THE PLEDGE AGREEMENT
("THE PLEDGE AGREEMENT") DATED AS OF THE DATE HEREOF AMONG THE UNDERSIGNED,
CHARLES M. LEDERMAN AND TIMOTHY I. McCARTHY, AS PLEDGORS, AND THE PLEDGEE, AS
PLEDGEE.
This Irrevocable Proxy is given to Pledgee and to its officers and
employees pursuant to the terms and conditions of the Pledge Agreement in order
to carry out the covenants and agreements of the undersigned contained therein,
this Proxy is governed by the terms and conditions of the Pledge Agreement, and
this Proxy is coupled with an interest and shall not be revocable or revoked by
the undersigned, and shall be binding upon its successors and assigns until the
expiration or termination of the Pledge Agreement pursuant to its terms.
-16-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Irrevocable Proxy as
of this _____ day of ___________________________ .
FORT WASHINGTON HOLDINGS, INC.
By:____________________________________
Name:
Title:
-17-
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
FRONT ROYAL INSURANCE COMPANY
AND
COLONY INSURANCE COMPANY
AND
ROCKWOOD CASUALTY INSURANCE COMPANY
AND
HAMILTON INSURANCE COMPANY
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of December 31, 1996,
between FORT WASHINGTON HOLDINGS, INC., a Pennsylvania corporation with its
principal offices at 502 West Office, Center Drive, Fort Washington,
Pennsylvania 19034 (the "Corporation"), FRONT ROYAL INSURANCE COMPANY, a
Pennsylvania insurance corporation, with its principal offices at 9201 Forest
Hill Avenue, Suite 200, Richmond, Virginia 23235 ("Front Royal"), COLONY
INSURANCE COMPANY, a Virginia corporation, with its principal offices at 9201
Forest Hill Avenue, Suite 200, Richmond, Virginia 23235 ("Colony"), ROCKWOOD
CASUALTY INSURANCE COMPANY, a Pennsylvania insurance corporation, with its
principal offices at 654 Main Street, Rockwood, Pennsylvania 15557 ("Rockwood")
and HAMILTON INSURANCE COMPANY, a Virginia insurance corporation, with its
principal offices at 9201 Forest Hill Avenue, Suite 200, Richmond, Virginia
23235 ("Hamilton").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of the Premier Stock Purchase Agreement, dated as of
December 31, 1996 (the "Premier Agreement"), among Rockwood, as seller, and the
Corporation, as buyer, the Corporation purchased from Rockwood 1,000 shares of
Common Stock, no par value, of Premier Auto Insurance Company ("Premier"), which
constitutes all of the outstanding common stock of Premier; and
WHEREAS, pursuant to the terms of a Stock Purchase Agreement, dated as of
December 6, 1996 (the "Stock Purchase Agreement"), among PIC Insurance Group,
Inc. and Trirock Limited Partnership, as sellers, and Front Royal, Inc. ("FRI"),
as buyer, FRI purchased all of the issued and outstanding shares of capital
stock of Rockwood; and
WHEREAS, Colony is a wholly owned subsidiary of FRI; and
WHEREAS, Front Royal and Hamilton each are wholly owned subsidiaries of
Colony; and
<PAGE>
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Premier Agreement) that this Agreement be executed and delivered and in full
force and effect; and
WHEREAS, the Corporation wishes to be protected against competition from
each of Front Royal, Colony, Rockwood and Hamilton in the business of writing or
issuing private passenger automobile insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the payment of $1.00 and other good and
valuable consideration to each of Front Royal, Colony, Rockwood and Hamilton and
the mutual covenants and promises herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on the
date hereof and terminate three years from the date of Closing under the Premier
Agreement (the "Term").
2. Covenant Not to Compete. (a) Front Royal, Colony, Rockwood and Hamilton
each covenants and agrees that (i) the Corporation will suffer substantial
damage which will be difficult to compute if, after consummation of the Closing,
Front Royal, Colony, Rockwood or Hamilton should engage in any Competitive
Business and (ii) the provisions of this Paragraph 2 are reasonable and
necessary for the protection of the Corporation.
(b) During the Term of this Agreement, without the prior written consent of
the Corporation, each of Front Royal, Colony, Rockwood and Hamilton shall not,
in the Commonwealth of Pennsylvania, directly or indirectly: (i) enter into the
employ of or render any services to any person, firm, corporation, partnership,
limited liability company or other entity or business engaged in any Competitive
Business; or (ii) engage in any Competitive Business for its own account. Mere
passive ownership of stock representing 5% or less of the capital stock of a
publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If Front Royal, Colony, Rockwood or Hamilton commits a breach, or
threatens to commit a breach, of any of the provisions of clause (b) above, the
Corporation shall have the right and remedy, in addition to all other remedies
at law and in equity: (i) to have the provisions of this Paragraph 2
-2-
<PAGE>
specifically enforced by any court having equity jurisdiction; and (ii) to
require such breaching party to account for and pay over to the Corporation all
compensation, profits, monies, accruals, increments, or other benefits derived
or received by such breaching party as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and each of
Front Royal, Colony, Rockwood and Hamilton hereby agrees to account for and pay
over such benefits to the Corporation.
(e) Nothing in this Agreement shall be deemed in any way to apply, directly
or indirectly, to any of the Affiliates (as defined in the Premier Agreement) of
Front Royal, Colony, Rockwood and Hamilton, including any current or future
Affiliates; provided, however, that each of Front Royal, Colony, Rockwood and
Hamilton hereby agrees that neither it nor any of its Affiliates shall acquire,
whether through the purchase of capital stock or assets, any entity the primary
business of which is any Competitive Business in the Commonwealth of
Pennsylvania.
3. Covenant Not to Solicit. (a) Front Royal, Colony, Rockwood and Hamilton
each covenants and agrees that for the Term of this Agreement it shall not,
directly or indirectly, solicit for its own account or for the account of
another, or assist any other person in soliciting, for the purpose of placing
private passenger automobile insurance or related insurance lines with an
insurance company other than Premier, any of the agents or brokers who place
private passenger automobile insurance with Premier and are identified on
Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit Front Royal,
Colony, Rockwood and Hamilton from soliciting any agents or brokers identified
on Exhibit A for its own account or for the account of another, for the purpose
of placing any line of insurance which is unrelated to private passenger
automobile insurance.
(b) Front Royal, Colony, Rockwood and Hamilton each further agrees that,
during the Term of this Agreement, it shall not directly or indirectly (i)
solicit, entice, persuade or seek to induce any person who is or was an employee
of, or consultant to, Premier on the date hereof or at any time during the Term
of this Agreement or the six-month period prior to the date hereof, to terminate
his or her employment or consultancy with Premier, or (ii) solicit, entice,
persuade or seek to induce, for its own account or for the account of any other
person, any person who is or was an employee or consultant of Premier on the
date hereof or at any time during the term of this Agreement or the six-month
period prior to the date hereof, for employment with any insurance company
writing private passenger automobile or related lines of insurance, or (iii)
approach any such employee or consultant for any of the foregoing purposes, or
(iv) authorize or assist in the taking of any such actions by any third party.
-3-
<PAGE>
4. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) The Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
the Corporation hereunder shall be binding on its successors or assigns, whether
by merger, consolidation or acquisition of all or substantially all of its
business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 4(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to be
executed by their duly authorized representative on the date first above
written.
FRONT ROYAL INSURANCE COMPANY
By:___________________________
Name:
Title:
COLONY INSURANCE COMPANY
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE COMPANY
By:___________________________
Name:
Title:
HAMILTON INSURANCE COMPANY
By:___________________________
Name:
Title:
FORT WASHINGTON HOLDINGS, INC.
By:___________________________
Name:
Title:
-5-
<PAGE>
Agent Listing
<TABLE>
<CAPTION>
State Broker
Agent Broker Name Broker 1 Broker 2 Broker City Zip
- ------- ------------------ ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
10000 A-Plus Insurance Center Inc. 203 Markley Street Norristown PA 19401
10001 A.C. Thompson 2814 Walbert Avenue Allentown PA 18104
10003 C&C Berk Insurance Agency 2625 A Durham Road Bristol PA 19007
10005 B & L Auto Insurance Agency, Inc. 2060 Street Road Bensalem PA 19020
10010 Dunlop Insurance, Inc. 575 Van Reed Rd Wyomissing PA 19610
10011 Dunlop Insurance, Inc. 108 West Main Street Ephrata PA 17522
10012 Dunlop Insurance, Inc. 1976 East High Street Pottstown PA 19464
10013 Autosure Dealer Network, Inc. 565 Van Reed Road Wyomissing PA 19610
10014 Guerrini Insurance 1801 East Market St. York PA 17402
10015 Associated Insurance Centers, Inc. 402 East Fourth Street Bethlehem PA 18015
10020 Baringer Associates Inc. 1602 W. Broad Street PO Box 300 Quakertown PA 18951
10022 John Yurconic Agency 4539 Hamilton Boulevard Allentown PA 18103
10025 Nonnemaker Agency 1530 W. Broad Street Bethlehem PA 18018
10030 Tirpak Insurance Agency Box 280 A1 RR #2 Route 309 Hometown Tamaqua PA 18252
10035 David E. Gebhard Associates 90 Willow Valley Square Lancaster PA 17602
10040 Zangardi Insurance Agency, Inc. 501 N Keyser Avenue Scranton PA 18504
10045 Kapmoore Associates 964 Wyoming Avenue Forty Fort PA 18704
10050 Samuel Insurance Agency Inc. RD # 5 Memorial Highway PO Box 219 Dallas PA 18612
10051 Insurance Hotline, Inc. South Main Plaza 357 South Main Street Wilkes-Barre PA 18702
10052 Samuel Insurance - Wyoming 188 Wyoming Ave. Wyoming PA 18644
10053 Samuel Insurance - Clarks Summit Rear 336 South State Street Clarks Summit PA 18411
10060 Ardrey Insurance Agency, Inc. 5406 Lincoln Highway East PO Box 189 Gap PA 17527
10070 R.T. Dunn Insurance, Inc. 200 W. Main Street Mechanicsburg PA 17055
10071 R.T. Dunn - D. Wonderly 200 W. Main Street Mechanicsburg PA 17055
10080 William R. Pressley, Jr. Ins Agency 100 S. Thirteenth Street Harrisburg PA 17104
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10090 Dale Wagner Insurance Agency 2642 Walnut Street Harrisburg PA 17103
10110 Insurance Exchange Ltd. 217 Frederick Street Hanover PA 17331
10120 Florey Insurance Agency 1186 Winola Road Clarks Summit PA 18411
10130 Gallia Insurance Agency 708 Main Street Moosic PA 18507
10140 North Central Motor Club Ins Agency One East 6th Avenue South Williamport PA 17701
10141 AAA of North Central PA - Wellsboro Queet & Water Streets PO Box 638 Wellsboro PA 16901
10142 AAA of North Central PA - Coudersport 107 South Main Street Coudersport PA 16915
10150 Mallalieu-Golder Ins. Agency, inc. 49 E. Fourth Street Suite 105 Williamsport PA 17701
10180 For The People Insurance Agency 2514 Wylie Ave. Pittsburgh PA 15219
10190 J Catherine Newton Insurance Agency Six Boggs Aenue Pittsburgh PA 15211
10200 B & W Insurance Agency, Inc. 1340 Washington Road Washington PA 15301
10201 B & W Insurance Agency, Inc. - Sourth 331 Castle Shannon Boulevard Pittsburgh PA 15237
10202 B & W Insurance Agency, Inc. - North 982 Perry Highway Pittsburgh PA 15237
10203 B & W Insurance Agency, Inc. - East 2933 Jacks Run Road White Oak PA 15131
10204 B & W Insurance Agency, Inc. - NSide 3856 Baytree Street Pittsburgh PA 15214
10210 Comprehensive Insurance 1900 Grant Avenue Philadelphia PA 19115
10240 Davis Insurance Agency, Inc. 208 East Church Street PO Box 927 Lock Haven PA 17701
10241 Davis Insurance Agency, Inc. 455 Elmira Street Williamsport PA 17701
10242 Davis Insurance Agency, Inc. 10 North Main Street Mansfield PA 16933
10243 Cross Agency 20 Pennsylvania Avenue PO Box 177 Mill Hall PA 17751
10244 Richard Laird Agency 609 Juniata Avenue Huntington PA 166552
10245 Fritz Gordon Agency Box H Benton PA 17814
10246 Don Wells Agency 62 Pleasant Drive Warren PA 16365
10247 Vandine's Insurance Shoppe PO Box 267 Northumberland PA 17857
10248 Vandine's Insurance Shoppe 100 South Market Street Shamokin PA 17872
10249 Fred Dale Insurance Agency 110 Chestnut Street Mifflinburg PA 17844
10251 McCarthy Insurance Agency PO Box 15 102 Main Street Dushore PA 18614
10252 Anthony R. Scatena Agency 44 Pierce Street Kingston PA 18704
10253 Swetland Insurance Agency PO Box 210 53 Warrent Street Tunkhannock PA 18657
10254 Knapp Insurance Agency 216 North River Street Suite 560 Wilkes-Barre PA 18702
10255 CPI Group, Inc. 1000 North Front Street Suite 130 Wormleysburg PA 17043
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10270 Levin Insurance Agency 306 Huntington Pike Rockledge PA 19046
10271 Levin Insurance Agency 2500 S. Hobson Street Philadelphia PA 19142
10275 Levin Insurance Agency 306 Huntington Pike Rockledge PA 19046
10280 Young Insurance Agency, Inc. PO Box 5223 224 Highland Avenue Pittsburgh PA 15206
10290 John A. Fiesta Agency 615 West Crawford Avenue PO Box 867 Connellsville PA 15425
10300 Second Opinion Insurance Agency Waterdam Plaza 1039 Waterdam Plaza Dr. McMurray PA 15317
10301 Second Opinion Insurance Agency Village Shops 1150 Brodhead Rd, Ste Q Monaca PA 15061
10302 Second Opinion Insurance Agency 415 Lincoln Avenue Pittsburgh PA 15202
10305 Exchange Underwriters, Inc. 121 West Pike Street Cannonsburg PA 15317
10310 Raymond Nalley Insurance Agency 9800B McNight Road PO Box 11127 Pittsburgh PA 15237
10315 Juniata Insurance Agency, Inc. 4201 "I" Street Philadelphia PA 19124
10320 E.F. Barrett Agency, Inc. 1154 5th Avenue E. McKeesport PA 15035
10330 Sciolla Agency 1060 Grenoble Road Ivyland PA 18954
10340 Auto Insurance Agency, Inc. 1112 S. Braddock Avenue Suite 301 D Pittsburgh PA 15218
10350 Anderson Insurance Agency 821 Parkside Avenue Pittsburgh PA 15228
10380 Furia Agency 1613 Wolf Street Philadelphia PA 19145
10400 Acosta Agency 831 Main Street Stroudsburg PA 18360
10410 Coolbaugh Insurance Agency 103 N. 7th Street Suite B Stroudsburg PA 18360
10420 Pronto Notary 232 E. Third Street Bethlehem PA 18015
10450 King Insurance Agency 1906 E. Allegheny Avenue Philadelphia PA 19134
10460 Hazelton Insurance Center, Inc. 25 E. Broad Street Hazelton PA 18201
10470 West Chester Insurance Agency 325 East Gay Street West Chester PA 19380
10471 West Chester Insurance Agency 325 East Gay Street West Chester PA 19380
10480 Moore Insurance Agency 1985 Lincoln Way Rainbow Village Shopping Ctr. White Oak PA 15131
10500 Berks Insurance Experts, Inc. 4411-8 North 5th St. Highway Temple PA 19560
10510 Sciolla Agency 600 W. DeKalb Pike Suite 310 King of Prussia PA 19406
10511 Pompei Insurance Agency 600 W. DeKalb Pike Suite 310 King of Prussia PA 19406
10512 Pompei-Sciolla Agency 600 W. DeKalb Pike Suite 310 King of Prussia PA 19406
10520 Shriner Associates 432 South Lehigh Ave. Frackville PA 17931
10530 AAA Lehigh Valley Insurance Agency 1020 Hamilton Street Allentown PA 18105
10540 Ross Insurance Agency 1496 Lititz Pike Lancaster PA 17601
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10550 Bittel & Company 8 South Mercer Street Greenville PA 16125
10560 Steven Mamula Insurance Agency 217 East Main Street Carnegie PA 15106
10570 Kalsey Insurance 238 West High Street Waynesburg PA 15370
10580 C.W. Howard Insurance 405 West Jefferson Street Butler PA 16001-5450
10590 Harry Twerdok Agency 310 New Castle Road Butler PA 16001
10600 Keller Agency 512 Cumberland Street Lebanon PA 17042
10610 Red Oak Insurance Agency 4755 Philadelphia Ave. Chambersburg PA 17201
10620 Insurance World, Inc. 6000 A Linglestown Road Harrisburg PA 17112
10630 Joseph J. Joyce & Associates, Inc. 9 North Main Street Pittston PA 18640
10631 Joseph J. & Assoc., Inc. 408 N. Main Street Old Forge PA 18518
10632 Joseph J. Joyce PO Box 2340 129 North Warren Street West Hazelton PA 18201
10633 Joyce & Associates - Freeland Freeland Office Route 653 Freeland PA 18224
10640 D & L Business Services, Inc. 6801 Torresdale Ave. Philadelphia PA 19135
10641 D & L Business Services, Inc. 4609 Torresdale Ave. Philadelphia PA 19124
10642 D & L Business Services, Inc. 6112 North Broad Street Philadelphia PA 19141
10650 Teeter Insurance Agency 505 Logan Boulevard Altoona PA 16602
10660 Enders Insurance Associates Colonia Park Realty Co. 4613 Fritchey Street Harrisburg PA 17109
10670 Mountaintop Insurance Fox Lure Mall 508 Benner Pike Bellefonte PA 16823
10680 Auto Insurance Store
10685 Frost & Conn, Inc. PO Box 469 1301 North Atherrton St. State College PA 16804
10690 Strickler Agency, Inc. Chambersburg PA
10700 Kenneth Quick Tags & Insurance 201 B East State St. Kennett Square PA 19348
10710 William S. Pharmer Insurance Agency 631 Fishburn Road Hershey PA 17033
10720 All Drivers Insurance 287 N. West End Blvd. Route 309 Quakertown PA 18951
10730 Combined Insurance Group, Ltd. 618 S. Broad Street Lansdale PA 19446
10740 Rovner Insurance Group 504 Howell Lane Havertown PA 19083
10750 McGrath Insurance Agency 51 East Market Street Blairsville PA 15717
10760 Young Insurance PO Box 454 Altoona PA 16603
10770 George Seidman Insurance Agency 201 B E. State Street Kennett Square PA 19348
10771 Phil Seidman Insurance Agency 2757 Bethel Road Chester PA 19013
10780 Accurate Insurance 1566 Chester Pike Folcroft PA 16214
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10890 Burns & Burns Assoc., Inc. 800 Center Main Street Clarion PA 16214
10791 Burns & Burns Associates, Inc. 57 Rear Main St. PO Box 359 Broadford PA 16701
10792 Burns & Burns Associate, Inc. 719 Indiana Dr. Erie PA 16505
10793 Burns & Burns Associate, Inc. 93 S. West End Blvd. Suite 107 Quakertown PA 18951
10794 Burns & Burns Associate, Inc. 505 PNC Bank Bldg. Warren PA 16365
10795 Moore & Eshelman 210 E. Market St. PO Box 830 Clearfield PA 16830
10800 Skyline Services RR1 Box 1025-4 Little Meadows PA 18830
10810 Frank Hacko Insurance 725 3rd Avenue New Brighton PA 15066
10820 McBridge-Shannon Company 125 North Mill Street New Castle PA 16103
10830 ABE Insurance Agency 1902 Union Blvd. Allentown PA 18103
10840 Parker Insurance Agency 5267 Oakview Dr. Allentown PA 18104
10850 Route 30 Auto Insurance 12120 Route 30 North Huntington PA 15642
10860 Buchanan Insurance Agency Inc. 803 Alexandria Street Latrobe PA 15650
10870 Miller Insurance Associates, Inc. Suite 102 10 Brookwood Avenue Carlisle PA 17013
10880 Dudek Insurance Agency 448 Strayer Street Johnstown PA 15906
10890 Sommers Insurance Agency 8912 Perry Highway Meadville PA 16335
10900 Tamaqua Insurance Center, Inc. 801 E. Broad Street PO Box 272 Tamaqua PA 18252
10901 Malone Nenstiel Ins. Center, Inc. 115 E. Broad St. PO Box 1007 West Hazelton PA 18201
10910 James O. Bower Insurance, Inc. 2145 Market Street Camp Hill PA 17011
10920 W.J. Moore, Inc. PO Box 310, Center Square New Bloomfield PA 17068
10921 W.J. Moore Insurance Agency PO Box 40 Newport PA 17074
10922 W.J. Moore Insurance Agency 4906 Spring Road Shermans Dale PA 17090
10930 Heritage Insurance Agency PO Box 230 272 Locust Street Columbia PA 17512
10940 Russ Black Ins., Inc. PO Box 247 Route 257 Seneca PA 16346
10950 Indiana Insurance 1780 Philadelphia St. Indiana PA 15701
10960 America Insurance 7214 Frankford Ave. Philadelphia PA 19149
10970 Wildoner Insurance Agency Inc. 701 North Street PO Box 4087 Jim Thorpe PA 18229
10980 J. LeRue Hess Agency, Inc. 2 S. Market St. PO Box 38 Duncannon PA 17020
10990 Jack L Bonus Insurance PO Box 450 216 E. Grandview Ave. Zelienople PA 16063
11000 R.E. Walbeck Agency, Inc. 137 S. Main St. Homer PA 15748
11010 M.C.V., Inc. 119 thru 123 N. Franklin St.PO Box 188 Titusville PA 16354
-0188
</TABLE>
-5-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
10020 M.H.A., Inc. 3709 Butler St. Pittsburgh PA 15201
10030 Affolder and Associates The Insurance Center 8700 Perry Highway Pittsburgh PA 15237
11040 Harry Lovett Insurance Agency 997 Cumberland Rd. Pittsburgh PA 15237
10041 Harry Lovett Insurance 109 Butler St. Valencia PA 16059
11050 Joseph D. Walters Agency 2706 S. Park Rd. Bethel Park PA 15102
11060 J. S. Anderson Agency 554 E. Main St. Uniontown PA 15401
11070 Century Insurance Consultants, Ltd. 111 Whitehead Lane Suite 400 Monroeville PA 15146
11080 Cravotta Insurance Agency 315 Morgantown St. Uniontown PA 15401
11090 Auto Tags Plus 308 Market St. Oxford PA 19363
11100 Harrold's Insurance Agency 57 Lincoln Way E. Jeannette PA 15644
11110 Harry L. Bubb Associates, Inc. 4 W. Main St. New Freedom PA 17349
11111 Harry L. Bubb Associates, Inc. 73 E. Forrest Ave. Shrewsbury PA 17361
11112 Harry L. Bubb Associates, Inc. 692 E. Main St. Dallastown PA 17313
11120 George L. Miller Agency 299 W. Main St. Lansdale PA 19446
11130 Consolidated Insurance Agency, Inc. Penn's Court, Suite 107 350 S. Main St. Doylestown PA 18901
11140 Comprehensive Insurance Services 680 Lincoln Highway Fairless Hills PA 19030
11150 Robert S. Strobel Insurance, Inc. 715 Twining Road Suite 117 Dresher PA 19025
11160 HL Wilson Insurance Group PO Box 896 Greensburg PA 15601
11170 Advantage One 1022 Colonial Ave. Bensalem PA 19020
11180 Wilkinson Dunn Company 455 River Ave. PO Box 1026 Williamsport PA 17703
11190 Advantage Ins., Inc. 3109 Walnut St. McKeesport PA 15132
11200 Roberts Insurance Agency 2323 Carlisle Rd. York PA 17404
11210 Lancastro/Bonini Ins. Agency 4602 Peach St. Erie PA 16509
11220 Zangardi Insurance 501 N. Keyser Ave. Scranton PA 18504
11230 Coleman Insurance, Inc. 945 Perry Highway Pittsburgh PA 15237
11240 Cullision Insurance Agency 102 Baltimore St. Gettysburg PA 17325
11250 The Chester Barrick Agency 619 York St. Hanover PA 17331
11260 The Mosholder Agency 135 W. Main St. Somerset PA 15501
11261 The Mosholder Insurance Company 616 Logan Place Confluence PA 15242
11270 The Blackwood Agency PO Box 300 1503 8th Ave. Beaver Falls PA 15010
11280 The John Dianna Agency 25 W. Broad St. West Hazelton PA 18201
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
11290 Hauptly Insurance Agency 2205 W. Market St. Pottsville PA 17901
11300 Armstrong Insurance Associates Ind RD 8 Franklin Village Kittanning PA 16201
11310 Riverside Insurance Agency 332 Locust St. Columbia PA 17512
</TABLE>
-7-
<PAGE>
OPTION AGREEMENT
between
COLONY INSURANCE COMPANY
as Seller
and
FORT WASHINGTON HOLDINGS, INC.
as Buyer
Dated as of December 31, 1996
<PAGE>
OPTION AGREEMENT
OPTION AGREEMENT, dated as of December 31, 1996, between COLONY INSURANCE
COMPANY, a Virginia corporation ("Seller"), and FORT WASHINGTON HOLDINGS, INC.,
a Pennsylvania corporation ("Buyer").
RECITALS
WHEREAS, Seller owns, beneficially and of record, 1,500 shares of common
stock, $1,000 par value per share, (the "Hamilton Common Stock"), of Hamilton
Insurance Company, a Virginia corporation (the "Company"), constituting 100% of
all of the issued and outstanding shares of Hamilton Common Stock; and
WHEREAS, Seller desires to grant an option, and Buyer desires to acquire
an option, to purchase all of the outstanding capital stock of the Company.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, it is agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1 "Affiliate" shall mean, with respect to a specified person or entity,
another person or entity that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person or entity specified.
1.2 "Agreement" shall mean this Option Agreement, together with the
Exhibits and Schedules attached hereto and the Disclosure Schedules, as the same
may be amended from time to time in accordance with the terms hereof.
1.3 "Basket" shall have the meaning set forth in Section 10.4.
1.4 "Business Day" shall mean any day except a Saturday, Sunday or any day
on which United States chartered banking institutions are required by Law to
close.
1.5 "Buyer" shall mean Fort Washington Holdings, Inc.
<PAGE>
1.6 "Buyer's Closing Certificate" shall mean the certificate of an officer
of Buyer, dated as of the Closing Date, with respect to Section 7.1, Section 7.4
and the authorizing resolutions of the Board of Directors of Buyer.
1.7 "Cap" shall have the meaning set forth in Section 10.4.
1.8 "Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 2.3.
1.9 "Closing Date" shall mean the first to occur of March 31, June 30,
September 30, or December 31, which follows by at least fifteen (15) days the
receipt of the last regulatory approval necessary for Closing to occur, or such
other date as is mutually agreed to by Buyer and Seller.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.11 "Commissioner" shall mean the Virginia Insurance Commissioner,
his/her predecessors and successors.
1.12 "Company" shall mean Hamilton Insurance Company, a Virginia
corporation.
1.13 "Company Annual Statements" shall mean the annual statements filed by
the Company on the NAIC prescribed convention blank for each of the years ended
December 31, 1994 and 1995, and, if the Option is exercised after March 1, 1997,
for the year ended December 31, 1996, filed with the Department pursuant to the
Virginia Insurance Law (including management's discussion and analysis and the
supporting memorandum to the actuarial opinions given in connection with such
Company Annual Statements.
1.14 "Company Quarterly Statements" shall mean the quarterly statements of
the Company for the three-month periods ended March 31, 1996, June 30, 1996, and
September 30, 1996, filed with the Department pursuant to the Virginia Insurance
Law.
1.15 "Company Statutory Statements" shall mean, collectively, the Company
Annual Statements and the Company Quarterly Statements.
1.16 "Contracts" shall have the meaning set forth in Section 3.19.
1.17 "Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a person
or entity, whether through the ownership of voting securities, by contract or
otherwise.
1.18 "Department" shall mean the Virginia Insurance Department.
-2-
<PAGE>
1.19 "Disclosure Schedule of Buyer" shall mean the disclosure schedule,
dated the date hereof, furnished by Buyer to Seller and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
1.20 "Disclosure Schedule of Seller" shall mean the disclosure schedule,
dated the date hereof, furnished by Seller to Buyer and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
1.21 "Employee Plans" shall mean any employee benefit plans of the Company
and the ERISA Affiliates, which shall include without limitation any contract,
agreement, loan or arrangement which is an "employee benefit plan," as defined
in Section 3(3) of ERISA.
1.22 "ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
1.23 "ERISA Affiliate" shall mean each trade or business, whether or not
incorporated, which with the Company is treated as a single employer under Code
Section 414(b), (c), (m) or (o).
1.24 "Hamilton Common Stock" shall mean the common stock, $1,000 par
value, of the Company.
1.25 "Indemnity Claim" shall have the meaning set forth in Section 9.5.
1.26 "Intellectual Property" shall have the meaning set forth in Section
3.23(a).
1.27 "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations, permits,
licenses and orders promulgated thereunder.
1.28 "Lien" shall mean any lien, pledge, charge, security interest,
encumbrance, title retention agreement, restriction, advance, claim or option.
1.29 "Material Adverse Effect" shall mean (a) with respect to the Company,
reasonably likely to have a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise) or affairs of the
Company, (b) with respect to Seller, reasonably likely to have a material
adverse effect on the properties, business, results of operations, condition
(financial or otherwise) or affairs of Seller, and (c) with respect to Buyer,
reasonably likely to have a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise) or affairs of Buyer.
-3-
<PAGE>
1.30 "Non-Compete and Non-Solicitation Agreement" shall mean the agreement
between Buyer and Rockwood Casualty Insurance Company, Colony Insurance Company
and Front Royal Insurance Company dated as of the Closing Date in the form of
Exhibit A.
1.31 "Opinion of Buyer's Counsel" shall mean the opinion of Dilworth,
Paxson, Kalish & Kauffman LLP, counsel to Buyer, in form and substance
reasonably acceptable to Seller.
1.32 "Opinion of Seller's Counsel" shall mean the opinion of Robinson
Silverman Pearce Aronsohn & Berman LLP, counsel to Seller, in form and substance
reasonably acceptable to Buyer.
1.33 "Option" shall have the meaning set forth in Section 2.1.
1.34 "Option Period" shall have the meaning set forth in Section 2.3.
1.35 "Pension Plan" shall have the meaning set forth in Section 3.22.
1.36 "Permits" shall mean all licenses, permits and other governmental
authorizations, registrations and approvals required to conduct the business of
the Company.
1.37 "Permitted Lien" shall mean any lien described in the Disclosure
Schedule of Seller.
1.38 "Purchased Stock" shall have the meaning set forth in Section 2.1.
1.39 "Purchase Price" shall have the meaning set forth in Section 2.2
hereof.
1.40 "Reserves" as at any date with respect to the Company shall mean the
loss, loss adjustment and unearned premium reserves and other similar amounts
with respect to losses, claims, discounts and expenses in connection with the
Company's insurance business.
1.41 "SAP" shall mean statutory accounting practices required, prescribed
or permitted by the Commissioner, consistently applied throughout the specified
period and in the comparable period in the immediately preceding year.
1.42 "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
1.43 "Seller" shall mean Colony Insurance Company.
1.44 "Seller's Closing Certificate" shall mean the certificate of an
officer of Seller, dated as of the Closing
-4-
<PAGE>
Date, with respect to Section 6.1, Section 6.4 and the authorizing resolutions
of the Board of Directors of Seller.
1.45 "Subsidiary" of any person or entity shall mean any corporation or
other business entity a majority of the voting stock (or other beneficial
interests) of which, entitled to vote for the election of directors (or their
counterparts), is owned by such person or entity or a Subsidiary of such person
or entity.
1.46 "Surplus" shall mean the statutory surplus of the Company determined
in accordance with SAP.
1.47 "Surplus Certificate" shall mean, collectively, (i) the certificate
from Seller, and (ii) the certificate from the chief financial officer of the
Company, in each case certifying that as of the Closing Date, the Surplus of the
Company is equal to or greater than Four Million Dollars ($4,000,000.00).
1.48 "Tax Losses" shall mean any taxes, interest, penalties and other
amounts required to be paid to any federal, state or local taxing authority by
the Company on account of or arising out of any periods ending on or prior to
the Closing Date (including any liability that may be imposed on the Company by
reason of it being a member of a group that filed a federal consolidated tax
return or any combined, unitary or consolidated state or local tax return), net
of any federal or state income tax benefit realized or the then-present value
(based on a discount rate of 5%) of any such income tax benefit to be realized
by the Company by reason of the facts and circumstances giving rise to the
indemnification pursuant to Article IX (e.g. deductions disallowed for a period
ending on or prior to the Closing Date that are allowed after the Closing Date),
except (i) to the extent the same have been reserved for in the Company Annual
Statements, in the Company Quarterly Statements or, with respect to any period
ending after September 30, 1996, the internal financial statements of the
Company, as disclosed to Buyer, and (ii) with respect to interest payments, only
the after tax costs of such interest shall be included in computing Tax Losses.
1.49 "Virginia Insurance Law" shall mean all of the statutes and
regulations of the State of Virginia applicable to insurance companies, as in
effect on the Closing Date.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include the other gender, (b) words using the singular or
plural number also include the plural or singular number, respectively, (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement, (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement, (e) the phrase "in the
ordinary course of business and consistent with past practice" refers to the
business,
-5-
<PAGE>
operations, affairs, and practice of the Company consistent with past practices
of such business, operations, and affairs, (f) the term "including" and other
forms of such term, with respect to any matter or thing, means "including but
not limited to" such matter or thing, (g) all reference to "dollars" or "$"
refer to currency of the United States of America, and (h) any undefined term in
this Agreement shall have the meaning customarily ascribed to it by the casualty
insurance industry.
ARTICLE II
OPTION TO PURCHASE STOCK
2.1 Grant of Option. In consideration of the payment by Buyer of Ten
Thousand Dollars ($10,000.00) in cash, receipt of which is hereby acknowledged
by Seller, Seller hereby grants to Buyer the exclusive and irrevocable option
(the "Option") to acquire, upon the terms and subject to the conditions set
forth in this Agreement, 1,500 shares of Hamilton Common Stock, constituting
100% of the issued and outstanding shares of Hamilton Common Stock (the
"Purchased Stock").
2.2 Purchase Price and Payment Terms. (a) The consideration for the
Purchased Stock (the "Purchase Price") shall be a total sum payable in cash
equal to Four Million Five Hundred Thousand Dollars ($4,500,000.00) (the "Cash
Payment").
2.3 Exercise of Option. (a) The Option may be exercised by Buyer at any
time during the period commencing on the date hereof and expiring at 5:00 p.m.
Philadelphia time on June 30, 1997 (the "Option Period"), by giving at least ten
(10) days' notice thereof to Seller in the manner and at the address set forth
in Section 12.6 below. Within fifteen (15) days of such exercise, Buyer shall
file any necessary applications for regulatory approval. Buyer and Seller shall
each use their best efforts to obtain promtly any such regulatory approvals.
Thereupon, on the Closing Date, Seller shall sell, assign, transfer, convey and
deliver to Buyer, and Buyer shall acquire from Seller, all of the Purchased
Stock upon the terms and subject to the conditions set forth in this Agreement.
(b) The notice of the exercise of the Option must be accompanied by a
deposit (the "Deposit") in the amount of One Hundred Thousand Dollars ($100,000)
delivered to Seller in immediately available funds. Seller shall hold the
Deposit in a segregated, interest-bearing account. Any interest earned shall
follow principal. The Deposit shall not be refundable except if any of the
applicable regulatory authorities (i) deliver final written disapproval of the
transactions contemplated hereby, or (ii) fail to approve such transactions on
or before December 16, 1997.
-6-
<PAGE>
2.4 Closing. (a) The Closing will take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York,
New York 10104, at 10:00 a.m., local time, on the Closing Date.
(b) At the Closing, Buyer shall deliver or cause to be delivered the Cash
Payment by wire transfer of immediately available funds to an account or
accounts designated by Seller.
(c) At the Closing, Seller shall deliver one or more certificates
representing 1,500 shares of Hamilton Common Stock, constituting 100% of the
issued and outstanding shares of Hamilton Common Stock, accompanied by stock
powers duly endorsed in blank, with all required transfer taxes or stamps paid
for or affixed thereto, free and clear of all Liens;
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Organization and Good Standing. (a) Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Virginia.
(b) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Virginia. The Company has all
requisite corporate power and authority to conduct its business as currently
conducted and to own or lease and to operate its properties. The Company is duly
qualified or admitted to do business and is in good standing as a foreign
corporation in all jurisdictions in which the ownership, use or leasing of its
assets or properties or the conduct or nature of its business makes such
qualification or admission necessary, except where the failure to be so
qualified would not have a Material Adverse Effect with respect to the Company.
3.2 Authority, Validity and Enforceability. Seller has full corporate
power and authority to execute, deliver and perform its obligations and to
consummate the transactions required of it under this Agreement. The execution,
delivery and performance by Seller of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Seller. No other action or proceeding on the part of
Seller is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and constitutes a valid, legal and binding
obligation of Seller, enforceable in accordance with its terms.
-7-
<PAGE>
3.3 No Violation or Breach. The execution, delivery and performance by
Seller of this Agreement does not, and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time or both):
(a) violate or require any consent or approval under any provision
of the certificate of incorporation or bylaws of Seller or the Company; or
(b) except as set forth on Schedule 3.3 of the Disclosure Schedule
of Seller, violate or result in a default of, or require any consent or
approval under any judgment, settlement, consent, injunction, decree,
order or ruling of any court or governmental authority, to which Seller or
the Company is a party or is otherwise subject; or
(c) result in any Lien upon any properties, assets, business or
agreements of Seller or the Company howsoever arising, except for such
Liens which would not have a Material Adverse Effect with respect to
either Seller or the Company.
(d) except as set forth in Section 3.9, violate or result in a
default of, or require any consent or approval under, or result in the
termination of or loss of any right (including any right of acceleration,
termination or cancellation) in or with respect to, any Contract or
Permit, except for such violations or breaches which would not have a
Material Adverse Effect with respect to either Seller or the Company; or
3.4 Title to Shares. (a) The Purchased Stock consists of 1,500 issued and
outstanding shares of Hamilton Common Stock owned beneficially and of record by
Seller, free and clear of any Liens. All of such outstanding shares have been
duly authorized and validly issued and are fully paid and non-assessable.
(b) Upon delivery to Buyer of certificates representing the Hamilton
Common Stock, Buyer will acquire good and valid title to the Hamilton Common
Stock, free and clear of all Liens other than (a) Liens that arise solely as a
result of Buyer's actions and (b) restrictions on transferability generally
imposed on transfers of securities by federal and state securities laws and
state insurance laws.
3.5 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Seller as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise,"
of Seller as of the Closing Date, as such terms are determined in accordance
with applicable federal and state laws governing determinations of the
insolvency of debtors.
-8-
<PAGE>
3.6 Licenses and Permits. The Company has all Permits required in each of
the jurisdictions listed on Schedule 3.6 of the Disclosure Schedule of Seller to
engage in the business of writing insurance policies of the type specified on
such Schedule 3.6 except for such Permits, the absence, expiration or invalidity
of which, individually or in the aggregate, does not have a Material Adverse
Effect with respect to the Company. The Company is duly licensed and qualified
to transact those lines of insurance business in those states and jurisdictions
listed on such Schedule 3.6. Except as set forth on such Schedule 3.6, all such
Permits are owned by the Company, are in full force and effect and none of the
Company or Seller has received any notice of any event, inquiry, investigation
or proceeding that could result in a penalty or fine in excess of $25,000.00,
singly or in the aggregate, or in the suspension, revocation or limitation on
any such Permit, and to the knowledge of Seller, there is no basis for any such
fine, penalty, suspension, revocation or limitation. The Company possesses the
minimum statutory capital and surplus as required by each such jurisdiction for
the type of insurance written by the Company in each jurisdiction set forth on
such Schedule 3.6.
3.7 Capitalization. (a) The authorized capital stock of the Company
consists of 1,500 shares of capital stock, $1,000 par value, all of which are
designated Hamilton Common Stock. All shares of Hamilton Common Stock are issued
and outstanding. All of the outstanding Hamilton Common Stock is owned of record
and beneficially by Seller, free and clear of any Liens except for the Lien
created pursuant to this Agreement. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable.
(b) There are no outstanding securities, rights (pre-emptive or other),
subscriptions, calls, warrants, options, or other agreements (except for this
Agreement) that give any person or entity the right to (i) purchase or otherwise
receive or be issued any shares of capital stock of the Company (or any interest
therein) or any security convertible into or exchangeable for any shares of
capital stock of any of the Company (or any interest therein), (ii) receive any
dividend, voting or ownership rights similar to those accruing to a holder of
shares of capital stock of the Company, or (iii) participate in the equity,
income or election of directors or officers of the Company. Except as set forth
in Schedule 3.7 of the Disclosure Schedule of Seller, there are no proxies,
voting trusts or other agreements or understandings to which either Seller is a
party with respect to the voting of any of the Purchased Stock.
3.8 Subsidiaries. The Company has no Subsidiaries.
3.9 Consents. Except as set forth in Schedule 3.9 of the Disclosure
Schedule of Seller, no consent, license, approval, order or authorization of, or
registration, filing or declaration
-9-
<PAGE>
with, any governmental authority, is required to be obtained or made, and no
consent of any third party is required to be obtained, by Seller or the Company
in connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.10 Statutory Statements. Seller has delivered to Buyer (a) the Statutory
Statements and (b) any annual statutory statements of the Company that were
filed for the year ended December 31, 1995 in any jurisdiction (other than
Virginia) and which differ from the Annual Statutory Statement for the year
ended December 31, 1995. Each such Statutory Statement (i) complied in all
material respects with all applicable laws when so filed, (ii) was prepared in
accordance with SAP, and (iii) presents fairly in all material respects the
financial position of the Company as of the respective dates thereof and the
related summary of operations and changes in capital and surplus and in cash
flows of the Company for and during the respective periods covered thereby. No
material deficiency has been asserted by any insurance regulatory authority with
respect to any such Statutory Statement.
3.11 Insurance Regulatory Filings. (a) To the best knowledge of Seller,
since January 1, 1991 through and including December 31, 1994 (the "1991-1994
Period"), the Company has filed or otherwise provided all reports, data, other
information and applications required to be filed or otherwise provided to the
Department and all other federal, state or local governmental authorities with
jurisdiction over the Company except where the failure to file would not have a
Material Adverse Effect with respect to the Company. Seller has made available
to Buyer copies of all reports of examinations (whether financial, market
conduct or other) issued by the Department and all other state insurance
regulatory authorities in respect of the Company received, to the best knowledge
of Seller, during the 1991-1994 Period. Except as set forth on Schedule 3.11 of
the Disclosure Schedule of Seller, no deficiencies material to the financial
condition, operations or prospects of the Company has been asserted by the
Department or any other state insurance regulatory authority with respect to any
reports or filings made on behalf of the Company, to the best knowledge of
Seller, in the 1991-1994 Period. Seller has made available to Buyer copies of
all written responses submitted on behalf of the Company, to the best knowledge
of Seller, in the 1991-1994 Period, in respect of any report of examination
(whether financial, market conduct or other) of the Company by the Department or
any other state regulatory authority.
(b) Since January 1, 1995 (the "Ownership Period"), the Company has filed
or otherwise provided all reports, data, other information and applications
required to be filed or otherwise provided to the Department and all other
federal, state or local governmental authorities with jurisdiction over the
-10-
<PAGE>
Company except where the failure to file would not have a Material Adverse
Effect with respect to the Company. Seller has made available to Buyer copies of
all reports of examinations (whether financial, market conduct or other) issued
by the Department and all other state insurance regulatory authorities in
respect of the Company received during the Ownership Period. Except as set forth
on Schedule 3.11 of the Disclosure Schedule of Seller, no deficiencies material
to the financial condition, operations or prospects of the Company has been
asserted by the Department or any other state insurance regulatory authority
with respect to any reports or filings made on behalf of the Company in the
Ownership Period. Seller has made available to Buyer copies of all written
responses submitted on behalf of the Company in the Ownership Period, in respect
of any report of examination (whether financial, market conduct or other) of the
Company by the Department or any other state regulatory authority.
(c) Seller has made available to Buyer all files of the Company relating
to correspondence with the Department or any other insurance regulatory
authority.
3.12 Insurance Issued. Except as required by Law or except as disclosed in
Schedule 3.12 of the Disclosure Schedule of Seller:
(a) All outstanding insurance Contracts issued, reinsured or
underwritten by the Company (i) in the period prior to January 1, 1995
(the "Pre-Ownership Period") are, to the best knowledge of Seller, and
(ii) in the Ownership Period are, to the extent required under applicable
laws, on forms and at rates approved by the insurance regulatory authority
of the jurisdiction where issued or have been filed with and not objected
to by such authority within the period provided for objection.
(b) All insurance contract benefits payable by the Company or, to
the best knowledge of Seller, by any other person or entity that is a
party to or bound by any reinsurance or other similar Contract with the
Company (i) with respect to any such Contracts issued in the Pre-Ownership
Period have, to the best knowledge of Seller, and (ii) with respect to any
such Contracts issued in the Ownership Period, have in all material
respects been paid in accordance with the terms of the insurance Contracts
under which they arose, except for such benefits for which the Company
believes there is a reasonable basis to contest payment.
(c) No outstanding insurance Contract issued, reinsured or
underwritten by the Company entitles the holder thereof or any other
person or entity to receive stock dividends, distributions or other
benefits based on the revenues or earnings of the Company or any other
person or entity, except for policyholder dividends paid in the ordinary
course of business.
-11-
<PAGE>
(d) To the best knowledge of Seller, all amounts to which the
Company is entitled under reinsurance or other similar Contracts
(including without limitation amounts based on paid and unpaid losses) are
collectible in the ordinary course of business.
(e) To the best knowledge of Seller, each insurance agent, at the
time such agent wrote, sold, or produced business for the Company, was
duly licensed as an insurance agent (for the type of business written,
sold, or produced by such insurance agent) in the particular jurisdiction
in which such agent wrote, sold, or produced such business for the
Company.
3.13 Transactions with Interested Persons. Except as disclosed in Schedule
3.13 of the Disclosure Schedule of Seller, no officer or director of Seller or
any of its Affiliates or the Company owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of the Company or any person
or entity which has a contract or arrangement with any of the Companies.
Schedule 3.13 of the Disclosure Schedule of Seller lists or describes all
contracts between either Seller or any of its Affiliates and the Company and all
services provided by Seller or any of its Affiliates to the Company.
3.14 Reinsurance Policies. Set forth in Schedule 3.14 of the Disclosure
Schedule of Seller is a complete and accurate list of all reinsurance contracts
and treaties under which the Company has ceded or assumed reinsurance
obligations and the cost and terms and the expiration date of each such contract
or treaty. Such Schedule 3.14 specifies whether any such contract or treaty has
been commuted or has lapsed. Each contract and treaty set forth on such Schedule
3.14 (or required to be set forth on such Schedule 3.14) will not be terminated
or otherwise adversely affected as a result of the transactions contemplated
hereby. Except as set forth on such Schedule 3.14, each such contract or treaty
is in full force and effect, and any such contract or treaty under which the
Company cedes reinsurance obligations is qualified under all Laws applicable to
reinsurance policies and treaties to receive the statutory credit assigned to
such contract or treaty in the Statutory Statements at the time such Statutory
Statements were prepared. During the Ownership Period or, to the best knowledge
of Seller, during the Pre-Ownership Period, the Company has not violated any of
the terms and conditions of any such policies and treaties and, to the best
knowledge of Seller, all of the covenants to be performed by any other party
under any such policy and treaties were negotiated with independent third
parties in good faith at arm's length, other than any such policies or treaties
among the Company and its Affiliates as listed on such Schedule 3.14.
3.15 Litigation. Except as set forth on Schedule 3.15 of the Disclosure
Schedule of Seller, and except for claims made
-12-
<PAGE>
under or in connection with insurance policies issued by the Company:
(a) there is no action, proceeding, investigation or claim pending
or, to the Seller's knowledge, threatened against or affecting the Company
or its assets before any court or governmental or regulatory authority or
body that, if adversely determined, would have a Material Adverse Effect
with respect to the Company or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock.
(b) to the best knowledge of Seller, there is no state of facts and
there has occurred no event or group of related events, that would form
the basis of any claim against the Company for liability in connection
with the performance of the Contracts or the conduct of its business that,
if adversely determined, would have a Material Adverse Effect with respect
to the Company or which questions the validity of this Agreement or any
action taken or to be taken pursuant hereto or in connection with the
purchase and sale of the Purchased Stock.
Except as set forth on Schedule 3.15 of the Disclosure Schedule of Seller, with
respect to claims made against the Company under or in connection with insurance
policies issued by the Company, there are no claims as to which liability in
excess of applicable coverage limits has been asserted against the Company
including, without limitation, claims for bad faith or for punitive damages.
3.16 No Brokers. Other than counsel, Seller and the Company have not
employed any finder, broker, agent or other intermediary in connection with the
negotiation of this Agreement or the consummation of any of the transactions
contemplated hereby.
3.17 Absence of Certain Changes. Except as set forth on Schedule 3.17 of
the Disclosure Schedule of Seller, since September 30, 1996, the Company has
not:
(a) issued, sold or delivered or agreed to issue, sell or deliver
any shares of its capital stock or any options, warrants or rights to
acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock except for the transactions
contemplated by this Agreement;
(b) incurred any obligations or liabilities, whether absolute,
accrued, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of
others) other than obligations and liabilities incurred in the ordinary
course of business and obligations and liabilities under the Contracts;
-13-
<PAGE>
(c) mortgaged, pledged or subjected to any Lien any of its assets,
tangible or intangible;
(d) acquired or disposed of any assets or properties, or entered
into any agreement or other arrangement for any such acquisition or
disposition except in the ordinary course of business;
(e) declared, made, paid or set apart any sum for any dividend or
other distribution to its shareholders or purchased or redeemed any shares
of its capital stock or any option, warrant or right to purchase any such
capital stock, or reclassified its capital stock;
(f) entered into any employment agreement;
(g) forgiven or cancelled any debts or claims or waived any rights
of material value;
(h) conducted its business other than in the ordinary course of
business, except the Contracts;
(i) granted any rights or licenses under any of its trade names or
entered into general agency arrangements;
(j) formed any Subsidiaries;
(k) changed any method of accounting or accounting practice or
policy in any material respect other than as required by SAP or applicable
Law;
(l) been sued or, to the best knowledge of Seller, threatened with
any suit by any former employee;
(m) suffered or experienced any change in relations with or material
loss of any customers; or
(n) agreed to take any action described in clauses (a) through (n).
3.18 Taxes.(a) The Company is a member of the affiliated group, within the
meaning of Section 1504(a) of the Code, of which Front Royal, Inc. is the common
parent, such affiliated group files a consolidated federal income tax return,
and except as a member of an affiliated group within the meaning of Section
1504(a) of the Code, of which Figgie International, Inc. was the common parent,
the Company has never filed a consolidated federal income tax return with (or
been included in a consolidated return of) a different affiliated group;
provided that with respect to the Pre-Ownership Period, the foregoing is to the
best knowledge of Seller and with respect to the Ownership Period, the foregoing
is without such limitation. The Company has filed or caused to be filed or (in
the case of returns or reports not yet due) will
-14-
<PAGE>
file all tax returns and reports required to have been filed by or for it on or
before the due date thereof (including extensions) that is on or before the
Closing Date, and all material information set forth in such returns or reports
is or (in the case of returns or reports not yet filed) will be accurate and
complete. The Company has paid or made adequate provision for or (with respect
to returns or reports not yet filed) will make adequate provision for all taxes,
additions to tax, penalties and interest for periods covered by those returns or
reports. The Company is in compliance with, and its records contain all
information and documents (including, without limitation, properly completed IRS
Forms W-9) necessary to comply with, all applicable tax information reporting
and tax withholding requirements under federal, state, local, and foreign laws,
rules, and regulations, and such records identify with specificity all accounts
subject to backup withholding under Section 3406 of the Code.
(b) The Company has collected or withheld all amounts required to be
collected or withheld by it for any taxes, and all such amounts have been paid
to the appropriate governmental agencies or set aside in appropriate accounts
for future payment when due. The balance sheets contained in the Statutory
Statements fully and properly reflect, as of their dates, the liabilities of the
Company for all accrued taxes, additions to tax, penalties, and interest. Except
as disclosed on Schedule 3.18 of the Disclosure Schedule of Seller, there are no
due but unpaid taxes, additions to tax, penalties, or interest payable by the
Company or any other person that (i) are or could become a Lien on any asset, or
otherwise adversely affect the business, properties, or financial condition, of
the Company or (ii) could cause Buyer to incur any liability.
(c) Schedule 3.18 of the Disclosure Schedule of Seller describes all tax
elections, consents, and agreements made by or affecting the Company, lists all
types of taxes paid and returns filed by or on behalf of the Company, and
expressly indicates each tax with respect to which the Company is or has been
included in a consolidated, unitary, or combined return. Except as disclosed on
such Schedule 3.18, the Company has not granted (or is subject to) any waiver of
the period of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted against or with
respect to the Company by any taxing authority.
(d) The Company has not made or entered into, nor holds any asset subject
to, a consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder. None of the assets of the Company is or will be required to be
treated as being owned by any person (other than such Company) pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately before the enactment of the Code, and the rules and
regulations thereunder.
-15-
<PAGE>
Except as disclosed on such Schedule 3.18, the Company is not required to
include in income any amount for an adjustment pursuant to Section 481 of the
Code.
(e) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Company by reason of Section 280G of
the Code.
3.19 Contracts. The Company is not a party to or bound by any agreements,
contracts and commitments, written or oral, including, without limitation,
equipment lease obligations and licenses for software used by the Company
(collectively, the "Contracts"), excluding: (i) any of the foregoing listed on
Schedule 3.14 of the Disclosure Schedule of Seller [Reinsurance]; and (ii)
insurance policies written by the Company in the ordinary course of business.
3.20 Compliance with Other Instruments and Laws. Except as set forth on
Schedule 3.20 of the Disclosure Schedule of Seller, the Company is not in
violation of any term of its charter or by-laws or any Contract or of any
judgment, decree or order and the Company is not in violation of any Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except for
such violation that would not have a Material Adverse Effect with respect to the
Company.
3.21 No Employees. The Company has no employees.
3.22 Employee Benefit Matters. Neither the Company nor any ERISA Affiliate
(with respect to the Pre-Ownership Period, to the best knowledge of Seller, and
with respect to the Ownership Period without such limitation):
(a) has ever been a party to any employee pension benefit plan (as
defined in Section 3(2) of ERISA) (a "Pension Plan"), any "employee
benefit plan," as defined in Section 3(3) of ERISA, any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), or any other Employee
Plan;
(b) has incurred any liability to the Pension Benefit Guaranty
Corporation ("PBGC") or to the Internal Revenue Service with respect to
any Pension Plan; or
(c) has ever been a party to any multiemployer plan (as defined in
Section 3(37) of ERISA).
3.23 Assets and Properties. (a) Schedule 3.23(a) of the Disclosure
Schedule of Seller contains an accurate and complete list of all assets of the
Company, including without limitation all debentures, notes, stocks, limited
partnership interests, other securities, mortgages, and other investment assets
owned by
-16-
<PAGE>
the Company as of November 30, 1996. The Company had good and marketable title
to all debentures, notes, stocks, limited partnership interests, other
securities, mortgages, and other investment assets (excluding real property)
owned by it as of such date, free and clear of all Liens.
(b) The Company does not own or lease any real property.
3.24 Operating Insurance. Schedule 3.24 of the Disclosure Schedule of
Seller contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability and other
similar insurance contracts that insure the business, operations, or affairs of
each of the Companies or affect or relate to the ownership, use or operations of
any of the assets or properties of the Company.
3.25 Bank Accounts. Schedule 3.25 of the Disclosure Schedule of Seller
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
the Company has an account or safe deposit box or maintains a banking,
custodial, trading, trust, or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship, (c) a
true and complete list of all signatories for each such account and box and (d)
a true and complete list of all compensating balances required with respect to
each such account.
3.26 Charter Documents and Bylaws. Seller has heretofore made available to
Buyer true and complete copies of the articles of incorporation and bylaws of
the Company, as in effect on the date hereof.
3.27 Minute Books. The minute books of the Company accurately reflect in
all material respects all formal actions taken at all meetings and all consents
in lieu of meetings of the stockholders of the Company since the date of
formation of the Company, and all formal actions taken at all meetings and all
consents in lieu of meetings of the boards of directors of the Company and all
committees thereof since the date of formation of the Company. All of such
minute books have previously been made available for inspection by Buyer.
-17-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania.
4.2 Authority, Validity and Enforceability. Buyer has full corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions required of it contemplated hereby.
The execution, delivery and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by Buyer's Board of Directors. No other action or proceeding on the
part of the Buyer is necessary to authorize the Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer, and constitutes a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms.
4.3 No Violation or Breach. The execution, delivery and performance of
this Agreement by Buyer does not, and the consummation of the transactions
required by Buyer contemplated hereby, will not (with or without the giving of
notice or lapse of time or both):
(a) violate or require any consent or approval under, any provision
of the certificate of incorporation or bylaws of Buyer;
(b) except as set forth in Section 4.4 hereof, violate or result in
a default of, or require any consent or approval under any agreement,
policy, instrument, contract, commitment, license, franchise, permit or
trust to which Buyer is a party or is otherwise subject, except for such
violations or breaches which would not have a Material Adverse Effect with
respect to Buyer; or
(c) violate or result in a default of, or require any consent or
approval under, any judgment, settlement, consent, injunction, decree,
order or ruling of any court or governmental authority to which Buyer is a
party or otherwise subject.
4.4 Consents. Except as set forth on Schedule 4.4 of the Disclosure
Schedule of Buyer, no consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority is required
to be obtained or made, and no consent of any third party is required to be
obtained, by Buyer, in connection with its execution, delivery
-18-
<PAGE>
and performance of this Agreement and the transactions contemplated hereby.
4.5 Purchase for Investment. Buyer is purchasing the Purchased Stock for
its own account for investment and not with a view to any distribution thereof
within the meaning of the Securities Act. Buyer acknowledges that the offer and
sale of the Purchased Stock pursuant hereto are intended to be exempt from the
Securities Act pursuant to Section 4(2) thereof, and the Purchased Stock may not
be resold or otherwise transferred except pursuant to an effective registration
statement or an exemption from registration thereunder, and pursuant to
registration or qualification (or exemption therefrom) under applicable state
securities laws.
4.6 Litigation. There is no action, proceeding, investigation or inquiry
pending or, to the knowledge of Buyer, threatened against Buyer which questions
the validity of this Agreement or any action taken or to be taken pursuant
hereto or thereto or in connection with the purchase and sale of the Purchased
Stock.
4.7 No Brokers. Other than counsel, Buyer has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course. Except as provided in this Agreement, or
with the express written consent of Buyer, between the date hereof and the
Closing Date the Company shall:
(a) carry on its respective business in the ordinary course and
substantially in the same manner as heretofore carried on;
(b) use its commercially reasonable best efforts to preserve its
properties and business;
(c) not dispose of any material asset of the Company; and
(d) not make, declare or pay any dividend or distribution on any
shares of any of the Company's capital stock, except as is necessary for
the transactions described in Section 5.5 below.
Sellers will advise Buyer promptly in writing of any material adverse change in
the properties, business, results of opera-
-19-
<PAGE>
tions, condition (financial or otherwise) or affairs of the Company.
5.2 Indebtedness. Without the prior written consent of Buyer, which shall
not be unreasonably withheld, the Company shall not:
(a) create, incur or assume any indebtedness for borrowed money;
(b) mortgage, pledge or otherwise encumber or subject to any Lien
any of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts payable
and other liabilities incurred in the ordinary course of business.
5.3 Issuance of Stock. The Company shall not issue any shares of capital
stock of any class or grant any warrants, options or rights to subscribe for any
shares of capital stock of any class or securities convertible into or
exchangeable for, or which otherwise confer on the holder any right to acquire,
any shares of capital stock of any class.
5.4 No Hiring of Employees. The Company shall not hire any employees,
institute any employee benefits with respect to any employees or create any
Employee Plans.
5.5 Closing Date Balance Sheet. The Company shall, and Seller shall cause
the Company to, engage in any transactions prior to the Closing Date which are
necessary in order for the Company to have as of the Closing Date (a) assets of
Four Million Dollars ($4,000,000) in cash or cash equivalents, (b) no Reserves
or liabilities, and (c) Surplus of Four Million Dollars ($4,000,000). Such
transactions and their results or effects shall comply in all respects with
Virginia Insurance Law, shall be acceptable to the Commissioner and the
Department as of the Closing Date and shall be reasonably acceptable to Buyer.
5.6 Compliance with Law. The Company shall use its commercially reasonable
best efforts to comply in all material respects with all applicable Law and with
all orders of any court or of any federal, state, municipal or other
governmental department.
5.7 Access to Information. At Buyer's expense, Buyer and its authorized
agents, officers and representatives, for the purpose of confirming the
representations and warranties contained in Article III, shall have reasonable
access to the properties, books, records, contracts, information and documents
of the Company; provided, however, that such examinations and investigations,
(a) shall occur with a minimum of twenty-four
-20-
<PAGE>
hours advance written notice, (b) shall be conducted during normal business
hours, and (c) shall not unreasonably interfere with the operations and
activities of the Company. Seller and the Company shall cooperate in all
reasonable respects with Buyer's examinations and investigations. Buyer shall
maintain all information regarding the Company in complete confidence and shall
not disclose such information to any person except as required by law, provided,
however, Buyer shall not be required to keep confidential information that (i)
is or becomes generally available to the public other than as a result of
disclosure by Buyer, (ii) is or becomes available to Buyer on a nonconfidential
basis from a source other than Seller or the Company or (iii) Buyer or any of
its Affiliates is required to disclose pursuant to applicable law, rule,
regulation or subpoena. At Buyer's expense, Buyer shall be entitled to designate
an agent of Buyer reasonably satisfactory to Seller to act as an observer of the
operations of the Company and such agent shall have access to all properties,
books, records, contracts, information, documents and personnel of the Company
subject to the limitations set forth in clause (a), (b) and (c) above. Seller
acknowledges and agrees that nothing in this Section 5.6 shall be deemed to
release Seller from any of its liabilities or obligations under this Agreement.
5.8 Cooperative; Best Efforts. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper and advisable under applicable Law
(including, without limitation, the Virginia Insurance Law), to consummate and
make effective the transactions contemplated by this Agreement. Each of the
parties hereto agrees to make all required regulatory filings promptly after the
date hereof and to diligently pursue compliance with Virginia Insurance Law.
(b) In furtherance of and not in limitation of the foregoing, Seller and
Buyer each agree to inform the other party prior to any and all scheduled
meetings and communications, whether oral (including telephonic or otherwise) or
written, between such party and the Department with respect to this Agreement or
any of the transactions contemplated hereby, and promptly thereafter to provide
the other party with a complete and accurate report of each such scheduled
meeting or communication, as well as any unscheduled meetings and
communications, and, if in writing, with a copy thereof.
5.9 Consents. Seller and Buyer shall diligently pursue obtaining consents
of all third parties and governmental authorities necessary to the consummation
of the transactions contemplated by this Agreement.
5.10 Publicity. All general notices, releases, statements and
communications to employees, suppliers, distributors and
-21-
<PAGE>
customers of the Company and to the general public and the press relating to the
transactions covered by this Agreement shall be made only at such times and in
such manner as may be mutually agreed upon by Seller and Buyer.
5.11 No Solicitation. (a) Subject to clause (b) below, neither Seller nor
the Company shall, after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to Section 10.1 hereof, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit, initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) a substantial portion of the assets of, or any equity
interest in, the Company or any business combination with the Company, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing.
(b) Seller and the Company may entertain unsolicited proposals or offers
and participate in any negotiations regarding such unsolicited proposals or
offers.
5.12 Articles and Bylaws. Seller covenants and agrees that the Company
shall not amend its Articles of Incorporation or bylaws, except as may be
necessary to comply with the terms of this Agreement, or merge or consolidate
with or into any other corporation.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 6.7 [Regulatory Approvals],
may be waived by Buyer):
6.1 Compliance with Agreement. Seller shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Seller and the Company in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to Buyer and
-22-
<PAGE>
Buyer's counsel, and Seller shall have made available to Buyer for examination
the originals or true and correct copies of all documents that Buyer may
reasonably request in connection with the transactions contemplated by this
Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations and warranties
made by Seller in this Agreement shall be true and correct as of the Closing
Date with the same force and effect as though such representations and
warranties have been made on the Closing Date, except as otherwise contemplated
hereby and except to the extent that such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true and correct as of the
specified date.
6.5 Closing Under the Rockwood Casualty Purchase Agreement. The closing
shall have occurred under that certain Stock Purchase Agreement (the "Rockwood
Casualty Purchase Agreement") among PIC Insurance Group, Inc. and Trirock
Limited Partnership, as sellers, and Front Royal, Inc., as buyer, dated as of
December 6, 1996, for the acquisition by Front Royal, Inc. of the stock of
Rockwood Casualty Insurance Company ("Rockwood").
6.6 Additional Deliveries at Closing. Seller shall have, or shall cause to
have, delivered to Buyer (a) certificates representing the Purchased Stock,
accompanied by stock powers duly endorsed in blank, with all required transfer
taxes or stamps paid for or affixed thereto, free and clear of all Liens, and
(b) the following documents, each duly executed and delivered and dated as of
the Closing Date: (i) the Opinion of Seller's Counsel; (ii) the Seller's Closing
Certificate; (iii) the Surplus Certificate; and (iv) the Non-Compete and
Non-Solicitation Agreement.
6.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies with jurisdiction over
Seller, the Company or Buyer to permit the sale of the Purchased Stock and the
other transactions contemplated hereby shall have been obtained and shall remain
in full force and effect (without any material term, condition or restriction
that is reasonably unacceptable to Buyer).
6.8 Consents. There shall have been obtained written consent with respect
to any contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement except for such consents the
failure of which to obtain would not, individually or in the
-23-
<PAGE>
aggregate, have a Material Adverse Effect with respect to the Company.
6.9 Resignation of Directors and Officers. Each member of the Board of
Directors and each officer of the Company shall have resigned from such
positions effective on the Closing Date.
6.10 Assets. The Company shall have Four Million Dollars ($4,000,000) of
assets in the form of cash or cash equivalents as of the Closing Date.
6.11 Reserves and Liabilities. The Company shall have no Reserves or
liabilities as of the Closing Date.
6.12 Policyholders' Surplus. The Surplus shall be equal to or greater than
Four Million Dollars ($4,000,000) as of the Closing Date.
6.13 Books and Records. Seller shall have delivered to Buyer all minute
books, stock records and other corporate and financial records of the Company.
6.14 Reinsurance. Seller and/or Front Royal Insurance Company ("FRIC") or
another insurer reasonably satisfactory to Buyer shall have assumed or reinsured
all of the insurance business written by the Company, pursuant to an agreement
in form and substance reasonably satisfactory to Buyer, to the extent necessary
Seller and/or FRIC shall have established a cash collateral account for such
transaction equal to 100%, or such lesser percentage as may be appropriate in
light of the assumption or reinsurance arrangement, of the loss, loss adjustment
and unearned premium reserves for the business subject to the transaction, and
the Company shall have transferred to Seller and/or FRIC or other satisfactory
insurer an amount equal to such Reserves for such business.
ARTICLE VII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 7.7 [Regulatory Approvals],
may be waived by Seller):
7.1 Compliance with Agreement. Buyer shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
-24-
<PAGE>
7.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Buyer in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Seller and Seller's counsel, and Buyer
shall have made available to Seller for examination the originals or true and
correct copies of all documents that Seller may reasonably request in connection
with the transactions contemplated by this Agreement.
7.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations and warranties
made by Buyer in this Agreement shall be true and correct in all material
respects as of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except as
otherwise contemplated hereby and except to the extent that such representations
and warranties were made as of a specified date and as to such representations
and warranties the same shall continue on the Closing Date to have been true and
correct as of the specified date.
7.5 Closing Under Rockwood Casualty Purchase Agreement. The closing shall
have occurred under the Rockwood Casualty Purchase Agreement for the acquisition
by Front Royal, Inc. of the stock of Rockwood.
7.6 Additional Deliveries at Closing. Buyer shall have, or shall cause to
have, delivered to Seller (a) the Cash Payment, and (b) the following documents,
each duly executed and delivered and dated as of the Closing Date: (i) the
Opinion of Buyer's Counsel; and (ii) the Buyer's Closing Certificate.
7.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over Seller, the Company
or Buyer to permit the sale of the Purchased Stock and the other transactions
contemplated hereby shall have been obtained and shall remain in full force and
effect (without any material term, condition or restriction that is reasonably
unacceptable to Seller).
7.8 Consents. There shall have been obtained written consent with respect
to any contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement except for such consents the
failure of which to obtain would not, individually or in the aggregate have a
Material Adverse Effect with respect to Buyer.
-25-
<PAGE>
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Records. Buyer shall preserve and keep, free of charge, all books,
papers and records included in the assets of the Company relating to their
respective businesses for periods prior to the Closing Date for a period of not
less than five years following the Closing Date; provided, however, prior to the
fifth year following the Closing Date, Buyer may destroy such materials if Buyer
provides Seller 30 Business Days' prior notice that Buyer intends to destroy any
or all of such books, papers and records and Seller shall have the right to
review and remove any books, papers and records to be destroyed at Seller's
expense. Buyer agrees to permit Seller and its attorneys, accountants, agents
and designees access to such books, papers and records from and after the
Closing Date for all reasonable purposes. Any such examination shall be at the
expense of Seller, shall be performed at the place such books, papers and
records are regularly maintained and shall not unreasonably interfere with
Buyer's or the Company's normal business activities.
8.2 Access. Buyer and Seller and each of their authorized agents, officers
and representatives shall have reasonable access to the properties, books,
records, contracts, information and documents of the Company and each other to
conduct such examinations and investigations of its or their business as it
deems necessary, provided that such examinations and investigations: (a) shall
be germane to rights or obligations arising out of this Agreement, the
operations of the Company prior to the Closing Date or to the transactions
occurring between the Company and any Affiliates prior to the Closing Date; (b)
shall be conducted only in the presence of a designated representative of Buyer
or Seller, as appropriate; (c) shall be during normal business hours; (d) shall
not unreasonably interfere with operations and activities; and (e) shall be
subject to prior approval if the information or documents requested are, in the
reasonable opinion of an officer, of a nature that may compromise the
competitive position of Buyer or Seller. Buyer and Seller shall cooperate in all
reasonable respects with each other's examinations and investigations.
8.3 Cooperation. Buyer and Seller will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated
under this Agreement. Buyer promptly will furnish to Seller copies of the Forms
A filed with the Department and all correspondence with the Department with
respect thereto.
-26-
<PAGE>
8.4 Confidentiality. Following the Closing, Seller shall keep confidential
all information concerning the business, operations, properties, assets and
financial affairs of the Company and may disclose such information only upon
receipt of prior written consent from Buyer, as required by law, or if such
disclosure is required (a) in connection with Seller's filing of any state or
federal income tax returns, (b) in connection with filings made with the
Securities and Exchange Commission or any national securities exchange or (c) by
order of any judicial or administrative authority, provided, however, Seller
shall not be required to keep confidential information that (x) is or becomes
generally available to the public other than as a result of disclosure by
Seller, (y) is or becomes available to Seller on a nonconfidential basis from a
source other than Buyer, or (z) Seller or any of their Affiliates is required to
disclose pursuant to applicable law, rule, regulation or subpoena.
8.5 Use of Name. From and after the Closing Date, neither Seller nor any
of its Affiliates shall use the names "Hamilton" or any names similar thereto or
variants thereof in connection with the casualty insurance business.
8.6 Non-Solicitation of Employees. Seller hereby agrees that for a period
commencing on the Closing Date and ending three years thereafter, neither Seller
nor any of its Affiliates shall solicit for employment by Seller or any of its
Affiliates any employees of Buyer.
ARTICLE IX
TAX LOSSES
9.1 Federal Income Taxes in General.
(a) Taxable Periods Ending On or Before the Closing Date.
(i) The income and other tax items of the Company for all
periods ending on or before the Closing Date shall be included in
the consolidated federal income tax return of the affiliated group
of which Front Royal is the common parent (the "Company Group"), and
the last such period will end as of the close of the Closing Date.
Seller and Front Royal shall be responsible for the payment of any
federal income taxes of the Company for all periods ending on or
before the Closing Date and of any other member of the Company Group
not heretofore paid except for such taxes set forth in the Statutory
Statements or in Schedule 3.18 of the Disclosure Schedule of Seller.
Neither Buyer, any member of the affiliated group of which Buyer is
a member (the "Buyer Group") nor the Company shall be required to
reimburse either Seller or any other person for any such taxes; and
subject to the Seller's Basket, Seller and Front Royal shall
-27-
<PAGE>
indemnify and hold Buyer, all other members of the Buyer Group and
the Company harmless from all liabilities for any such taxes
(including, without limitation, any additions to tax, penalties and
interest). Seller shall be entitled to any refunds (except any
refund resulting from carrybacks from taxable periods beginning
after the Closing Date) not received prior to the Closing Date for
taxable periods of the Company ending on or before the Closing Date.
Buyer shall promptly pay, or cause Company to pay, to Seller the
amount of any such refund (to which Seller is entitled hereunder)
that is received by the Company or Buyer; provided, however, that
any amount payable in respect of any such refund shall be reduced by
the amount of any taxes incurred, and the present value (based on a
discount rate of 5%) of any taxes to be incurred, by Buyer, any
other member of the Buyer Group or the Company as a result of the
accrual or receipt of the refund.
(ii) Subject to the Basket and the Cap, Seller shall indemnify
and hold Buyer, all members of the Buyer Group and the Company
harmless from all liabilities for any Tax Losses. To the extent that
any breach by Seller of the representations and warranties contained
in Section 3.18 results in any Tax Losses, such breach shall be
subject to the terms and provision of this Article IX and the
indemnification provisions relating hereto.
(b) Taxable Periods Beginning After the Closing Date. Buyer and the
Company shall be responsible for and, subject to the Basket, shall
indemnify and hold Seller harmless from all federal income taxes (except
taxes resulting from any adjustments to or changes in tax items relating
to any taxable period ending on or before the Closing Date) of the Company
for any taxable period beginning after the Closing Date. Buyer and the
Company shall be entitled to all refunds of such taxes.
9.2 Other Income Taxes.
(a) Definition. For purposes of this Article IX, the term "state,
local or foreign income tax" means any tax, however denominated, that is
based on or measured by net or gross income and imposed by any state,
local or foreign governmental entity, but does not include gross or net
premium taxes.
(b) Taxable Periods Ending On or Before the Closing Date. With
respect to taxable periods of the Company ending on or before the Closing
Date, Seller shall prepare and file returns for and shall be responsible
for the payment of any state, local or foreign income taxes of the Company
not paid prior to the Closing Date. Neither Buyer, any member of the Buyer
Group, nor the Company shall be required to reimburse either Seller or any
other person for any such taxes; and subject to the Seller's Basket,
Seller shall indemnify and hold Buyer, all other members of the Buyer
Group and the Company harmless from all liabilities for any such taxes
(including, without limitation, any additions
-28-
<PAGE>
to tax, penalties and interest) of the Company and of any other
corporation with which the Company files or have filed a unitary,
consolidated or combined return. Seller shall be entitled to refunds
(except any refund resulting from carrybacks from taxable periods
beginning after the Closing Date) not received prior to the Closing Date
for taxable periods of the Company ending on or before the Closing Date.
Buyer shall promptly pay, or cause the Company to pay, to Seller the
amount of any such refund (to which Seller is entitled hereunder) that is
received by the Company or Buyer; provided, however, that any amount
payable in respect of any such refund shall be reduced by the amount of
any taxes incurred and the present value (based on a discount rate of 5%)
of any taxes to be incurred, by Buyer, any other member of the Buyer Group
or the Company as a result of the accrual or receipt of the refund.
(c) Taxable Periods Beginning After the Closing Date. Buyer and the
Company shall be responsible for and, subject to the Basket, shall hold
Seller harmless from all state, local or foreign income taxes (except
taxes resulting from any adjustments to or changes in tax items relating
to a taxable period ending on or before the Closing Date) of the Company
for any taxable period beginning after the Closing Date. Buyer and the
Company shall be entitled to all refunds of such taxes.
(d) Taxable Periods Covering Days Before and After the Closing Date.
If the Company is required to file a state, local or foreign income tax
return for a taxable period covering days before and after the Closing
Date, Buyer shall cause the return for such period to be prepared and
filed. Buyer and the Company, on the one hand, and Seller, on the other
hand, shall each be responsible for the payment of state, local or foreign
income taxes for any such period based on the allocation of income and
expenses to the periods before and after the Closing Date, respectively,
as set forth below. The total state, local or foreign income taxes for the
taxable period shall be allocated among Buyer and the Company, on the one
hand, and Seller, on the other hand, using the following methodology:
Buyer and the Company shall be liable for an amount equal to such total
taxes multiplied by a fraction, the numerator of which is the taxable
income of the Company calculated from the beginning of the period through
the Closing Date (based on actual closing of the books of the Company, or
if not feasible, based upon a pro forma closing of the books) and the
denominator of which is the total taxable income of the Company calculated
for the entire period; Seller shall be liable for the balance of such
state, local or foreign taxes. Each of Buyer and the Company, on the one
hand, and Seller, on the other, shall be entitled to all refunds of such
taxes based on the foregoing methodology.
(e) Subject to the Seller's Basket, Seller shall indemnify and hold
Buyer, all members of the Buyer Group and the Company harmless from all
liabilities for any Tax Losses.
-29-
<PAGE>
9.3 Cooperation
(a) Buyers' Obligation to Cooperate. Buyer agrees to cooperate and
to cause the Company to cooperate with Seller to the extent reasonably
required after the Closing Date in connection with (i) the preparation,
filing, amendment and execution of all income tax returns and other tax
documents with respect to any taxable period of the Company ending on or
before the Closing Date, (ii) contests concerning the application of any
tax or the tax due for any such period and (iii) audits and other
proceedings conducted by taxing authorities with respect to any such
period. Buyer shall retain or cause the Company for all taxable periods
and portions thereof ending on or before Closing Date (except for books or
records not in the possession of the Company) until the expiration of the
applicable statute of limitations (giving effect to any and all extensions
and waivers) and to abide by, or cause compliance with, all record
retention agreements entered into by or on behalf of the Company with any
taxing authority.
(b) Seller' Obligation to Cooperate. Seller agree to make available
to Buyer and the Company, records in the custody of either Seller or any
other member of the Company Group, to furnish other information
(including, without limitation, all adjustments to and changes in tax
items of the Company for taxable periods ending on or before the Closing
Date), and otherwise to cooperate to the extent reasonably required for
the preparation or filing of tax returns and other tax documents relating
to the Company for taxable periods ending after the Closing Date. Seller
shall retain all books and records pertinent to the Company for all
taxable periods and portions thereof ending on or before the Closing Date
(except for books or records not in the possession of Seller or any other
member of the Company Group) until the expiration of the applicable
statute of limitations (giving effect to any and all extensions and
waivers) and shall abide by, or cause compliance with, all records
retention agreements entered into by or on behalf of the Company with any
taxing authority.
(c) Changes to Certain Tax Items of the Company. Except as may be
required by law or in Section 9.3(d), no amended tax return shall be
filed, no change in any tax accounting method shall be made, and not tax
election shall be made or revoked by, on behalf of, or with respect to the
Company for any taxable period ending on or before the Closing Date
without the express written consent of Seller, on the one hand, and Buyer,
on the other hand.
(d) Entitlement to Certain Tax Benefits. Seller acknowledges that
the Company and Buyer shall be entitled to the tax benefit of any loss,
credit or other item of the Company that (i) has arisen or arises before
the Closing Date but cannot be used in a taxable period ending on or
before the Closing Date and
-30-
<PAGE>
therefore is reportable in or carried forward to a taxable period ending
after the Closing Date or (ii) arises after the Closing Date, although
such loss, credit or their item may be carried back to a taxable period
ending on or before the Closing Date; provided, however, that
(notwithstanding any provision of this Agreement) no such carryback to a
taxable period ending on or before the Closing Date shall be made without
Seller's consent, which consent shall not be unreasonably withheld.
Seller's consent will be considered reasonably withheld if a proposed
carryback may have an adverse effect on either Seller's tax position for
any past or current taxable period. Seller promptly shall pay or cause to
be paid to Buyer (i) any amount received as a refund and (ii) if not
realized as a refund, the amount of any reduction in tax liability (of the
Company, Seller or any other member of the Company Group) resulting from
the use of any loss, credit or other item carried back from a taxable
period beginning after the Closing Date to a period ending on or before
the Closing Date; provided, however, that the amount so payable by Seller
shall be reduced by the amount of any taxes incurred, and the present
value (based on a discount rate of 5%) of any taxes to be incurred, by
Seller or any other member of the Company Group as a result of the accrual
or receipt of any such refund.
(e) Tax Contests. If any party to this Agreement receives any
written notice from any taxing authority proposing an adjustment to any
tax for which any other party hereto may be obligated to indemnify under
this Agreement, within ten business days thereafter such party shall give
to the others written notice thereof that describes such proposed
adjustment in reasonable detail, and shall indicate the amount (estimated,
if necessary) of the increase in tax that may be suffered by Buyer, Seller
or the Company, as the case may be. The failure to give notice pursuant to
this Section 9.3 (e), however, shall not reduce the obligations of a party
hereunder unless, and then only to the extent, such failure prejudices the
rights of the other party to contest such tax adjustment. Seller and Front
Royal, Inc., including their duly appointed representative, shall be
responsible for defending against (and shall have the right to negotiate,
resolve, settle or contest) any claim for a tax liability against the
Company made by any taxing authority for any taxable period, or portion
thereof, ending on or before the Closing Date; provided, however, that
Seller shall keep Buyer advised of the status (and any change in status)
of such claims. The foregoing notwithstanding, without Buyer's prior
written consent, Seller shall not enter into any agreement that would
adversely affect Buyer or the Company (including, without limitation,
liability for taxes with respect to taxable periods ending after the
Closing Date), except for adverse effects that are included in tax
liabilities subject to indemnification pursuant hereto. In the event Buyer
does not consent to a settlement agreement recommended by Seller with
respect to any tax liabilities, then the aggregate amount of the
indemnification payable by Seller in connection with such tax liabilities
shall
-31-
<PAGE>
not exceed the amount that would otherwise have been payable had Seller so
entered into such settlement agreement. Buyer shall within 14 days after
it has knowledge of the assertion or commencement thereof notify Seller of
the written assertion of any claim or the commencement of any suit,
action, proceeding, investigation or audit (any of the foregoing, a
"Contest") that could give rise to any tax liabilities subject to
indemnification hereunder, and shall provide Seller with copies (subject
to deletion of unrelated information) of all correspondence relating to
such Contest. Each party shall bear its own costs of defending against
such Contest.
9.4 Termination of Tax-Sharing Agreements. As of the Closing Date
(provided Closing occurs), the provisions of this Agreement supersede any and
all tax-sharing or similar agreements to which (i) the Company and (ii) Seller
or any affiliate of Seller are parties. Neither the Company nor Seller (or any
affiliate of either Seller) shall have any obligation or right with respect to
each other under any such agreement after the Closing.
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The right to enforce
claims for breaches of representations, warranties, covenants and agreements of
Seller, on the one hand, and Buyer, on the other hand, contained in this
Agreement and the respective obligations of the parties with respect thereto,
shall survive the making of this Agreement, any investigations made by or on
behalf of the parties hereto and the Closing Date, and shall continue in full
force and effect until the expiration of thirty (30) months from the Closing
Date, except:
(i) with respect to Section 3.18 [Taxes], 3.22 [Employee Benefit
Matters] and Article IX, the remedy for breach of which shall continue in
full force and effect until any claims or liabilities with respect thereto
shall be barred by the expiration of the applicable statute of limitations
or any extensions thereof; and
(ii) with respect to Section 3.4 [Title to Shares] and Section 3.7
[Capitalization] and the indemnification provided pursuant to Sections
10.2(c) and 10.3(c), to which there shall be no expiration).
All such representations and warranties and liabilities shall expire and
terminate at the time provided for above, except for any claims relating to any
specific breaches of any representations or warranties which are asserted in
writing on or
-32-
<PAGE>
before the applicable termination date. Each of the parties agrees to give
notice to the breaching party of any breach of any such representation,
warranty, covenant, or agreement, describing such breach in reasonable detail,
as soon as practicable after the discovery thereof; provided, however, that the
failure to receive such notice shall not relieve the breaching party from any
liability in respect to such breach unless and to the extent that the breaching
party shall be prevented from curing such breach as a direct result of its
failure to receive a timely notice. Any claim for indemnification for which
notice has been given within the prescribed period may be prosecuted to
conclusion notwithstanding the subsequent expiration of such period.
10.2 Indemnification by Seller. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 10.4, Seller agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
claims, suits, losses, expenses, damages, obligations, liabilities (including
costs and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of Seller to perform any of its covenants
or agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by
Seller;
(c) any liabilities of Seller or its Affiliates (other than the
Company), except for (i) those liabilities incurred pursuant to this
Article X or (ii) liabilities of Seller or its Affiliates which are
actually the primary obligation of the Company; or
(d) claims under Article IX.
10.3 Indemnification by Buyer. After the Closing Date, and subject to the
limitations set forth below, including, without limitation, the limitations
described in Section 10.4, Buyer agrees to and does hereby indemnify and hold
Seller and its Affiliates, officers, directors and employees harmless against
any Losses, which result from or are related to any of the following:
(a) any breach or failure of Buyer to perform any of its covenants
or agreements set forth herein;
(b) the inaccuracy of any representations or warranties made herein
by Buyer;
-33-
<PAGE>
(c) any liabilities of Buyer or its Affiliates (other than the
Company), except for those liabilities of Buyer or its Affiliates incurred
pursuant to this Article X; or
(d) the conduct of the Company's business after the Closing Date.
10.4 Limitation of Liability. Subject to the sentence immediately
following, Buyer shall not have any liability to indemnify Seller in respect of
Losses incurred by Seller pursuant to Sections 10.3(a) and (b), and Seller shall
not have any liability to indemnify Buyer in respect of Losses incurred by Buyer
pursuant to Section 10.2(a) and (b), in either case unless and until the
aggregate amount of such Losses exceeds $25,000 (such amount being the
"Basket"), in which event the party seeking indemnity may recover the full
amount of such Losses, other than the Basket, provided that recovery by Buyer,
on the one hand, or Seller, on the other hand, in respect of such Losses shall
be limited to $3,500,000 (such amount being the "Cap"). Notwithstanding the
foregoing, (i) Buyer may recover all Losses whenever incurred by the Buyer
pursuant to Section 10.2(c) without regard to the 30-month limitation set forth
in Section 10.1 or the Cap referenced above, (ii) Buyer may recover all Losses
incurred as a result of a breach of the representation, warranty, covenant or
agreement set forth in Sections 3.13 [Transactions with Interested Persons],
5.1(d) [Carry on in Regular Course - payment of dividends], and 5.2
[Indebtedness] without regard to the Basket, and (iii) Seller may recover all
Losses whenever incurred pursuant to Section 10.3(c) and (d) without regard to
the 30-month limitation set forth in Section 10.1 or the Cap.
10.5 Notice of Indemnity Claims. If a party intends to assert a claim for
indemnification (an "Indemnified Party") under this Article X (an "Indemnity
Claim"), the Indemnified Party shall promptly provide notice of such Indemnity
Claim, to the party from whom indemnification is sought (the "Indemnifying
Party") (and in any event within fifteen (15) days after becoming aware of such
Indemnity Claim). The failure to receive such notice shall not relieve the
Indemnifying Party from any liability in respect of such claim unless and to the
extent that the Indemnifying Party shall be prevented from curing such situation
as a direct result of its failure to receive timely notice. At the time the
Indemnity Claim is made and thereafter, the Indemnified Party shall provide the
Indemnifying Party with copies of any materials in its possession describing the
facts or containing information providing the basis for the Indemnity Claim. If
the Indemnity Claim involves a claim by a third party (a "Third Party Indemnity
Claim"), the Indemnifying Party may assume and control at its expense the
defense of the claim by the third party, provided that the Indemnifying Party
agrees in writing with respect to such Third Party Indemnity Claim that it is
obligated hereunder to indemnify and hold the Indemnified
-34-
<PAGE>
Party harmless in accordance with the terms of this Article X; and provided,
further, that the Indemnified Party shall be entitled to participate in the
defense of such claim at its own expense. The failure of the Indemnifying Party
to assume the defense of any such claim shall not affect any indemnification
obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party, which
shall not unreasonably be withheld. A party shall not be liable under this
Article X for any such settlement effected without its consent. In the event an
Indemnified Party fails to consent to a settlement of a Third Party Claim
recommended by the Indemnifying Party, then the amount of indemnification
payable with respect to such Third Party Claim shall not exceed the amount of
such settlement offer plus all Losses incurred with respect to such claim prior
to the date the Indemnified Party rejected the settlement offer.
10.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount of
any indemnification payable under any of the provisions of this Article X shall
be (a) net of any federal or state income tax benefit realized or the
then-present value (based on a discount rate of 5%) of any such income tax
benefit to be realized by the Indemnified Party (or, where Buyer is the
Indemnified Party, the Company) by reason of the facts and circumstances giving
rise to the indemnification, and (b) increased by the amount of any federal or
state income tax required to be paid by the Indemnified Party on the accrual or
receipt of the indemnification payment. For purposes of the preceding sentence,
the amount of any state income tax benefit or cost shall take into account the
federal income tax effect of such benefit or cost.
10.7 Arbitration. Any dispute arising between the parties hereto as to any
matter covered by this Agreement, including any claim for indemnification
pursuant to Section 10.2 or 10.3, shall be submitted to arbitration in the
following manner:
(a) The party desiring to submit such controversy to arbitration
shall give to the other party notice in writing, stating with specificity
the matter upon which arbitration is sought. The written notice shall also
name the arbitrator selected by such party, which arbitrator shall be a
present or retired insurance company executive unaffiliated with such
party.
(b) Within ten Business Days following the receipt of such notice,
the other party shall give written notice to the party desiring
arbitration of the arbitrator selected by it, which second arbitrator
shall likewise be a present or retired insurance company executive
unaffiliated with such party.
-35-
<PAGE>
(c) Upon the appointment of the second arbitrator, the two
arbitrators so chosen shall select a third arbitrator, which third
arbitrator shall likewise be a present or retired insurance company
executive unaffiliated with such party.
(d) The three arbitrators thus chosen shall give to each of the
parties hereto written notice of the time and place of hearing, which
hearing shall be held in Richmond, Virginia not less than ten Business
Days, nor more than 20 Business Days, after the selection of the third
arbitrator.
(e) At the time and place (in Richmond, Virginia) appointed, the
three arbitrators shall proceed with the hearing unless for some good
cause, of which a majority of the arbitrators shall be the judge, it shall
be postponed until some other day within a reasonable time. The parties
hereto shall have full opportunity to be heard on any question thus
submitted.
(f) The arbitrators shall be relieved of following judicial
formalities and the rules of evidence shall not apply to such hearing. The
determination by a majority of the arbitrators shall be made in writing
and a copy thereof delivered to each of the parties hereto. The
arbitrators shall in every case deliver their decision within 60 days
after the hearing, unless the parties shall otherwise agree to extend the
time. Unless the arbitrator determines otherwise, all costs and expenses
of arbitration and the reasonable legal fees and disbursements of the
prevailing party shall be paid by the other party.
(g) The determination of the arbitrator in any arbitration
proceeding hereunder shall bind Buyer and Seller, provided that each
received notice of such proceeding and the opportunity to participate
therein and shall be final and unappealable.
(h) Any award, judgment, or determination of the arbitrators
hereunder may be entered for enforcement in the any court of general
jurisdiction located in Richmond, Virginia, or in the United States
District Court for the Eastern District of Virginia, and each of the
parties hereto consents to venue and the personal jurisdiction of such
courts in connection with any such entry and enforcement.
10.8 Remedies Cumulative. Each indemnified party shall be entitled to the
indemnification provided in this Article X from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
-36-
<PAGE>
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing as follows:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller, if the Closing Date shall not have occurred
on or before December 31, 1997 (provided that the right to terminate this
Agreement under this Section 11.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or has resulted in the failure of the Closing Date to occur on or
before such date);
(c) by Buyer or Seller, if any court of competent jurisdiction in
the United States or other United States governmental body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the sale of the Purchased Stock and
such order, decree, ruling or other action shall have become final and
nonappealable;
(d) by Seller if (i) Seller receives an unsolicited written proposal
or offer for the purchase of all or a substantial portion of the assets
of, or an equity interest in, the Company or any business combination with
the Company, (ii) notice thereof is delivered to Buyer, and (iii) Buyer
does not exercise the Option within fifteen (15) days after such notice of
such offer is given to Buyer; or
(e) by Buyer or Seller if any of the applicable regulatory
authorities deliver final written disapproval of the transactions
contemplated hereby.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the other
than any provision of this Agreement that specifically sets forth that it is to
so survive.
11.3 Extension; Waiver. At any time prior to the Closing, the parties may
(a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, any party that knowingly waives any representation, warranty, agreement
or condition with respect to another party
-37-
<PAGE>
under subsection (b) and (c) shall thereafter be barred from seeking
indemnification from such other party for such waived breach of any
representation, warranty, agreement or condition. Any agreement on the part of
any party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Any agreement on the part
of any party to any such extension or waiver shall be valid only to set forth in
an instrument in writing signed on behalf of such party.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein.
12.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses of their respective counsel, investment bankers, financial advisors,
accountants and other experts and the other expenses incident to the negotiation
and preparation of this Agreement and consummation of the transactions
contemplated hereby.
12.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Virginia, without regard to the
conflicts of law rules thereof.
12.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
12.5 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action. Seller and Buyer will execute, and Buyer shall cause the
Company to execute, any additional instruments necessary to consummate the
transactions contemplated hereby.
12.6 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given (i) when delivered if
-38-
<PAGE>
delivered personally or by messenger or by overnight delivery service, or (ii)
three days after mailing when mailed by registered or certified United States
mail, postage prepaid, return receipt requested, or (iii) when received if sent
by telecopy (provided that a copy is mailed concurrently therewith pursuant to
the terms hereof), in all cases addressed to the person for whom it is intended
at its address set forth below or to such other address as a party shall have
designated by notice in writing to the other party in the manner provided by
this Section 12.6:
If to Seller: Colony Insurance Company
c/o Front Royal, Inc.
2200 Gateway Blvd.
Suite 205
Morrisville, North Carolina 27560
Attention: J. Adam Abram
Chief Executive Officer
and
Gregg T. Davis
Chief Financial Officer
Telecopier No.: (919) 469-3557
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Kenneth L. Henderson, Esq.
Telecopier No.: (212) 541-4630
If to Buyer: Fort Washington Holdings, Inc.
502 West Office Center Drive
Suite 100
Fort Washington, Pennsylvania 19034
Attention: Charles M. Lederman
Telecopier No.: (610) 941-5012
With a copy to: Dilworth, Paxson, Kalish & Kauffman LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103-7595
Attention: Lawrence G. McMichael, Esq.
Telecopier No.: (215) 575-7200
12.7 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Article and
Section headings in this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
-39-
<PAGE>
12.8 Interpretation. All references in this Agreement to contracts,
agreements, leases or other understandings or arrangements shall refer to oral
as well as written matters.
12.9 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
12.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Seller, Buyer and the Company assume no liability to any third party because of
any reliance on the representations, warranties and agreements of Seller and
Buyer contained in this Agreement.
12.11 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties. The requirements of this
Section 12.11 may not be waived.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
COLONY INSURANCE COMPANY
By:___________________________
Name:
Title:
FORT WASHINGTON HOLDINGS, INC.
By:___________________________
Name:
Title:
Acknowledged and Agreed
as of the date first above
written with respect to
Article IX only
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
-40-
<PAGE>
Acknowledged and Agreed
as of the date first above
written with respect to
Article V only
HAMILTON INSURANCE COMPANY
By:___________________________
Name:
Title:
-41-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
LINES OF BUSINESS HAMILTON INSURANCE COMPANY
STATES
--------------------------------------------------------------------------------------------------
D.C. FLORIDA GEORGIA KENTUCKY MARYLAND MASS. MISSOURI S.C. TENN. VIRGINIA
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIRE X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
ALLIED LINES X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
FARMOWNER MULTPLE PERIL X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
HOMEOWNER MULTPLE PERIL X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MULTPLE PERIL X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE GUARANTY
- ---------------------------------------------------------------------------------------------------------------------------------
OCEAN MARINE X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
INLAND MARINE X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL GUARANTY
- ---------------------------------------------------------------------------------------------------------------------------------
MEDICAL MALPRACTICE X X X
- ---------------------------------------------------------------------------------------------------------------------------------
EARTHQUAKE X X
- ---------------------------------------------------------------------------------------------------------------------------------
GROUP ACCIDENT & HEALTH
- ---------------------------------------------------------------------------------------------------------------------------------
CREDIT ACCIDENT & HEALTH
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ACCIDENT & HEALTH X X X
- ---------------------------------------------------------------------------------------------------------------------------------
WORKERS' COMPENSATION X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITY X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
PRODUCTS LIABILITY X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
AUTO LIABILITY X X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
AUTO PHYSICAL DAMAGE X X X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT (ALL PERILS) X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
FIDELITY X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
SURETY X X
- ---------------------------------------------------------------------------------------------------------------------------------
GLASS X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
BURGLARY & THEFT X X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
BOILER & MACHINERY X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
CREDIT X X X X X X
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER (A) (B)(C)(D)(E) (F) (A)(B)(D)(E)(F) (C)(F)(G)(H)
x x x X X
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) PERSONAL EFFECTS
(B) PERSONAL PROPERTY FLOATER
(C) SPRINKLER LEAKAGE
(D) ELEVATOR
(E) LIVESTOCK
(F) ANIMALS
(G) WATER DAMAGE
(H) HOME PROTECTION
(I) COMM'L AUTO ONLY
(J) HOME WARRANTIES
(K) SPRINKLER LEAKAGE
(L) TITLE INSURANCE
<PAGE>
SERVICES AGREEMENT
This Agreement, entered into as of the 12th day of December, 1994, between
Colony Management Services, Inc., a Virginia corporation, and Colony Insurance
Company, a Virginia corporation, supersedes and voids any and all prior
agreements for services between these parties. Witness that in consideration of
the covenants and promises set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Colony Management Services, Inc. shall provide various services to
Colony Insurance Company, but not limited to management, administration, claims,
operations, accounting and personnel, the nature, type and extent of such
services to be those as may be agreed upon between the parties from time to
time.
2. In consideration of its services pursuant to this Agreement, Colony
Management Services, Inc. shall receive as compensation from Colony Insurance
Company payable monthly, reimbursement for said services at an amount which
approximates their cost.
3. Colony Management Services, Inc. shall indemnify and hold Colony
Insurance Company harmless of and from all claims, causes of action, liability,
damages and expenses arising out of or in connection with any error or omission
of Colony Management Services, Inc., its employees or agents, in the performance
of such services pursuant to this Agreement.
4. The term of this Agreement is continuous, subject to termination by
either party, without cause, upon 120 days written notice received prior
thereto.
5. Nonetheless, Colony Insurance Company, being at risk and having
ultimate control and responsibility for the functions delegated to Colony
Management Services, Inc., at
<PAGE>
times shall have the ultimate authority with respect to all matters pertaining
to the general welfare of Colony Insurance Company.
6. It is understood that all books and records maintained for Colony
Insurance Company are the sole property of Colony Insurance Company and if this
Agreement is terminated for whatsoever reason, Colony Management Services, Inc.
shall promptly deliver all such books and records to Colony Insurance Company.
7. It is understood that Colony Insurance Company has custody of,
responsibility for, and control of all investments.
8. Although it is the intention of Colony Management Services, Inc. not to
collect premiums, such premiums collected by Colony Management Services, Inc.,
if any, will be held in a fiduciary capacity and paid over to Colony Insurance
Company at the end of each month.
COLONY MANAGEMENT SERVICES, INC. COLONY INSURANCE COMPANY
By:_________________________________ By:___________________________
Gregg T. Davis John K. Latham
Treasurer President
-2-
<PAGE>
SERVICES AGREEMENT
This Agreement, entered into as of the 12th day of December, 1994, between
Colony Management Services, Inc., a Virginia corporation, and Hamilton Insurance
Company, a Virginia corporation, supersedes and voids any and all prior
agreements for services between these parties. Witness that in consideration of
the covenants and promises set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Colony Management Services, Inc. shall provide various services to
Hamilton Insurance Company, but not limited to management, administration,
claims, operations, accounting and personnel, the nature, type and extent of
such services to be those as may be agreed upon between the parties from time to
time.
2. In consideration of its services pursuant to this Agreement, Colony
Management Services, Inc. shall receive as compensation from Hamilton Insurance
Company payable monthly, reimbursement for said services at an amount which
approximates their cost.
3. Colony Management Services, Inc. shall indemnify and hold Hamilton
Insurance Company harmless of and from all claims, causes of action, liability,
damages and expenses arising out of or in connection with any error or omission
of Colony Management Services, Inc., its employees or agents, in the performance
of such services pursuant to this Agreement.
4. The term of this Agreement is continuous, subject to termination by
either party, without cause, upon 120 days written notice received prior
thereto.
5. Nonetheless, Hamilton Insurance Company, being at risk and having
ultimate control and responsibility for the functions delegated to Colony
Management Services, Inc., at
<PAGE>
all times shall have the ultimate authority with respect to all matters
pertaining to the general welfare of Hamilton Insurance Company.
6. It is understood that all books and records maintained for Hamilton
Insurance Company are the sole property of Hamilton Insurance Company and if
this Agreement is terminated for whatsoever reason, Colony Management Services,
Inc. shall promptly deliver all of such books and records to Hamilton Insurance
Company.
7. It is understood that Hamilton Insurance Company has custody of,
responsibility for, and control of all investments.
8. Although it is the intention of Colony Management Services, Inc. not to
collect any premiums, such premiums collected by Colony Management Services,
Inc., if any, will be held in a fiduciary capacity and paid over to Hamilton
Insurance Company at the end of each month.
COLONY MANAGEMENT SERVICES, INC. HAMILTON INSURANCE COMPANY
By:_________________________________ By:____________________________
Gregg T. Davis John K. Latham
Treasurer President
-2-
<PAGE>
TAX ALLOCATION AGREEMENT
BETWEEN
FRONT ROYAL, INC. (Parent company)
AND
COLONY INSURANCE COMPANY (Subsidiary Company)
THIS AGREEMENT, made as of the 12th day of December 1994 by and between
FRONT ROYAL, INC., a North Carolina corporation herein referred to as "FRONT
ROYAL", AND COLONY INSURANCE COMPANY, a Virginia corporation herein referred to
as "COLONY".
WITNESSETH:
1. FRONT ROYAL agrees to file a consolidated federal income tax return
including COLONY for the taxable year of 1994 and for each year thereafter for
which a consolidated return is filed. COLONY hereby authorizes and agrees to be
bound by the provisions of the consolidated return regulations found under
Internal Revenue Code Section (IRC) 1502.
2. The tax charge or tax refund to COLONY under this agreement shall be
the amount that COLONY would have paid or received if it had filed on a separate
return basis with the Internal Revenue Service.
In the event that COLONY has a tax liability on a separate company basis,
its taxes will be paid to FRONT ROYAL. In the event that COLONY has a refund of
taxes on a separate company basis, the amount will be received from FRONT ROYAL.
3. This agreement defines a separate return as a return completed by
COLONY as if it had filed as a separate corporation. However, any adjustments
which are deferred under consolidated tax reporting must be considered when
filing a separate return. This include items such as intercompany transactions.
4. Estimated income payments from COLONY to FRONT ROYAL are to be made
within fifteen days after the normal due dates as prescribed by the Internal
Revenue Service. If, however, the cumulative estimated income tax payments by
COLONY on any due date exceed the estimated cumulative tax liability of COLONY
at that date, FRONT ROYAL may return the net over-estimated payment to COLONY.
5. All settlements for income tax payment to FRONT ROYAL or refund to
COLONY shall be made within ninety days after the date of filing the
consolidated income tax return for each respective tax year.
<PAGE>
6. If taxable income for any year is revised by the Internal Revenue
Service, the tax department for FRONT ROYAL, or other appropriate authority, a
recalculation of tax liability for all parties to this agreement shall be made.
7. This agreement shall be terminated if:
(a) The parties agree in writing to such termination.
(b) Membership in the affiliated group ceases or is terminated for
any reason whatsoever.
(c) The affiliated group fails to file a consolidated return for
any taxable year.
8. Notwithstanding the termination of this agreement, its provisions will
remain in effect, with respect to any period of time during the tax year in
which termination occurs, for which the income of the terminating party must be
included in the consolidated return.
9. This agreement shall not be assignable by any party.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals of
the 12th day of December 1994.
(SEAL) FRONT ROYAL, INC.
By_________________________
___________________________
(SEAL) COLONY INSURANCE COMPANY
By_________________________
___________________________
-2-
<PAGE>
TAX ALLOCATION AGREEMENT
BETWEEN
FRONT ROYAL, INC. (Parent company)
AND
HAMILTON INSURANCE COMPANY (Subsidiary Company)
THIS AGREEMENT, made as of the 12th day of December 1994 by and between
FRONT ROYAL, INC., a North Carolina corporation herein referred to as "FRONT
ROYAL", AND HAMILTON INSURANCE COMPANY, a Virginia corporation herein referred
to as "HAMILTON".
WITNESSETH:
1. FRONT ROYAL agrees to file a consolidated federal income tax return
including HAMILTON for the taxable year of 1994 and for each year thereafter for
which a consolidated return is filed. HAMILTON hereby authorizes and agrees to
be bound by the provisions of the consolidated return regulations found under
Internal Revenue Code Section (IRC) 1502.
2. The tax charge or tax refund to HAMILTON under this agreement shall be
the amount that HAMILTON would have paid or received if it had filed on a
separate return basis with the Internal Revenue Service.
In the event that HAMILTON has a tax liability on a separate company
basis, its taxes will be paid to FRONT ROYAL. In the event that HAMILTON has a
refund of taxes on a separate company basis, the amount will be received from
FRONT ROYAL.
3. This agreement defines a separate return as a return completed by
HAMILTON as if it had filed as a separate corporation. However, any adjustments
which are deferred under consolidated tax reporting must be considered when
filing a separate return. This include items such as intercompany transactions.
4. Estimated income payments from HAMILTON to FRONT ROYAL are to be made
within fifteen days after the normal due dates as prescribed by the Internal
Revenue Service. If, however, the cumulative estimated income tax payments by
HAMILTON on any due date exceed the estimated cumulative tax liability of
HAMILTON at that date, FRONT ROYAL may return the net over-estimated payment to
HAMILTON.
5. All settlements for income tax payment to FRONT ROYAL or refund to
HAMILTON shall be made within ninety days after the date of filing the
consolidated income tax return for each respective tax year.
<PAGE>
6. If taxable income for any year is revised by the Internal Revenue
Service, the tax department for FRONT ROYAL, or other appropriate authority, a
recalculation of tax liability for all parties to this agreement shall be made.
7. This agreement shall be terminated if:
(a) The parties agree in writing to such termination.
(b) Membership in the affiliated group ceases or is terminated for
any reason whatsoever.
(c) The affiliated group fails to file a consolidated return for
any taxable year.
8. Notwithstanding the termination of this agreement, its provisions will
remain in effect, with respect to any period of time during the tax year in
which termination occurs, for which the income of the terminating party must be
included in the consolidated return.
9. This agreement shall not be assignable by any party.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals of
the 12th day of December 1994.
(SEAL) FRONT ROYAL, INC.
By_________________________
___________________________
(SEAL) HAMILTON INSURANCE COMPANY
By_________________________
___________________________
-2-
<PAGE>
DISCLOSURE SCHEDULE 3.14 OF SELLER
Environmental Liability
- -----------------------
Ceded reinsurance agreements:
Treaty # Program Reinsurers Effective Dates
- -------- ------- ---------- ---------------
n/a CIC/FRIC Gulf Insurance Co. 8/01/95 - 8/01/96
UST
AR 2365 CIC/FRIC Chartwell, Signet Star, 8/01/96 - 8/01/97
UST Folksamerica, TIG,
Transatlantic Re,
Trenwick Am, Zurich Re
Non-Environmental Liability
- ---------------------------
See the following ceded reinsurance summary.
<PAGE>
CEDED REINSURANCE CONTRACTS
COMMERCIAL (NON-ENVIRONMENTAL LIABILITY)
The following reinsurance ceded summary includes only two contracts
currently in force. Contract number 7679 (Liability, Property and Catastrophe
with General Reinsurance Corporation) and AR 2219 (Specialty Lines Casualty
Quota Share brokered through AON Re Inc.). See pages 7 and 8, respectively.
All other listed contracts have either expired or have been terminated.
Claims for reinsurance from losses occurring during the effective periods of
each agreement are still recoverable from reinsurers.
<PAGE>
<TABLE>
<CAPTION>
REINSURANCE CEDED Page 6
- -----------------
CONTRACT NO. LINE TYPE
& OF OF BROKER/LEAD
EFFECTIVE DATE BUSINESS AGREEMENT RETENTION LIMIT UNDERWRITERS
- -------------- -------- --------- --------- ----- ------------
<S> <C> <C> <C> <C> <C>
T 2132-04
7/1/90 Liability Excess of Loss 100,000 each occurrence 400,000 each occurrence 100% National Re
C 195-106
7/1/90 Liability Excess of Loss Nil 500,000 Xs 500,000 Sullivan Payne
each occurrence U.S. Int'l Re - 20%
North Star - 20%
Great Lakes - 15%
Frankona - 15%
C 195-107
7/1/90 Liability Clash Nil 1,000,000 each Constitution Re - 25%
occurrence Philadelphia Re - 17.5%
Frankona - 10%
T 2132-04
7/1/91 Liability Excess of Loss 100,000 each occurrence 400,000 each occurrence 100% National Re
C 195-106
7/1/91 Liability Excess of Loss Nil 500,000 Xs 500,000 Sullivan Payne
each occurrence North Star - 27.5%
Frankona - 27.5%
Great Lakes - 15%
C 195-107
7/1/91 Liability Clash Nil 1,000,000 Xs of 1,000,000 Constitution Re - 25%
each occurrence Nederlanose - 17.5%
North Star - 10%
Frankona - 10%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REINSURANCE CEDED Page 7
- -----------------
CONTRACT NO. LINE TYPE
& OF OF BROKER/LEAD
EFFECTIVE DATE BUSINESS AGREEMENT RETENTION LIMIT UNDERWRITERS
- -------------- -------- --------- --------- ----- ------------
<S> <C> <C> <C> <C> <C>
7679
7/1/92 Liability Excess of Loss 100,000 each occurrence 900,000 each occurrence 100% General Re
(250,000 after 12-31-95) (750,000 after 12-31-95)
and 2 Million Clash
Excess of 1 Million
Continuous until
Cancelled
10/1/93 As Above
Anniversary
7679
7/1/92 Property Excess of Loss 100,000 each occurrence 900,000 each risk As Above
As Above (250,000 after 12-31-95) (750,000 after 12-31-95)
1,800,000 each occ.
7679
7/1/92 Catastrophe Excess 500,000 or 15% of 95% of 3.5 Million As Above
Continuous until subject premium
Cancelled
7/1/anniversary
date
AR 2219
9/15/95 Specialty Lines Casualty Quota Share 20% 1,000,000 80% 1,000,000 AON Re Inc.
Casualty Business quota share quota share Chartwell Re - 20%
each claim and/or TIG Re -30%
each occurrence Zurich Re - 30%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REINSURANCE CEDED Page 8
- -----------------
CONTRACT NO. LINE TYPE
& OF OF BROKER/LEAD
EFFECTIVE DATE BUSINESS AGREEMENT RETENTION LIMIT UNDERWRITERS
- -------------- -------- --------- --------- ----- ------------
<S> <C> <C> <C> <C> <C>
Continuous until
Cancelled
10/1 Anniversary date
JBW 2044
4/1/84 Investor Surety Quota Share Various 5% of up to $300,000 J.W. Beresford
Bonds Retrocession each bond Wood & Company
(5% of gross) Telect Insurance
Company, Ltd.
No. 1
11/1/84 to Investor Surety Quota Share Various 22 1/2% of up to $300,000 Employers Reinsurance
1/1/86 Bonds (Real Estate) Retrocession each bond Corp.
30% of assumed)
No. 2
5/1/84 to Investor Surety Quota Share Various 37 1/2% of up to $300,000 Employers Reinsurance
1/1/86 Bonds (Oil & Gas) Retrocession each bond Corp.
50% of assumed)
Unwritten Investors Surety Bonds Quota Share Various 10% to 33 1/3% of up to Waite Hill
Retrocession $300,000 each bond Assurance, Ltd.
(10% to 33 1/3T of
ross)
</TABLE>
<PAGE>
HAMILTON INSURANCE COMPANY
STATUTORY FINANCIAL STATEMENTS
NOVEMBER 30, 1996
UNAUDITED
ANALYSIS OF ADMITTED ASSETS HAMILTON
- ---------------------------------------------- ----------
Cash and invested assets 12,549,300
Agents' balances 34,950
Funds held by reinsured companies 0
Reinsurance recoverable on paid loss/lae 102,420
Federal income tax recoverable
Accrued investment income 203,729
Intercompany receivables 56,640
Other assets (1,884)
----------
Totals 12,945,155
==========
LIABILITIES AND SURPLUS
- ----------------------------------------------
Net loss reserves 3,582,079
Net lae reserves 681,716
Accrued expenses 92,805
Federal income tax payable 131,978
Unearned premium 2,124,330
Funds held under reinsurance treaties 0
Provision for reinsurance
Excess statutory reserve 235,000
Intercompany payables 303,406
Other liabilities 10,029
----------
Total liabilities 7,161,343
Capital stock 1,500,000
Paid in capital 4,838,657
Unassigned surplus (554,846)
----------
Policyholders' surplus 5,783,812
----------
Totals 12,945,155
==========
<PAGE>
STATEMENT AS OF SEPTEMBER 30, 1996 OF THE HAMILTON INSURANCE COMPANY
ANALYSIS OF ASSETS
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Non-Ledger Incl. Assets Not Admtd
Excess of Market Incl.Excess of Net Admitted Previous Year
Ledger (or Amortized) Book Over Market Assets Ending
Assets Over Book Values (or Amort.Values) Cols.1+2-3) December 31,1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Bonds 10,848,150 10,848,150 9,404,504
2. Stocks:
2.1 Preferred stocks
2.2 Common stocks
3. Mortgage loans on real estate
(a) First liens
(b) Other than first liens
4. Real Estate:
4.1 Properties occupied by the company
(less $_______ encumbrances)
4.2 Other properties
(less $_______encumbrances)
5. Collateral loans
6.1 Cash on hand and on deposit:
(a) Cash in company's office
(b) Cash on deposit 28,666 28,666 150,967
6.2 Short-term investments 1,563,959 1,563,959 1,586,134
7. Other invested assets
8. Aggregate write-ins for invested assets 12,440,775 (a) 12,440,775 11,141,605
8a. Subtotals, cash and invested assets
(Lines 1 through 8)
9. Agents' balances or uncollected premiums
(net as to commissions and dividends)
9.1 Premiums and agents' balances in course
of collection (after deducting ceded
reinsurance balances payable of $43,019) 9,976 8,400 1,576 (23,102)
9.2 Premiums, agents' balances and installments
booked but deferred and not yet due (after
deducting ceded reinsurance balances payable
of $__________)
9.3 Accrued retrospective premiums (after
deducting ceded reinsurance balances
payable of $__________)
10. Funds held by or deposited with
reinsured companies 179,570 179,570 131,000
11. Bills receivable, taken for premiums
12. Reinsurance recoverables on loss and
loss adjustment expense payments 128,557 128,557 152,595
13. Federal income tax recoverable
14. Electronic data processing equipment
15. Interest, dividends and real estate
income due and accrued 173,285 173,285 168,524
16. Receivable from parent, subsidiaries
and affiliates 32,441 32,441 81,266
17. Equities and deposits in pools
and associations
18. Amounts receivable relating to uninsured
accident and health plans
19. Other assets:
19.1 Equipment, furniture and supplies XXX XXX
19.2 Bills receivable, not taken for premiums XXX XXX
19.3 Loans on personal security, endorsed or not XXX XXX
20. Aggregate write-ins for other than invested assets 6,485 6,485 6,485
- -----------------------------------------------------------------------------------------------------------------------------------
21. TOTALS (lines 8a through 20) 12,797,804 173,285 8,400 12,962,689 11,658,373
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Non-Ledger Incl. Assets Not Admtd
Excess of Market Incl.Excess of Net Admitted Previous Year
Ledger (or Amortized) Book Over Market Assets Ending
Assets Over Book Values (or Amort.Values) Cols.1+2-3) December 31,1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DETAILS OF WRITE-INS AGGREGATED AT LINE 8
FOR INVESTED ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
0801
0802
0803
0898 Summary of remaining write-ins for
Line 8 from overflow page
0899 TOTALS (Lines 0801 thru 0803 plus 0898)
(Line 8 above)
- -----------------------------------------------------------------------------------------------------------------------------------
DETAILS OF WRITE-INS AGGREGATED AT LINE 20
FOR OTHER THAN INVESTED ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
2001 Contingent ceding commissions receivables 6,485 6,485 6,485
2002
2003
2098 Summary of remaining write-ins for
Line 20 from overflow page
2099 TOTALS (Lines 2001 thru 2003 plus 2098)
(Line 20 above) 6,485 6,485 6,485
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) includes $__________ investments in parent, subsidiaries, and affiliates
-3-
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
Prepared by:
Palmer & Cay/Carswell of Virginia, Inc.
P.O. Box 667
814 East Main Street
Richmond, VA 23218-0667
(804) 649-0308
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
Table of Contents
I. Policy Digests
o Property/Casualty
o Surety
II. Policy Summaries
o Package
o Business Automobile
o Workers' Compensation
o Umbrella
o Financial Institution Bond
o Insurance Companies Professional Liability,
Directors' & Officers' Liability and Fiduciary Liability
o Consultants' Environmental Liability
III. Premium Summary/Monthly Payment Schedule
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
I. Policy Digests
o Property/Casualty
o Surety
<PAGE>
FRONT ROYAL, INC.
1996 INSURANCE REPORT
Property/Casualty Policy Digest
<TABLE>
<CAPTION>
Policy Insurer
Coverage Entities Period (1995 Best Rating) Policy Number
-------- -------- ------ ------------------ -------------
<S> <C> <C> <C> <C>
Package All 1/01/96-1/01/97 Hartford Insurance Companies 14UUNBC4984
(A+/XV)
Business Auto All 1/01/96-1/01/97 Hartford Fire Insurance 14UENBC4797
Company (A+/XV)
Workers' Compensation All 1/01/96-1/01/97 Hartford Underwriters Insurance 14WEBX6470
Company (A+/XV)
Umbrella All 1/01/96-1/01/97 Hartford Casualty Insurance 14XHUBC0042
Company (A+/XV)
Professional and D&O Liability: All 12/30/95-12/30/96 Evanston Insurance Company IC-7000598
o Cov A: (A/VIII)
Professional Liability
o Cov B: All 11/30/95-12/30/96 Evanston Insurance Company IC-7000598
Directors & Offices Liability (A/VIII)
o Cov C: Front Royal, Inc. 12/30/95-12/30/96 Evanston Insurance Company IC-7000598
Fiduciary Liability (A/VIII)
Consultants' Environmental Liability Front Royal Environmental 1/23/96-1/01/97 American International Specialty 8183745
Trust Services, Inc. Lines Insurance Company
Front Royal Engineering (A++/XV)
Services, Inc.
Financial Institution Bond All 11/30/95-11/30/96 National Union Fire Insurance 482-1612
Company (A++/XV)
</TABLE>
<PAGE>
FRONT ROYAL, INC.
1996 INSURANCE REPORT
Surety Bond Digest
<TABLE>
<CAPTION>
Surety
Type of Bond Principal Obligee Bond Term (1995 Best Rating) Bond Number
------------ --------- ------- --------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Financial Barbara J. Howard Commonwealth of Kentucky 11/29/95-11/29/96 Fidelity & Deposit 30702484
Responsibility (A/VIII)
Financial John S. Ramsey Commonwealth of Kentucky 11/29/95-11/29/96 Fidelity & Deposit 30702385
Responsibility (A/VIII)
Surplus Lines Julie G. Farley Commonwealth of Virginia 12/21/95-3/15/97 Fidelity & Deposit 30702854
(A/VIII)
Surplus Lines Front Royal Environmental Commonwealth of Virginia 2/26/96-3/15/97 Fidelity & Deposit LPM8016944
Insurance Mgmt., Inc. (A/VIII)
</TABLE>
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
II. Policy Summaries
o Package
o Business Automobile
o Workers' Compensation
o Umbrella
o Financial Institution Bond
o Insurance Companies Professional Liability,
Directors' & Officers' Liability and Fiduciary
Liability
o Consultants' Environmental Liability
These summaries have been prepared for your convenience and are not exact and
binding analyses of the coverages. Even though care has been taken in its
preparation, the original policies will prevail as the sole binding documents in
the event of a discrepancy.
<PAGE>
FRONT ROYAL, INC.
Policy Type: Package
Policy Number: 14UUNBC4984
Policy Period: January 1, 1996 to January 1, 1997
Premium: $7,209
Locations: 1) 9201 Forest Hill Avenue
Suite 200
Richmond, VA 23235
2) 2200 Gateway Center Drive
Morrisville, NC 27560
3) 5031-G West W.T. Harris Blvd.
Charlotte, NC 28269
Cancellation Notice: Sixty Days Notice of Cancellation except for
nonpayment of premium
Section 1 - Property
Insurer: Hartford Insurance Company of the Midwest
Amount of Insurance: Loc.1) $430,800 Personal Property
$289,860 Extra Expense
Loc.2) $107,200 Personal Property
Loc.3) $37,600 Personal Property
Covered Causes of Loss: SPECIAL FORM - Risk of Direct Physical Loss or
Damage subject to policy terms, conditions or
exclusions.
Valuation: Personal Property - Replacement Cost
Extra Expense - Actual Loss Sustained (40/80/100%
Recovery)
Coinsurance: 80% Waived by Agreed Value Endorsement
<PAGE>
Deductibles: $250 Per Occurrence - Personal Property
Nil - Extra Expense
Extensions of Coverage: o $10,000 - Accounts Receivables - Each
Described Premises
o $10,000 - Computer Equipment - Each
Described Premises
o $10,000 - Fine Arts - Each Described
Premises
o $10,000 - Extra Expense - Each Described
Premises
o $25,000 - Valuable Papers and Records
Including Electronic Media - Each
Described Premises
o $10,000 - Outdoor Property for loss due to
named perils but not to exceed
$1,000 for any one tree, shrub or
plant
o $10,000 - Personal Effects and Property of
Others - Each Described Premises
o $10,000 - Property at Other Premises
o $10,000 - Property in Transit
o $1,000 - Salespersons Samples
o $10,000 - Exhibitions - Any One Exhibition
o $250,000- Business Personal Property-Newly
Acquired Locations if reported
within 90 Days
o $5,000 - Arson Reward
o $5,000 - Claim Expenses
o $10,000 - Debris Removal
<PAGE>
o $5,000 - Fire Department Service Charge
o Included - Fire Equipment Recharge
o Included - Back Up of Sewers or Drains
o $10,000 - Change in Temperature, Electrical
Injury and Off-Premises Services
Loss of Payees: Location 2:
1) Wachovia Bank of NC
Box 2252
Durham, NC 27702
2) BB&T
Box 27961
Raleigh, NC 27611
Location 3:
1) Paul B. Williams Financial Services
P.O. Box 728
Parkridge, NJ 17656-0728
2) Spring Leasing Corporation
P.O. Box 667817
Charlotte, NC 28266-7817
Section II - Inland Marine
Insurer: Twin City Fire Insurance Company
A. Electronic Data
Processing
Amount of Insurance: Loc.1) $777,500 Computer Equipment
$95,000 Extra Expense
Loc.3) $85,000 Computer Equipment
$25,000 Extra Expense
Covered Cause of Loss: Risks of Direct Physical Loss or Damage including
Mechanical Breakdown, Off-Premises Power Failure,
<PAGE>
Flood and Earthquake, subject to policy
terms, conditions and exclusions.
Valuation: Computer Equipment - Replacement Cost
Media and Data - Full cost of
Replacement or reproduction when media
is actually replaced or reproduced, if
not replaced or reproduced, the values
of the blank media.
Extra Expenses - Actual Loss Sustained
Deductible: o $250 Per Occurrence
o $1,000 Per Occurrence - Breakdown Nil - Extra
Expense
Extensions of Coverage: o $25,000 Media and Data
o $25,000 Transit and Off-Premises
o $50,000 Storage of Duplicate Media and Data
permanently stored at locations not listed in
the schedules
o $5,000 Instructional and Operating Manuals
o $2,500 Expense to recharge Automatic Fire
Protection Equipment
o $500,000 Newly Acquired Covered Property if
reported within 60 Days
B. Scientific Instruments
Amounts of Insurance: $68,921 Scientific Instruments per Schedule of
Equipment Attached
Covered Causes of
Loss: Risks of Direct Physical Loss or Damage subject to
policy terms, conditions and exclusions
Valuation: Replacement Cost
Deductible: $500 Any One Occurrence
C. Contractor's Equipment
Amounts of Insurance $43,000 Miscellaneous Equipment Leased or Rental
<PAGE>
Covered Caused of
Loss: Risks of Direct Physical Loss or Damage subject to
policy terms, conditions and exclusions
Valuation: Actual Cash Value
Deductible: $250 Any One Occurrence
Section III - Commercial General Liability
Insurer: Twin City Fire Insurance Company
Limits of Liability: o $1,000,000 General Aggregate
o $1,000,000 Products/Completed Operations
Aggregate
o $1,000,000 Personal & Advertising Injury
o $1,000,000 Each Occurrence
o $300,000 Fire Damage
o $10,000 Medical Expense
Employee Benefits Liability
$1,000,000 Each Claim
$1,000,000 Aggregate
(Retroactive Date: April 3, 1995)
Notable Endorsements
and Other Provisions: o Designated Professional Services
Exclusion - Consulting
o Financial Institutions Exclusion
o Insurance and Related Operation Exclusion
o Pollution Exclusion except for
Bodily Injury and Property Damage
caused by heat, smoke or fumes from
a hostile fire.
o General Aggregate Limit Per Location
o General Liability Coverage Enhancement
Endorsement (Items likely to be applicable to
Front Royal, Inc. are listed)
1. Broad Named Insured Wording
<PAGE>
2. Knowledge of Occurrence
3. Notice of Occurrence
4. Unintentional Errors and Omissions
5. Broadened Contractual Liability
6. Non-Owned Watercraft Exclusions - 50
Feet
7. Fire, Lightning or Explosion Damage
Liability Extension
8. Incidental Medical Malpractice
Extension
9. Additional Insured - By Contract,
Agreement or Permit
10. Liberalization Provision
o Waiver of Subrogation - Burroughs Wellcome
Co.
Additional Insured: o Spring Leasing Corporation - Lessors of
Leased Equipment
Exposure Basis: o Building or Premises - Office
Loc 1) 19,124 Sq. Ft.
Loc 2) 6,600 Sq. Ft.
Loc 3) 2,500 Sq. Ft.
o Employee Benefits Liability
Number of Employees - 96
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Hamilton Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Services, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
<PAGE>
FRONT ROYAL, INC.
SCIENTIFIC INSTRUMENTS
Item No. Full Description of Property Covered Limit of Insurance
- -------- ------------------------------------ ------------------
1 1 48 Foxboro Ova GC 1,592
2 1 147 PH Meter 645
3 1 148 OVA Restoration 389
4 1 154 Oil-Water Separator 5,028
5 1 168 H NU/OVA 4,999
6 1 54 Water Level Meter 170
7 1 169 Water Meter Hi-Low 480
8 1 60 Sollinst 100" 397
9 1 102 Tosmiba Laptop Computer 3,469
10 1 66 Motorola Cellular Phone 458
11 1 77 Yamaha Generator 3,701
12 1 8001 Insitu Hermit SE 1000B 3,667
13 1 8002 Instiu Hermit SE 1000B 3,667
14 1 81 Hermit Transoucer X4 8,000
15 1 82 Portable Compressor 468
16 1 83 Augers/Mini R10 472
17 1 84 Mini RIG/SMP Engine 619
18 1 85 Mcortonics Explosimeter 1,890
19 1 86 Water Meter MOD/101 513
20 1 87 Interface Probe M/121 1,839
21 1 3802 OVA 2,396
22 1 8803 Down-Well Pump 4,000
23 1 90 HNU/OVA 4,245
24 1 96 Magnotometer/Locator 682
25 1 98 Elect Hammer/LT Breaker 931
26 1 99 Chisel/Bits-Hammer 32
27 1 106 Air Compressor 932
28 1 107 MNU/OVA 5,240
29 Homemade Trailer with Mounted Oil Drill
with Attachments 8,000
-----
S#1094J275TKO10115
TOTAL 68,92
<PAGE>
FRONT ROYAL, INC.
Policy Type: Business Automobile
Insurer: Hartford Fire Insurance Company
Policy Number: 14UENBC4797
Policy Period: January 1, 1996 to January 1, 1997
Premium: $7,213
Limits of Liability: $1,000,000 Each Accident - Bodily Injury and
Property Damage Liability - Any Auto
$2,000 Each Person - Medical Expense -
Owned Autos Only
$1,000,000 Each Accident - Uninsured Motorists
- Owned Autos Only
$1,000,000 Each Accident - Underinsured
Motorists
(When not included in Uninsured
Motorists Coverage)- Owned Autos
Only
Comprehensive -
o Specifically Described Autos -
Actual Cash Value less a $1,000
Deductible except 1995 Ford Ranger
which is subject to $250 Deductible
Collision -
o Specifically Described Autos -
Actual Cash Value less a $1,000
Deductible except 1995 Ford Ranger
which is subject to $500 Deductible
Covered Autos: See Schedule of Vehicles Attached
Notable Endorsements
and Other Provisions: o Commercial Automobile Broad Form Endorsement
1. Broad Named Insured Wording
2. Fellow Employee Exclusion Modified
<PAGE>
3. Extended Cancellation Condition - 60 Days
4. Hired Car Physical Damage Coverage on
Excess basis - The lesser of
the cost to repair, ACV or
$35,000 less a $1,000
Deductible
5. Unintentional Failure to Disclose Hazards
6. Hired Auto - Broadened Coverage Territory
7. Amended Duties in the Event of Accident,
Claim, Suit or Loss (Knowledge of
Accident)
o Additional Insured
Emro Marketing
500 Speedway Drive
Room A-2019
Enon, OH 45323
o Additional Insured/Lessor
1. See Schedule of Autos
o Loss Payee
1. See Schedule of Autos
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Hamilton Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
<PAGE>
FRONT ROYAL, INC.
1996/97 Schedule of Vehicles
<TABLE>
<CAPTION>
Auto No. Garage Location Description I.D.# Cost New Additional Insured Loss Payee
- -------- --------------- ----------- ----- -------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1 Morrisville, NC 1963 Heil Semi Trailer 912972
2 Morrisville, NC 1993 Ford Pick-up 1FTEF15Y4PNA63849 $12,250 Leasing Services, Inc. First Citizens Bank
3 Morrisville, NC 1993 Ford Pick-up 1FTET15Y2PNA63848 $12,250 Leasing Services, Inc. First Citizens Bank
4 Morrisville, NC 1993 Ford Pick-up 1FTEX14N9PKB09102 $17,867 Leasing Services, Inc. First Citizens Bank
5 Raleigh, NC 1989 Olat Trailer 109RJ27S1K010115
6 Raleigh, NC 1994 Ford Cr. Victoria 2FALP74WXRX107884 $20,715 Leasing Services, Inc. First Citizens Bank
7 Charlotte, NC 1993 Olds Cutlass 1G3AG54N7P6398057 $10,500 Leasing Services, Inc. First Citizens Bank
8 Charlotte, NC 1995 Ford Ranger 1FTCR14U2FTA06552 $17,658 Valley National Valley National
Financial Services Financial Services
</TABLE>
<PAGE>
FRONT ROYAL, INC.
Policy Type: Workers' Compensation
Insurer: Hartford Underwriters Insurance Company
Policy Number: 14WEBX6470
Policy Period: January 1, 1996 to January 1, 1997
Premium: $1 9,335
Limits of Liability: Coverage A Statutory: VA,NC
Coverage B Bodily Injury by Accident -$100,000
Each Accident
Bodily Injury by Disease - $500,000 Policy Limit
Bodily Injury by Disease - $100,000 Each Employee
Notable o Sixty Days Notice of Cancellation or Non
Endorsements Renewal, except for nonpayment of premium
and Other
Provisions: o Other States Coverage
o Voluntary Compensation Employer's Liability
Coverage Endorsement
o Foreign Voluntary Compensation and Employer's
Liability
1. Repatriation - $25,000 Per Employee
2. Coverage included for Endemic Diseases
o United States Longshoremen's and Harbor
Workers' Compensation Act Coverage
Endorsement
<PAGE>
FRONT ROYAL, INC.
Schedule of Payrolls
--------------------
Classification Description State Payroll
- -------------- ----------- ----- -------
Code
----
8810 Clerical Office Employees VA 2,856,488
NC 809,779
8601 Engineering - Consulting NC 769,662
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management, Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Hamilton Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
<PAGE>
FRONT ROYAL, INC.
Policy Type: Umbrella
Insurer: Hartford Casualty Insurance Company
Policy Term: 1 4XHUBC0042
Policy Term: January 1, 1996 to January 1, 1997
Premium: $2,300
Limits of Liability: o $4,000,000 Each Occurrence
o $4,000,000 Products/Completed Operations
Aggregate
o $4,000,000 General Aggregate
o $4,000,000 Bodily Injury By Disease Aggregate
Retained Limit: o $10,000 Each Occurrence
Schedule of
Underlying Insurance: o Commercial General Liability
o $1,000,000 General Aggregate
o $1,000,000 Products Completed Operations
Aggregate
o $1,000,000 Personal and Advertising Injury
o $1,000,000 Each Occurrence
o Automobile Liability
$1,000,000 Each Accident
o Employers Liability
$100,000 Each Accident
$500,000 Disease Policy Limit
$100,000 Disease Each Employee
o Employee Benefits Liability
$1,000,000 Each Claim
$1,000,000 Aggregate
Notable Endorsements: o Absolute Asbestos Exclusion
o Personal Injury Following Form
o Injury to Leased Workers Exclusion
<PAGE>
Notable Endorsements
(Cont'd): o Care, Custody or Control of Personal Property
Exclusion
o Care, Custody or Control of Real Property
Exclusion
o Employers' Liability Following Form
o Insurance or Real Estate Agents and Brokers
Errors and Omissions Exclusion
o Designated Professional Services
Exclusion-Consulting
o Real Estate Operations Limitation of Coverage
o Limitation of Coverages - Financial
Institutions
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Hamilton Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
<PAGE>
FRONT ROYAL, INC.
Policy Type: Financial Institution Bond
Insurer: National Union Fire Insurance Company
Bond Number: 482-70-39
Bond Period: November 30, 1995 to November 30, 1996
Premium: $6,669
Limits of Liability: $1,000,000 Single Loss
$1,000,000 Aggregate
Deductible: $50,000 Single Loss
Insuring Agreements: A) Fidelity
B) On Premises
C) In Transit
D) Forgery or Alt ration
E) Securities
Notable Endorsements
and Other Provisions: o Coverage Application is incorporated into the
bond
o Legal proceedings to determine the insured's
liability for any loss, claim or damage to be
reported to the Underwriter within 30 days.
o 60 day notice of cancellation
o Loss Sustained Coverage Endorsement
o Computer Systems Coverage Endorsement
o Central Handling of Securities Endorsement
o ERISA Rider
o Front Royal, Inc. 401(k) Profit Sharing Plan
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Hamilton Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
<PAGE>
FRONT ROYAL, INC.
Policy Type: Insurance Companies Professional, Directors'&
Officers' Liability Indemnity and Fiduciary
Liability Insurance
Insurer: Evanston Insurance Company
Policy Number: IC-700598
Policy Term: November 30,1995 to December 30,1996
Premium: $234,986.07 (Includes $5,167.31 Surplus Lines Tax/
$160.76 Bureau Fee)
Cancellation Notice: Sixty days except in the event of nonpayment of
premium
Coverage A: Insurance Companies Professional Liability (Claims
Made and Reported)
Limits of Liability: $3,000,000 Each Claim
$3,000,000 Aggregate
Deductible: $200,000 Each Claim
Insurer's Participation: 100%
Notable Endorsements and
Other Provisions: o Prior Acts Exclusion November 1, 1991 for
Colony Management
o Insured Entities
Front Royal, Inc.
Hamilton Insurance Company
Colony Management Services, Inc.
Front Royal Environmental Insurance
Management, Inc.
Front Royal Environmental Services, Inc.
Triangle Engineering, Inc.
Front Royal Insurance Company
Colony Insurance Company
Front Royal Engineering Services, PC
Front Royal Environmental Trust Services,
Inc.
<PAGE>
Coverage B: Directors' & Officers' Liability
(Claims Made and Reported)
Limits of Liability: $3,000,000 Each Claim
$3,000,000 Aggregate
Deductibles: $0 Each Claim - Each Director or Officer
$0 Each Claim - All Directors and Officers
$100,000 Corporate Reimbursement
Insurer's Participation 100%
Notable Endorsements and
Other Provisions: o Prior Acts Exclusion May 19, 1992 for Front
Royal Environmental Services, Colony
Insurance Company, Hamilton Insurance Company
and resulting from Cardinal Insurance Company
o Prior Acts Exclusion
January 18, 1993 for Front Royal
Environmental Insurance Management, Front
Royal Environmental Services, Triangle
Engineering and Front Royal Insurance Company
o Pending and Prior Litigation Exclusion
November 1, 1993 for Colony Management
Services, Colony Insurance Company, Hamilton
Insurance Company and resulting from Cardinal
Insurance Company
o Amendment of "professional services"
definition to include insurance agents and
brokerage operations
o Insurance Agents and Brokers Insolvency
Exclusion
o Pending and Prior Litigation Exclusion -
May 19, 1992
o Insured Entities
Front Royal, Inc.
Hamilton Insurance Company
Colony Management Services, Inc.
<PAGE>
Front Royal Environmental Insurance
Management, Inc.
Front Royal Environmental Services, Inc.
Triangle Engineering, Inc.
Front Royal Insurance Company
Colony Insurance Company
Front Royal Engineering Services, PC
Front Royal Environmental Trust Services,
Inc.
Coverage C Fiduciary Liability
(Claims Made and Reported)
Limits of Liability: $1,000,000 Each Claim
$1,000,000 Aggregate
Deductible: $10,000 Each Claim
Employee Benefit Plan: Front Royal, Inc. 401 (k) Profit Sharing Plan
Sponsoring Employer: Front Royal, Inc.
<PAGE>
FRONT ROYAL, INC.
Policy Type: Consultants Environmental Liability Policy
(Claims Made)
Insurer: American International Specialty Lines Insurance
Company
Policy Number: 8183745
Policy Term: January 23,1996 to January 1,1997
Premium: $55,226.94 (Includes $1,214.55 Surplus Lines Tax/
$32.39 Bureau Fee)
Limits of Liability: $3,000,000 Each Claim
$3,000,000 Aggregate
Deductible: $50,000 Each Claim
Covered Professional
Services: Remedial investigations;
Feasibility studies;
Project management of site investigations and
remedial activities;
Real estate audits;
Tank testing and maintenance;
Environmental site assessments (Phase I and 11);
Groundwater monitoring, sampling and analysis;
Site characterization reports;
Design of waste water and sewer systems;
Design of potable water systems;
Regulatory consulting;
Waste brokering;
Ecological, wet land and soil science services.
* (Retroactive Date - April 29,1991)
Insured Contractor
Operations: Groundwater and soil sampling;
Soil excavation and remediation;
Underground storage tank removal;
Tank testing;
Asbestos and lead sampling;
Potable water well drilling;
Installation and operation of groundwater and soil
remediation systems.
* (Retroactive Date - January 23,1996)
Cancellation Notice: Thirty days except in the event of nonpayment of
premium.
Named Insureds: Front Royal Environmental Services, Inc.
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, Inc.
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
III. Premium Summary & Monthly Schedule
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
Premium Summary
Policy Period Policy Type Policy Period Premium
- ------------- ----------- ---------------------
1/1 /96-1 /1/97 Package $ 7,209.00
1/1/96-1/1/97 Business Auto 7,213.00
1/1/96-1/1/97 Workers' Compensation 19,335.00
1/1/96-1/1/97 Umbrella 2,300.00
12130/95-12/30/96 Professional Liability 150,000.00
11/30/95-12/30/96 Directors' & Officers' 74,658.00
12/30/95-12/30/96 Fiduciary Liability 5,000.00
11/30/95-11/30/96 Financial Institution Bond 6,669.00
11/23/96-111/97 Consultants' Environmental 53,980.00
11/29/95-11/29/96 Financial Resp. Bond - KY 100.00
11/29/95-11129/96 Financial Resp. Bond - KY 100.00
12/21/95-3/15/97 Surplus Lines Bond - VA 250.00
2/26/96-3/15/97 Surplus Lines Bond - VA 250.00
--------------
*Total Premiums $ 327,064.00
Taxes & Fees - Professional, D&O & Fiduciary $ 5,328.07
Taxes & Fees - Consultants' Environmental 1,246.94
--------------
*Total Taxes & Fees $ 6,575.01
*Total Premium Finance Charges 9,365.73
--------------
**Grand Total - Premiums, Taxes & Fees and
Premium Finance Charges $ 343,004.74
<PAGE>
FRONT ROYAL, INC.
1996 Insurance Report
Monthly Payment Schedule
Month AFCO AICCO Totals
----- ---- ----- Misc. ------
(30th of Month) (23rd of Month) Bonds
--------------- --------------- -----
11/95 $ 55,671.07 -- $ 200.00 $ 55,871.07
12/95 25,547.06 -- 250.00 25,797.06
1/96 25,547.06 $ 11,045.39 -- 36,592.45
2/96 25,547.06 5,073.86 250.00 30,870.92
3/96 25,547.06 5,073.86 -- 30,870.92
4/96 25,547.06 5,073.86 -- 30,870.92
5/96 25,547.06 5,073.86 -- 30,870.92
6/96 25,547.06 5,073.86 -- 30,870.92
7/96 25,547.06 5,073.86 -- 30,870.92
8/96 25,547.06 5,073.86 -- 30,870.92
9/96 -- 5,073.86 -- 5,073.86
10/96 -- 5,O73.86 -- 5,O73.86
---------------------------------------------------------------------
Totals $285,594.61 $ 56,710.13 $ 700.00 $343,004.74
Premium Finance Notes:
- ----------------------
Annual Percentage Rate Annual Finance Charge
---------------------- ---------------------
(Incl. above)
AFCO 8.44 $ 7,882.54
AICCO 7.99 $ 1,483.19
Total ---
-------------
$ 9,365.73
"AFCO" includes: Package
Business Automobile
Workers' Compensation
Umbrella
Financial Institution Bond
Professional, D&O & Fiduciary
"AICCO" includes: Consultants' Environmental Liability
<PAGE>
Hamilton Insurance Company
Disclosure Schedule 3.25
at 11/30/96
<TABLE>
<CAPTION>
Authorized Compensating
Bank Name & Location Acct # Account Type Signers Balance
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Union National Bank-Richmond, VA 205-00000-226861 disbursement see below (1) none
First Union National Bank-Richmond, VA 207-990000-18260 depository see below (1) none
First Union National Bank-Richmond, VA 502-849-0405 securities custodial see below (1) none
First Union National Bank-Richmond, VA 502-849-0423 securities custodial see below (1) none
First Union National Bank-Richmond, VA 502-849-0414 securities custodial see below (1) none
First Union National Bank-Jacksonville, FL 405-621-4242 securities custodial see below (2) none
Wachovia National Bank-Winston Salem, NC 58-49019-00 securities custodial see below (3) none
Hibernia National Bank-New Orleans, LA 36638 securities custodial see below (3) none
First National Bank of Boston-Boston, MA 8321877 securities custodial see below (3) none
Wachovia National Bank-Columbia, SC 171000036 securities custodial see below (4) none
Crestar Bank-Richmond, VA 11444 securities custodial see below (3) none
</TABLE>
authorized signers (1) authorized signers (3)
Adam Abram Edward Desch
Gregg T. Davis Regulatory personnel
John K. Latham
Edward Desch authorized signers (4)
Steven P. Earhart John K. Latham
Douglas Wall Edward Desch
Dale Pilkington Mary Allen Waller
Regulatory personnel
authorized signers (2)
John K. Latham
Edward Desch
Douglas Wall
Dale Pilkington
Regulatory personnel
<PAGE>
Exhibit A
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
FRONT ROYAL INSURANCE COMPANY
AND
COLONY INSURANCE COMPANY
AND
ROCKWOOD CASUALTY INSURANCE COMPANY
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of
______________________, between FORT WASHINGTON HOLDINGS, INC., a Pennsylvania
corporation with its principal offices at 502 West Office, Center Drive, Fort
Washington, Pennsylvania 19034 (the "Corporation"), FRONT ROYAL INSURANCE
COMPANY, a Pennsylvania insurance corporation, with its principal offices at
9201 Forest Hill Avenue, Suite 200, Richmond, Virginia 23235 ("Front Royal"),
COLONY INSURANCE COMPANY, a Virginia corporation, with its principal offices at
9201 Forest Hill Avenue, Suite 200, Richmond, Virginia 23235 ("Colony") and
ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania insurance corporation, with
its principal offices at 654 Main Street, Rockwood, Pennsylvania 15557
("Rockwood").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of the Option Agreement, dated as of December 31, 1996
(the "Hamilton Agreement"), among Colony, as seller, and the Corporation, as
buyer, the Corporation purchased 1,500 shares of Common Stock, $1,000 par value
per share, of Hamilton Insurance Company ("Hamilton"), which constitutes all of
the issued and outstanding common stock of Hamilton; and
WHEREAS, pursuant to the terms of a Stock Purchase Agreement, dated as of
December 6, 1996 (the "Stock Purchase Agreement"), among PIC Insurance Group,
Inc. and Trirock Limited Partnership, as sellers, and Front Royal, Inc. ("FRI"),
as buyer, FRI purchased all of the issued and outstanding shares of capital
stock of Rockwood; and
WHEREAS, Colony is a wholly owned subsidiary of FRI; and
WHEREAS, Front Royal is a wholly owned subsidiary of Colony; and
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Hamilton Agreement) that this
<PAGE>
Agreement be executed and delivered and in full force and effect; and
WHEREAS, the Corporation wishes to be protected against competition from
Front Royal, Colony and Rockwood in the business of writing or issuing private
passenger automobile insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the payment of $1.00 and other good and
valuable consideration to each of Front Royal, Colony and Rockwood and the
mutual covenants and promises herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on the
date hereof and terminate on the date which is three years from the date of
execution and delivery of the Hamilton Agreement (the "Term").
2. Covenant Not to Compete. (a) Front Royal, Colony and Rockwood each
covenants and agrees that (i) the Corporation will suffer substantial damage
which will be difficult to compute if, after consummation of the Closing, Front
Royal, Colony or Rockwood should engage in any Competitive Business and (ii) the
provisions of this Paragraph 2 are reasonable and necessary for the protection
of the Corporation.
(b) During the Term of this Agreement, without the prior written consent of
the Corporation, each of Front Royal, Colony and Rockwood shall not, in the
States of Maryland or Virginia, directly or indirectly: (i) enter into the
employ of or render any services to any person, firm, corporation, partnership,
limited liability company or other entity or business engaged in any Competitive
Business; or (ii) engage in any Competitive Business for its own account. Mere
passive ownership of stock representing 5% or less of the capital stock of a
publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If Front Royal, Colony or Rockwood commits a breach, or threatens to
commit a breach, of any of the provisions of clause (b) above, the Corporation
shall have the right and remedy, in addition to all other remedies at law and in
equity: (i) to have the provisions of this Paragraph 2 specifically enforced by
any court having equity jurisdiction; and (ii) to
-2-
<PAGE>
require such breaching party to account for and pay over to the Corporation all
compensation, profits, monies, accruals, increments, or other benefits derived
or received by such breaching party as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and Front
Royal, Colony and Rockwood each hereby agree to account for and pay over such
benefits to the Corporation.
(e) Nothing in this Agreement shall be deemed in any way to apply, directly
or indirectly, to any of the Affiliates (as defined in the Hamilton Agreement)
of Front Royal, Colony or Rockwood, including any current or future Affiliates;
provided, however, that each of Front Royal, Colony and Rockwood hereby agrees
that neither it nor any of its Affiliates shall acquire, whether through the
purchase of capital stock or assets, any entity the primary business of which is
any Competitive Business in the States of Maryland or Virginia.
3. Covenant Not to Solicit. (a) Front Royal, Colony and Rockwood each
covenants and agrees that for the Term of this Agreement it shall not, directly
or indirectly, solicit for its own account or for the account of another, or
assist any other person in soliciting, for the purpose of placing private
passenger automobile insurance or related insurance lines with an insurance
company other than Hamilton, any of the agents or brokers who are identified on
Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit either Front Royal,
Colony or Rockwood from soliciting any agents or brokers identified on Exhibit A
for its own account or for the account of another, for the purpose of placing
any line of insurance which is unrelated to private passenger automobile
insurance.
(b) Front Royal, Colony and Rockwood each further agree that, during the
Term of this Agreement, it shall not, directly or indirectly, (i) solicit,
entice, persuade or seek to induce any person who is or was an employee of, or
consultant to, Hamilton on the date hereof or at any time during the Term of
this Agreement or the six-month period prior to the date hereof, to terminate
his or her employment or consultancy with Hamilton, or (ii) solicit, entice,
persuade or seek to induce, for its own account or for the account of any other
person, any person who is or was an employee or consultant of Hamilton on the
date hereof or at any time during the term of this Agreement or the six-month
period prior to the date hereof, for employment with any insurance company
writing private passenger automobile or related lines of insurance, or (iii)
approach any such employee or consultant for any of the foregoing purposes, or
(iv) authorize or assist in the taking of any such actions by any third party.
4. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the
-3-
<PAGE>
Commonwealth of Pennsylvania applicable to agreements made and to be performed
entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) The Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
the Corporation hereunder shall be binding on its successors or assigns, whether
by merger, consolidation or acquisition of all or substantially all of its
business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 4(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to be
executed by their duly authorized representative on the date first above
written.
FRONT ROYAL INSURANCE COMPANY
By:___________________________
Name:
Title:
COLONY INSURANCE COMPANY
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE COMPANY
By:___________________________
Name:
Title:
FORT WASHINGTON HOLDINGS, INC.
By:___________________________
Name:
Title:
-5-
<PAGE>
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
FRONT ROYAL INSURANCE COMPANY
AND
COLONY INSURANCE COMPANY
AND
ROCKWOOD CASUALTY INSURANCE COMPANY
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of
December 31, 1996, between FORT WASHINGTON HOLDINGS, INC., a Pennsylvania
corporation with its principal offices at 502 West Office, Center Drive, Fort
Washington, Pennsylvania 19034 (the "Corporation"), FRONT ROYAL INSURANCE
COMPANY, a Pennsylvania insurance corporation, with its principal offices at
9201 Forest Hill Avenue, Suite 200, Richmond, Virginia 23235 ("Front Royal"),
COLONY INSURANCE COMPANY, a Virginia corporation, with its principal offices at
9201 Forest Hill Avenue, Suite 200, Richmond, Virginia 23235 ("Colony") and
ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania insurance corporation, with
its principal offices at 654 Main Street, Rockwood, Pennsylvania 15557
("Rockwood").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, and pursuant to the terms of the Option Agreement, dated as of
December 31, 1996 (the "Hamilton Agreement"), among Colony, as seller, and the
Corporation, as buyer, the Corporation purchased 1,500 shares of Common Stock,
$1,000 par value per share, of Hamilton Insurance Company ("Hamilton"), which
constitutes all of the issued and outstanding common stock of Hamilton; and
WHEREAS, pursuant to the terms of a Stock Purchase Agreement,
dated as of December 6, 1996 (the "Stock Purchase Agreement"), among PIC
Insurance Group, Inc. and Trirock Limited Partnership, as sellers, and Front
Royal, Inc. ("FRI"), as buyer, FRI purchased all of the issued and outstanding
shares of capital stock of Rockwood; and
WHEREAS, Colony is a wholly owned subsidiary of FRI;
and
WHEREAS, Front Royal is a wholly owned subsidiary of
Colony; and
WHEREAS, it is a condition to consummation of the Closing (as
defined in the Hamilton Agreement) that this Agreement be executed and
delivered and in full force and effect; and
<PAGE>
WHEREAS, the Corporation wishes to be protected against
competition from Front Royal, Colony and Rockwood in the business of writing or
issuing private passenger automobile insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the payment of $1.00 and
other good and valuable consideration to each of Front Royal, Colony and
Rockwood and the mutual covenants and promises herein contained, and intending
to be legally bound hereby, the parties hereto agree as follows:
1. Term of the Agreement. The term of this Agreement shall
commence on the date hereof and terminate on the date which is three years from
the date of execution and delivery of the Hamilton Agreement (the "Term").
2. Covenant Not to Compete. (a) Front Royal, Colony and
Rockwood each covenants and agrees that (i) the Corporation will suffer
substantial damage which will be difficult to compute if, after consummation of
the Closing, Front Royal, Colony or Rockwood should engage in any Competitive
Business and (ii) the provisions of this Paragraph 2 are reasonable and
necessary for the protection of the Corporation.
(b) During the Term of this Agreement, without the prior
written consent of the Corporation, each of Front Royal, Colony and Rockwood
shall not, in the States of Maryland or Virginia, directly or indirectly: (i)
enter into the employ of or render any services to any person, firm,
corporation, partnership, limited liability company or other entity or business
engaged in any Competitive Business; or (ii) engage in any Competitive Business
for its own account. Mere passive ownership of stock representing 5% or less of
the capital stock of a publicly held company shall not be deemed a breach of
this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration or area, or all of them, and such modification or provisions shall
then be applicable in such modified form.
(d) If Front Royal, Colony or Rockwood commits a breach, or
threatens to commit a breach, of any of the provisions of clause (b) above, the
Corporation shall have the right and remedy, in addition to all other remedies
at law and in equity: (i) to have the provisions of this Paragraph 2
specifically enforced by any court having equity jurisdiction; and (ii) to
require such breaching party to account for and pay over to the Corporation all
compensation, profits, monies, accruals, increments, or other benefits derived
or received by such
-2-
<PAGE>
breaching party as the result of any transactions constituting a breach of any
of the provisions of clause (b) above and Front Royal, Colony and Rockwood each
hereby agree to account for and pay over such benefits to the Corporation.
(e) Nothing in this Agreement shall be deemed in any way to
apply, directly or indirectly, to any of the Affiliates (as defined in the
Hamilton Agreement) of Front Royal, Colony or Rockwood, including any current
or future Affiliates; provided, however, that each of Front Royal, Colony and
Rockwood hereby agrees that neither it nor any of its Affiliates shall acquire,
whether through the purchase of capital stock or assets, any entity the primary
business of which is any Competitive Business in the States of Maryland or
Virginia.
3. Covenant Not to Solicit. (a) Front Royal, Colony and
Rockwood each covenants and agrees that for the Term of this Agreement it shall
not, directly or indirectly, solicit for its own account or for the account of
another, or assist any other person in soliciting, for the purpose of placing
private passenger automobile insurance or related insurance lines with an
insurance company other than Hamilton, any of the agents or brokers who are
identified on Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit
either Front Royal, Colony or Rockwood from soliciting any agents or brokers
identified on Exhibit A for its own account or for the account of another, for
the purpose of placing any line of insurance which is unrelated to private
passenger automobile insurance.
(b) Front Royal, Colony and Rockwood each further agree that,
during the Term of this Agreement, it shall not, directly or indirectly, (i)
solicit, entice, persuade or seek to induce any person who is or was an
employee of, or consultant to, Hamilton on the date hereof or at any time
during the Term of this Agreement or the six-month period prior to the date
hereof, to terminate his or her employment or consultancy with Hamilton, or
(ii) solicit, entice, persuade or seek to induce, for its own account or for
the account of any other person, any person who is or was an employee or
consultant of Hamilton on the date hereof or at any time during the term of
this Agreement or the six-month period prior to the date hereof, for employment
with any insurance company writing private passenger automobile or related
lines of insurance, or (iii) approach any such employee or consultant for any
of the foregoing purposes, or (iv) authorize or assist in the taking of any
such actions by any third party.
4. General. (a) This Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania applicable to agreements made and to be performed entirely in
Pennsylvania.
-3-
<PAGE>
(b) The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
(c) This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understanding, written or
oral, relating to the subject matter hereof.
(d) The Corporation may assign its rights, together with its
obligations hereunder, in connection with any sale, transfer or other
disposition of all or substantially all of its business or assets; in any
event, the obligations of the Corporation hereunder shall be binding on its
successors or assigns, whether by merger, consolidation or acquisition of all
or substantially all of its business or assets.
(e) This Agreement may be amended, modified, superseded,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries
required or permitted by this Agreement shall be in writing and shall be
delivered personally, sent by a nationally recognized courier service or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or
to such other address as a party may provide in accordance with this Section
4(f). Any notice or other communications or deliveries hereunder shall be
deemed given and effective (i) upon receipt if delivered personally or by
courier, or (ii) three days after mailing as provided above.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have caused this
Agreement to be executed by their duly authorized representative on the date
first above written.
FRONT ROYAL INSURANCE
COMPANY
By: /s/ J. Adam Abram
---------------------------------
Name: J. Adam Abram
Title: President
COLONY INSURANCE COMPANY
By: /s/ J. Adam Abram
---------------------------------
Name: J. Adam Abram
Title: Secretary
ROCKWOOD CASUALTY INSURANCE COMPANY
By: /s/ Charles M. Lederman
---------------------------------
Name: Charles M. Lederman
Title: President
FORT WASHINGTON HOLDINGS, INC.
By: /s/ Charles M. Lederman
---------------------------------
Name: Charles M. Lederman
Title: President
-5-
<PAGE>
NON-SOLICITATION AGREEMENT
NON-SOLICITATION AGREEMENT, dated as of December 31, 1996, between FRONT
ROYAL, INC., a North Carolina corporation with its principal offices at 2200
Gateway Boulevard, Suite 205, Morrisville, NC 27560 (the "Corporation"), and
BRUCE ECKERT whose principal address is 518 Auburn Avenue, Wyndmoor, PA 19038
("Eckert").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of a Stock Purchase Agreement, dated as of December 6,
1996 (the "Stock Purchase Agreement"), among PIC Insurance Group, Inc. ("PIC")
and Trirock Limited Partnership ("Trirock"), as sellers, and the Corporation, as
buyer, the Corporation purchased from Trirock 250,000 shares of Class A Common
Stock, no par value, of Rockwood Casualty Insurance Company ("Rockwood"),
constituting 50% of all of the issued and outstanding shares of Class A Common
Stock;
WHEREAS, Eckert is a limited partner of Trirock and the former chief
executive officer of Rockwood;
WHEREAS, concurrently with the execution and delivery of the Stock Purchase
Agreement, and as a condition to consummation of the closing (as defined in the
Stock Purchase Agreement), the General Partners of Trirock are bound to execute
and deliver to the Corporation thier Non-Compete, Non-Solicitation and
Consulting Agreements (the "Trirock Agreements");
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on the
date hereof and continue through the tenth anniversary of the date hereof (the
"Term").
2. Covenant Not to Solicit. Eckert agrees that, during the Term of this
Agreement, he shall not directly or indirectly (i) solicit, entice, persuade or
seek to induce any person who is or was an employee of, or consultant to
Rockwood on the date hereof or at any time during the Term of this Agreement or
the six-month period prior to the date hereof, to terminate his or her
employment or consultancy with Rockwood, or (ii) solicit, entice, persuade or
seek to induce, for his own account or for the account of any other
<PAGE>
person, any person who is or was an employee or consultant of Rockwood on the
date hereof or at any time during the term of this Agreement or the six-month
period prior to the date hereof, for employment with any insurance company
writing workers compensation or related lines of insurance, or (iii) approach
any such employee or consultant for any of the foregoing purposes, or (iv)
authorize or assist in the taking of any such actions by any third party.
3. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) The Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
the Corporation hereunder shall be binding on its successors or assigns, whether
by merger, consolidation or acquisition of all or substantially all of its
business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or waiver of the breach of
any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 3(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to be
executed by their duly authorized representative on the date first above
written.
- ----------------------------- ---------------------------------------
Witness Bruce Eckert
FRONT ROYAL, INC.
By:
------------------------------------
Name:
Title:
-3-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated the 31 day of December, 1996, between
ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania insurance corporation with
offices at 654 Main Street, Rockwood, Pennsylvania 15557 (the "Company"), and
JOHN P. YEDINY ("Employee").
W I T N E S S E T H:
1. Employment and Term. The Company hereby employs Employee as President
and Chief Executive Officer of the Company, and Employee hereby accepts such
employment, on the terms and conditions set forth herein, for a term of three
(3) years, commencing on the date hereof, unless sooner terminated or extended
as herein provided. The term of this Agreement and Employee's employment
hereunder shall be automatically renewed for additional periods of one (1) year
unless written notice to the contrary shall be given by either party to the
other, not less than ninety (90) days before the end of the initial or any
renewal term (the initial term plus any renewals thereof shall be referred to
herein as the "Term"), in which case this Agreement shall terminate at the end
of such term, and neither party hereto shall thereafter have any further rights
or obligations hereunder except the obligations of Employee under Sections 3(b),
(c) and (d) hereof and any obligations of the Company under Sections 5, 6 and 7
hereof. The date upon which this Agreement and Employee's employment hereunder
shall terminate, whether pursuant to the terms of this Section 1, or pursuant to
any other provision of this Agreement, shall hereinafter be referred to as the
"Termination Date."
2. Compensation. (a) For the performance by Employee of his duties in
accordance with this Agreement after the date hereof, including services as an
officer, director and/or member of committees of the Company or any subsidiaries
or Affiliates (as hereinafter defined) of the Company, the Company shall pay
Employee (i) a salary at the rate of One Hundred Fifty Thousand Dollars
($150,000.00) per annum for the period commencing on the date hereof and
terminating on March 31, 1997 and (ii) a salary at the rate of One Hundred
Sixty-two Thousand Seven Hundred and Five Dollars ($162,705.00) per annum for
the period commencing April 1, 1997, with annual adjustments thereafter as set
out below (such annual salary pursuant to clause (i) or (ii), "Base Salary"),
payable in periodic installments in accordance with the Company's regular
payroll practices, as in effect from time to time. Within one hundred and twenty
(120) days after the end of each fiscal year of the Company, Employee's salary
shall be reviewed and may be increased at the discretion of the Board of
<PAGE>
Directors of the Company ("Board of Directors"). Employee's Base Salary or such
other salary as may be payable to Employee by action of the Board of Directors,
is hereinafter called "Salary." For purposes of this Agreement, "Affiliates"
shall mean, with respect to the Company, other persons or entities that
directly, or indirectly through one or more intermediaries, control or are
controlled by or are under common control with the Company.
(b) Within one hundred and twenty (120) days after the end of each fiscal
year of the Company, Employee may, in the absolute discretion of the Board of
Directors, receive from the Company a bonus based on the performance of the
Company during the preceding fiscal year.
3. Duties and Restrictions. (a) During the term of this Agreement,
Employee shall perform all duties and services incident to his position as
President and Chief Executive Officer of the Company and such other reasonable
duties and services as may from time to time be assigned to him by the Board of
Directors. Employee shall devote his full and exclusive time, attention and best
efforts to the business of the Company and its Affiliates. Employee hereby
accepts such employment and agrees he shall devote his full skill, abilities and
productive time to the performance of his duties under this Agreement, and he
shall not, without the prior consent of the Board of Directors, render to any
third party any services for compensation or which would interfere with the
performance of his duties hereunder.
(b) Employee will not at any time:
(i) during the term of this Agreement or thereafter, reveal, divulge
or make known to any person, firm or corporation or use for his personal
benefit, directly or indirectly, any confidential or proprietary
information received by him during the course of his employment or prior
to the commencement thereof. For purposes of this paragraph 3(b)(i)
confidential and proprietary information shall be defined to mean (1) all
historical and pro forma projections of loss ratios incurred by the
Company and any of its Affiliates, (2) all historical and pro forma
actuarial data relating to the Company and any of its Affiliates, (3)
historical and pro forma financial results and projections for the Company
and its Affiliates, (4) all information relating to the Company's or its
Affiliates' systems and software (other than the portion thereof provided
by the vendor to all purchasers of such systems and software) and (5) all
other information relating to the financial, business or other affairs of
the Company and its Affiliates, that is not available to the general
public or generally known or available within the industry; or
-2-
<PAGE>
(ii) during the term of this Agreement, reveal, divulge or make
known to any person, firm or corporation, or use for his personal benefit,
directly or indirectly, the name or names of any of the customers of the
Company or of any of its Affiliates, nor will he reveal, divulge or make
known, to any person, firm or corporation, or use for his personal
benefit, directly or indirectly, any trade secrets or any knowledge or
information, or any fact concerning any business methods or operational
purposes engaged in by the Company or its Affiliates (collectively,
"Privileged Information"); provided, however, the restrictions set forth
in this paragraph 3(b)(ii) shall not apply to Employee following the
termination of his employment with the Company or its Affiliates with
respect to any Privileged Information known or made generally available to
the general public or within the industry.
(c) Employee will not at any time during the term of this Agreement, and
for a period of two (2) years thereafter in the event Employee's employment is
terminated pursuant to Section 4, 5, 6 or 7(a) hereof or upon the expiration of
the term of this Agreement in accordance with Section 1 hereof, engage in or
have any interest in, directly or indirectly, any business which engages,
directly or indirectly, in the business of underwriting workers' compensation
insurance within any State in which the Company, or any of its Affiliates, is
licensed to write insurance, whether as principal, director, officer, employee,
consultant, partner, stockholder, director, trustee or manager of any competing
corporation, association, firm or business or otherwise, or directly or
indirectly solicit, interfere with, or endeavor to entice away from the Company
or any of its Affiliates any of their customers or employees. The restrictions
contained in this subsection 3(c) shall not prevent the purchase or ownership by
Employee of not more than three percent (3%) of the securities of any class of
any corporation, whether or not such corporation is engaged in any competitive
business, which are publicly traded on any securities exchange or any "over the
counter" market. Employee will not, for a period of one (2) years following the
Termination Date, employ or associate in any manner in a business relationship
with, any person who was an employee of the Company or any Affiliate at any time
during the term of Employee's employment hereunder.
(d) Any and all writings, inventions, improvements, processes, procedures
and/or techniques which Employee may make, conceive, discover or develop, either
solely or jointly with any other person or persons, at any time during the term
of this Agreement or during the term of his employment or association with the
Company or any Affiliate, whether during working hours or at any other time, and
whether upon the request or suggestion of the Company or otherwise, which relate
to or may be useful in connection with any business now or hereafter during the
term of
-3-
<PAGE>
this Agreement carried on or actively developed by the Company or any Affiliate,
including developments or expansions of its present fields of operations, shall
be the sole and exclusive property of the Company. Employee shall make full and
prompt disclosure to the Board of Directors of all such writings, inventions,
improvements, processes, procedures and techniques and shall take all actions
and shall execute all documents requested by the Board of Directors to vest the
absolute title thereto in the Company. Employee shall not be entitled to receive
any additional compensation or reimbursement with respect to such writings,
inventions, improvements, processes, procedures and techniques.
(e) Employee acknowledges that the restrictions contained in paragraphs
(b) and (c) of this Section 3 are reasonable and necessary in order to protect
the legitimate interests of the Company, in view of the nature of the business
in which the Company and its Affiliates are engaged and the substantial equity
interest of Employee in the Company. If any provision contained in Paragraph (b)
or (c) of this Section 3 is adjudged unreasonable in any proceeding, then such
provision shall be deemed modified by reducing the period of time during which
such provision is applicable and/or, if applicable, the geographic area to which
such provision applies, to the extent necessary for such provision to be
adjudged reasonable and enforceable.
4. Termination For Cause. This Agreement may be terminated by the Company
"for cause" at any time, by written notice to Employee, for any of the following
reasons:
(a) If Employee shall willfully violate the provisions of Section 3
of this Agreement, or shall willfully fail to comply with any other term
or condition of this Agreement or shall grossly neglect his duties
hereunder;
(b) If Employee shall (i) be convicted of a felony or a crime
involving moral turpitude (meaning a crime that includes the commission of
an act of gross depravity, dishonesty or bad morals), or (ii) commit an
act of dishonesty, fraud or embezzlement against the Company;
(c) If the Company's operating results are substantially below
budget which shall mean 50% or less of the amount set forth on Attachment
1 hereto;
(d) If Employee shall not have accomplished his annual performance
objectives, as established annually by the Company's management and
approved by the Board of Directors; or
(e) If Employee fails to comply for any reason with a directive of
the Board of Directors determined to be in the best
-4-
<PAGE>
interest of the Company and its shareholders. In the event of a
disagreement between the Board of Directors and Employee with respect to a
directive of the Board of Directors that leads to a termination for cause
under this paragraph (e), Employee may request and receive a hearing with
an appropriate committee consisting of members of the Board of Directors of
Front Royal, Inc., the holder of all the outstanding capital stock of the
Company.
In the event of termination pursuant to paragraph (a), (b) or (e) of this
Section 4, then Employee's Salary and right to receive any fringe benefits
pursuant to Section 8 hereof shall terminate on the Termination Date fixed in a
written notice from the Company, which shall be no earlier than the date of such
notice.
In the event of termination pursuant to paragraph (c) or (d) of this
Section 4, then Employee shall be entitled to receive:
(i) an amount equal to Employee's Base Salary in effect as of the
Termination Date for a period of twenty-four (24) months after the
Termination Date, payable in accordance with the terms of Section 2
hereof;
(ii) the continuation at the Company's expense of coverage under all
plans, insurance policies and other fringe benefits described in Section 8
hereof, for a period of twelve (12) months after the Termination Date; and
(iii) any amounts payable to Employee through the Termination Date
pursuant to Sections 9 and 10 hereof.
Thereafter, notwithstanding anything to the contrary contained in this
Agreement, the Company shall have no further obligations to Employee, except as
provided in any stock option or other bonus or incentive plan to which Employee
is entitled, and Employee shall have no further rights hereunder.
5. Termination by Employee. (a) If Employee shall terminate his employment
hereunder without the prior written consent of the Board of Directors, other
than by expiration of the term hereof in accordance with Section 1 hereof, the
Company shall have no further obligations to Employee and Employee shall have no
further rights hereunder (other than in accordance with the terms, policies and
practices then in effect with regard to applicable benefit plans of the
Company).
(b) In the event Employee elects to have the term of this Agreement
expire, upon the Termination Date, the Company shall have no further obligations
to Employee and Employee shall have no further rights hereunder (other than in
accordance with
-5-
<PAGE>
the terms, policies and practices then in effect with regard to applicable
benefit plans of the Company).
6. Expiration or Termination Without Cause. The Company may terminate this
Agreement at any time without cause or may elect to have the term of this
Agreement expire. In the event that the Company terminates this Agreement
without cause or elects to have the term of this Agreement expire, Employee
shall be entitled to receive:
(i) an amount equal to Employee's Base Salary in effect as of the
Termination Date for a period of twenty-four (24) months after the
Termination Date, payable in accordance with the terms of Section 2
hereof;
(ii) the continuation at the Company's expense of coverage under all
plans, insurance policies and other fringe benefits described in Section 8
hereof, for a period of twenty-four (24) months after the Termination
Date; and
(iii) any amounts payable to Employee through the Termination Date
pursuant to Sections 9 and 10 hereof.
7. Termination by Reason of Disability or Death. (a) If, on account of
physical or mental disability, Employee shall fail or be unable to perform his
assigned duties in any material respect for a period of (i) sixty (60)
consecutive days, or (ii) an aggregate of ninety (90) days during any twelve
(12) month period, the Company may, at its option, thereafter terminate this
Agreement and Employee's employment hereunder upon giving at least thirty (30)
days written notice to Employee.
(b) If Employee dies during the term hereof, this Agreement shall
automatically terminate on the date of his death.
(c) In the event that this Agreement and Employee's employment are
terminated in accordance with this Section 7, then after the Termination Date
the Company shall have no further obligations hereunder, except that, in the
event of a termination pursuant to paragraph (a) above, Employee shall be
entitled to the benefits described in Section 6 hereof.
8. Fringe Benefits. The Company shall provide at the Company's expense to
Employee during the term of the Agreement:
(a) a medical insurance plan covering Employee, his spouse and his
minor children and a disability income insurance policy, which insurance
plans and policies shall be at least comparable to such plans and policies
provided to the Company's other senior executive personnel;
-6-
<PAGE>
(b) full participation in all other fringe benefits provided to the
Company senior executive personnel, which fringe benefits may include, in
the sole discretion of the Board of Directors, a pension plan, a profit
sharing plan, a stock option plan and/or a stock participation plan; and
(c) an automobile or automobile allowance commensurate with
Employee's position and responsibilities and, if and to the extent
consistent with the Company's policy in effect from time to time,
reimbursement for automobile insurance and maintenance.
9. Vacation. Employee shall be entitled, for each year during the term
hereof, to vacation time to be taken at such time or times as shall be mutually
convenient to the Company and Employee.
10. Other Expenses. During the term of this Agreement, Employee shall be
entitled to be reimbursed for all reasonable business expenses incurred by him
in connection with the performance of his duties hereunder upon the timely
submission and approval of appropriate vouchers therefor, to the Chief Financial
Officer of the Company.
11. Representation by Employee. Employee represents and warrants that he
is not under any obligation, contractual or otherwise, to any person, firm or
corporation that is inconsistent with this Agreement and his employment
hereunder and that he is free to enter into and perform the terms of this
Agreement.
12. Uniqueness of Services. Employee acknowledges that the services to be
rendered under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services and that, by reason thereof, Employee agrees and consents that if
he violates any of the provisions of this Agreement, the Company, in addition to
any other rights and remedies available under this Agreement or otherwise, shall
be entitled to an injunction to be issued by a tribunal of competent
jurisdiction restricting Employee from committing or continuing any violation of
this Agreement.
13. Notices. Any notices provided for or permitted by this Agreement shall
be in writing and shall be deemed to have been duly given when delivered in
person or three (3) days after it is deposited in a United States Postal
Depositary, postage prepaid, registered or certified mail, return receipt
requested, addressed to the party for whom intended at such party's address set
forth below or to such other address as such party may designate by
-7-
<PAGE>
notice in writing given in the manner provided by this Section 13, or when
actually received by the party for whom such notice was intended if sent by any
other means:
To Employee: John P. Yediny
654 Main Street
Rockwood, PA 15557
To the Company: Rockwood Casualty Insurance Company
654 Main Street
Rockwood, PA 15557
Attention: Chairman of the Board
14. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement and understanding between Employee and the Company with respect to the
subject matter hereof and shall supersede any and all other prior agreements and
understandings, whether oral or written, relating thereto or to the employment
of Employee by the Company. This Agreement may not be rescinded, modified or
amended except by an instrument in writing signed by the parties hereto and any
provision hereof may not be waived except by an instrument in writing signed by
the party hereto against whom any such waiver is sought to be enforced. The
waiver by the Company of a breach by Employee of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach by
Employee.
15. Partial Invalidity. The invalidity or unenforceability, by statute,
court decision or otherwise, of any term or condition of this Agreement shall
not affect the validity or enforceability of any other term or condition hereof.
16. Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the
Commonwealth of Pennsylvania.
17. Assignability. This Agreement may not be assigned by Employee, and all
of its terms and conditions shall be binding upon and inure to the benefit of
Employee and his heirs and legal representatives and the Company with its
successors. Successors of the Company shall include, without limitation, any
corporation or corporations acquiring, directly or indirectly, all or
substantially all of the assets of the Company whether by merger, consolidation,
purchase or otherwise and such successor shall thereafter be deemed the
"Company" for purposes hereof.
18. Captions. The caption headings in this Agreement are for convenience
of reference only and are not intended and shall not be construed as having any
substantive effect.
19. Survival. The obligations imposed upon Employee and the rights granted
to the Company in subsections 3(b), (c) and
-8-
<PAGE>
(d) hereof and the rights granted to Employee in Sections 5, 6 and 7 hereof
shall survive the termination or expiration of this Agreement for any reason
whatsoever and, at the election of the Company, may be specifically enforced by
it.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duty executed as of the day and year first above written.
ROCKWOOD CASUALTY INSURANCE COMPANY
By:___________________________________________
Name:
Title:
______________________________________________
John P. Yediny
-9-
<PAGE>
Attachment 1
Rockwood Casualty Insurance Company
Net Income Before Parent Company
Fiscal Year Overhead Charges
----------- ----------------
1997 $5,977,000.00
1998 $6,261,000.00
1999 $6,777,000.00
<PAGE>
TAX ALLOCATION AGREEMENT
BETWEEN
FRONT ROYAL, INC. (Parent Company)
AND
ROCKWOOD CASUALTY INSURANCE COMPANY (Subsidiary Company)
THIS AGREEMENT, made as of the 31st day of December, 1996 by and between
FRONT ROYAL, INC., a North Carolina corporation (herein referred to as "FRONT
ROYAL"), and ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania stock insurance
company (herein referred to as "ROCKWOOD").
W I T N E S S E T H:
1. FRONT ROYAL agrees to file a consolidated federal income tax return
including ROCKWOOD for the taxable year of 1996 and for each year thereafter for
which a consolidated return is filed. ROCKWOOD hereby authorizes and agrees to
be bound by the provisions of the consolidated return regulations found under
Internal Revenue Code Section (IRC) 1502.
2. The tax charge or tax refund to ROCKWOOD under this Agreement shall be
the amount that ROCKWOOD would have paid or received if it had filed on a
separate return basis with the Internal Revenue Service.
In the event that ROCKWOOD has a tax liability on a separate company basis,
its taxes will be paid to FRONT ROYAL. In the event that ROCKWOOD has a refund
of taxes on a separate company basis, the amount will be received from FRONT
ROYAL.
3. This Agreement defines a separate return as a return completed by
ROCKWOOD as if it had filed as a separate corporation. However, any adjustments
which are deferred under consolidated tax reporting must be considered when
filing a separate return. This includes items such as intercompany transactions.
4. Estimated income tax payments from ROCKWOOD to FRONT ROYAL are to be
made within fifteen days of the normal due dates as prescribed by the Internal
Revenue Service. If, however, the cumulative estimated income tax payments by
ROCKWOOD on any due date exceed the estimated cumulative tax liability of
ROCKWOOD at that date, FRONT ROYAL may return the net over- estimated payment to
ROCKWOOD.
5. All settlements for income tax payments to FRONT ROYAL or refund to
ROCKWOOD shall be made within ninety days after the date of filing the
consolidated income tax return for each respective tax year.
<PAGE>
6. If taxable income for any year is revised by the Internal Revenue
Service, the tax department of FRONT ROYAL, or other appropriate authority, a
recalculation of tax liability for all parties to this Agreement shall be made.
7. This Agreement shall be terminated if:
(a) The parties agree in writing to such termination.
(b) Membership in the affiliated group ceases or is terminated for
any reason whatsoever.
(c) The affiliated group fails to file a consolidated return for any
taxable year.
8. Notwithstanding the termination of this Agreement, its provisions will
remain in effect, with respect to any period of time during the tax year in
which termination occurs, for which the income of the terminating party must be
included in the consolidated return.
9. This Agreement shall not be assignable by any party.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first above written.
(SEAL) FRONT ROYAL, INC.
By:_________________________
Name: J. Adam Abram
Title: Chief Executive
Officer
(SEAL) ROCKWOOD CASUALTY INSURANCE
COMPANY
By:_________________________
Name: Gregg T. Davis
Title: Treasurer
-2-
<PAGE>
FRONT ROYAL, INC.
1996 INCENTIVE PLAN
FRONT ROYAL, INC., a corporation formed under the laws of the
State of North Carolina (the "Company"), hereby establishes and adopts the
following 1996 Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company desires to encourage high levels of
performance by those individuals who are key to the success of the Company, to
attract new individuals who are highly motivated and who will contribute to the
success of the Company and to encourage such individuals to remain as directors
and/or employees of the Company and its subsidiaries by increasing their
proprietary interest in the Company's growth and success.
WHEREAS, to attain these ends, the Company has formulated the
Plan embodied herein to authorize the granting of incentive awards through
grants of share options ("Options"), grants of share appreciation rights, grants
of Share Purchase Awards (hereafter defined), and grants of Restricted Share
Awards (hereafter defined) to those individuals whose judgment, initiative and
efforts are or have been responsible for the success of the Company.
NOW, THEREFORE, the Company hereby constitutes, establishes
and adopts the following Plan and agrees to the following provisions:
ARTICLE 1.
PURPOSE OF THE PLAN
1.1. Purpose. The purpose of the Plan is to assist the Company
in attracting and retaining selected individuals to serve as directors,
officers, consultants, advisors and employees of the Company who will contribute
to the Company's success and to achieve long-term objectives which will inure to
the benefit of all shareholders of the Company through the additional incentive
inherent in the ownership of the Company's shares of Class A Common Stock
("Shares"). Options granted under the Plan will be either "incentive share
options," intended to qualify as such under the provisions of section 422 of the
Internal Revenue Code of 1986, as from time to time amended (the "Code"), or
"nonqualified share options." For purposes of the Plan, the term "subsidiary"
shall mean "subsidiary corporation," as such term is defined in section 424(f)
of the Code, and "affiliate" shall have the meaning set forth in Rule 12b-2 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For
purposes of the Plan, the term "Award" shall mean a grant of an Option, a grant
of a share appreciation right, a grant of a Share Purchase Award, a grant of a
Restricted Share Award, or any other award made under the terms of the Plan.
<PAGE>
ARTICLE 2.
SHARES SUBJECT TO AWARDS
2.1. Number of Shares. Subject to the adjustment provisions of
Section 9.9 hereof, the aggregate number of Shares which may be issued under
Awards under the Plan, whether pursuant to Options, share appreciation rights,
Share Purchase Awards or Restricted Share Awards shall not exceed 500,000. No
Options to purchase fractional Shares shall be granted or issued under the Plan.
For purposes of this Section 2.1, the Shares that shall be counted toward such
limitation shall include all Shares:
(1) issued or issuable pursuant to Options that have been or
may be exercised;
(2) issued or issuable pursuant to Share Purchase Awards; and
(3) issued as, or subject to issuance as a Restricted Share
Award.
2.2. Shares Subject to Terminated Awards. The Shares covered
by any unexercised portions of terminated Options granted under Articles 4 and
6, Shares forfeited as provided in Section 8.2(a) and Shares subject to any
Awards which are otherwise surrendered by the Participant without receiving any
payment or other benefit with respect thereto may again be subject to new Awards
under the Plan. In the event the purchase price of an Option is paid in whole or
in part through the delivery of Shares, the number of Shares issuable in
connection with the exercise of the Option shall not again be available for the
grant of Awards under the Plan. Shares subject to Options, or portions thereof,
which have been surrendered in connection with the exercise of share
appreciation rights shall not again be available for the grant of Awards under
the Plan.
2.3. Character of Shares. Shares delivered under the Plan
may be authorized and unissued Shares or Shares acquired by the Company, or
both.
2.4. Limitations on Grants to Individual Participant. Subject
to adjustments pursuant to the provisions of Section 9.10 hereof, the number of
Shares which may be granted hereunder to any employee during any fiscal year
under all forms of Awards shall not exceed 250,000 Shares (the "Limitation"). If
an Option is cancelled, the cancelled Option shall continue to be counted toward
the Limitation for the year granted. An Option (or a share appreciation right)
that is repriced during any fiscal year is treated as the cancellation of the
Option (or share appreciation right) and a grant of a new Option (or share
appreciation right) for purposes of the Limitation for that fiscal year.
ARTICLE 3.
ELIGIBILITY AND ADMINISTRATION
3.1. Awards to Employees and Directors. (a) Participants who
receive (i) Options under Articles 4 and 6 hereof or share appreciation rights
under Article 5 ("Optionees"), and (ii) Share Purchase Awards under Article 7 or
Restricted Share Awards under Article 8 (in either case, a "Participant"), shall
consist of such key officers, employees, consultants, advisors and Directors
(hereinafter defined) of the Company or any of its subsidiaries or affiliates as
the Committee shall select from time to time, provided, however, that an Option
that is intended to qualify as an "incentive share option" may be granted only
-2-
<PAGE>
to an individual that is an employee of the Company or any of its subsidiaries.
The Committee's designation of an Optionee or Participant in any year shall not
require the Committee to designate such person to receive Awards or grants in
any other year. The designation of an Optionee or Participant to receive Awards
or grants under one portion of the Plan shall not require the Committee to
include such Optionee or Participant under other portions of the Plan.
(b) No Option which is intended to qualify as an
"incentive share option" may be granted to any employee or Director who, at the
time of such grant, owns, directly or indirectly (within the meaning of sections
422(b)(6) and 424(d) of the Code), shares possessing more than 10% of the total
combined voting power of all classes of shares of the Company or any of its
subsidiaries or affiliates, unless at the time of such grant, (i) the option
price is fixed at not less than 110% of the Fair Market Value (as defined below)
of the Shares subject to such Option, determined on the date of the grant, and
(ii) the exercise of such Option is prohibited by its terms after the expiration
of five years from the date such Option is granted.
3.2. Administration. (a) The Plan shall be administered by a
committee (the "Committee") consisting of not fewer than two directors of the
Company (the directors of the Company being hereinafter referred to as the
"Directors"), as designated by the Directors. The Directors may remove from, add
members to, or fill vacancies in the Committee. Each member of the Committee
will be a "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) of the
Exchange Act and an "outside director" within the meaning of Section
162(m)(4)(C)(i) of the Code, except that if the Directors determine that (i) the
Plan need not satisfy the requirements of Rule 16b-3 of the Exchange Act (such
that grants of Awards are not exempt from Section 16(b) of the Exchange Act),
then the members of the Committee need not be "Non-Employee Directors," or (ii)
they no longer want the Plan to comply with the requirements of Code Section
162(m), then the members of the Committee need not be "outside directors."
(b) The Committee is authorized, subject to the
provisions of the Plan, to establish such rules and regulations as it may deem
appropriate for the conduct of meetings and proper administration of the Plan.
All actions of the Committee shall be taken by majority vote of its members.
(c) Subject to the provisions of the Plan, the
Committee shall have authority, in its sole discretion, to grant Awards under
the Plan, to interpret the provisions of the Plan and, subject to the
requirements of applicable law, including Rule 16b-3 of the Exchange Act, to
prescribe, amend, and rescind rules and regulations relating to the Plan or any
Award thereunder as it may deem necessary or advisable. All decisions made by
the Committee pursuant to the provisions of the Plan shall be final, conclusive
and binding on all persons, including the Company, its shareholders, Directors
and employees, and other Plan participants.
ARTICLE 4.
OPTIONS
4.1. Grant of Options. The Committee shall determine, within
the limitations of the Plan, those key individuals and the Directors and
employees of the Company and its subsidiaries and affiliates to whom Options are
to be granted under the Plan, the number of Shares that may be purchased under
each such Option and the option price, and shall designate such Options at the
time of the grant
-3-
<PAGE>
as either "incentive share options" or "nonqualified share options"; provided,
however, that Options granted to employees of an affiliate (that is not also a
subsidiary) or to non-employees of the Company may only be "nonqualified share
options."
4.2. Share Option Agreements; etc. All Options granted
pursuant to Article 4 and Article 6 herein (a) shall be authorized by the
Committee and (b) shall be evidenced in writing by share option agreements
("Share Option Agreements") in such form and containing such terms and
conditions as the Committee shall determine which are not inconsistent with the
provisions of the Plan, and, with respect to any Share Option Agreement granting
Options which are intended to qualify as "incentive share options," are not
inconsistent with Section 422 of the Code. Granting of an Option pursuant to the
Plan shall impose no obligation on the recipient to exercise such option. Any
individual who is granted an Option pursuant to this Article 4 and Article 6
herein may hold more than one Option granted pursuant to such Articles at the
same time and may hold both "incentive share options" and "nonqualified share
options" at the same time. To the extent that any Option does not qualify as an
"incentive share option" (whether because of its provisions, the time or manner
of its exercise or otherwise) such Option or the portion thereof which does not
so qualify shall constitute a separate "nonqualified share option."
4.3. Option Price. Subject to Section 3.1(b), the option price
per each Share purchasable under any "incentive share option" granted pursuant
to this Article 4 and any "nonqualified share option" granted pursuant to
Article 6 herein shall not be less than 100% of the Fair Market Value (as
hereinafter defined) of such Share on the date of the grant of such Option. The
option price per share of each Share purchasable under any "nonqualified share
option" granted pursuant to this Article 4 shall be such amount as the Committee
shall determine at the time of the grant of such Option.
4.4. Other Provisions. Options granted pursuant to this
Article 4 shall be made in accordance with the terms and provisions of Article 9
hereof and any other applicable terms and provisions of the Plan.
ARTICLE 5.
SHARE APPRECIATION RIGHTS
5.1. Grant and Exercise. Share appreciation rights may be
granted in conjunction with all or part of any Option granted under the Plan
provided such rights are granted at the time of the grant of such Option. A
"share appreciation right" is a right to receive cash or Shares, as provided in
this Article 5, in lieu of the purchase of a Share under a related Option. A
share appreciation right or applicable portion thereof shall terminate and no
longer be exercisable upon the termination or exercise of the related Option,
and a share appreciation right granted with respect to less than the full number
of Shares covered by a related Option shall not be reduced until, and then only
to the extent that, the exercise or termination of the related Option exceeds
the number of Shares not covered by the share appreciation right. A share
appreciation right may be exercised by the holder thereof (the "Holder"), in
accordance with Section 5.2 of this Article 5, by giving written notice thereof
to the Company and surrendering the applicable portion of the related Option.
Upon giving such notice and surrender, the Holder shall be entitled to receive
an amount determined in the manner prescribed in Section 5.2 of this Article 5.
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the related share appreciation rights have been
exercised.
-4-
<PAGE>
5.2. Terms and Conditions. Share appreciation rights shall
be subject to such terms and conditions, not inconsistent with the provisions of
the Plan, as shall be determined from time to time by the Committee, including
the following:
(a) Share appreciation rights shall be exercisable
only at such time or times and to the extent that the Options to which
they relate shall be exercisable in accordance with the provisions of
the Plan.
(b) Upon the exercise of a share appreciation right,
a Holder shall be entitled to receive up to, but no more than, an
amount in cash or whole Shares equal to the excess of the then Fair
Market Value of one Share over the option price per Share specified in
the related Option multiplied by the number of Shares in respect of
which the share appreciation right shall have been exercised. The
Holder shall specify in his written notice of exercise, whether payment
shall be made in cash or in whole Shares. Each share appreciation right
may be exercised only at the time and so long as a related Option, if
any, would be exercisable or as otherwise permitted by applicable law.
(c) Upon the exercise of a share appreciation right,
the Option or part thereof to which such share appreciation right is
related shall be deemed to have been exercised for the purpose of the
limitation of the number of Shares to be issued under the Plan, as set
forth in Sec- tion 2.1 of the Plan.
(d) With respect to share appreciation rights granted
in connection with an Option that is intended to be an "incentive share
option," the following shall apply:
(i) No share appreciation right shall be
transferable by a Holder otherwise than by will or by the laws
of descent and distribution, and share appreciation rights
shall be exercisable, during the Holder's lifetime, only by
the Holder.
(ii) Share appreciation rights granted in
connection with an Option may be exercised only when the Fair
Market Value of the Shares subject to the Option exceeds the
option price at which Shares can be acquired pursuant to the
Option.
ARTICLE 6.
RELOAD OPTIONS
6.1. Authorization of Reload Options. Concurrently with the
award of any Option (such Option hereinafter referred to as the "Underlying
Option") to any participant in the Plan, the Committee may grant one or more
reload options (each, a "Reload Option") to such participant to purchase for
cash or Shares a number of Shares as specified below. A Reload Option shall be
exercisable for an amount of Shares equal to (i) the number of Shares delivered
by the Optionee to the Company to exercise the Underlying Option, and (ii) to
the extent authorized by the Committee, the number of Shares used to satisfy any
tax withholding requirement incident to the exercise of the Underlying Option,
subject to the availability of Shares under the Plan at the time of such
exercise. Any Reload Option may provide for the grant, when exercised, of
subsequent Reload Options to the extent and upon such terms and conditions
consistent with this Article 6, as the Committee in its sole discretion shall
specify at or after the time of
-5-
<PAGE>
grant of such Reload Option. The grant of a Reload Option will become effective
upon the exercise of an Underlying Option or Reload Option by the Optionee
delivering to the Company in exercise thereof Shares held by the Optionee for at
least six months. Notwithstanding the fact that the Underlying Option may be an
"incentive share option," a Reload Option is not intended to qualify as an
"incentive share option" under Section 422 of the Code.
6.2. Reload Option Amendment. Each Share Option Agreement
shall state whether the Committee has authorized Reload Options with respect to
the Underlying Option. Upon the exercise of an Underlying Option or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Share Option Agreement.
6.3. Reload Option Price. The option price per Share payable
upon the exercise of a Reload Option shall be the Fair Market Value of a Share
on the date the grant of the Reload Option becomes effective.
6.4. Term and Exercise. Each Reload Option is fully
exercisable six months from the effective date of grant. The term of each
Reload Option shall be equal to the remaining option term of the Underlying
Option.
6.5. Termination of Employment. No additional Reload Options
shall be granted to Optionees when Options and/or Reload Options are exercised
pursuant to the terms of this Plan following termination of the Optionee's
employment.
6.6. Applicability of Other Sections. Except as otherwise
provided in this Article 6, the provisions of Article 9 applicable to Options
shall apply equally to Reload Options.
ARTICLE 7.
SHARE PURCHASE AWARDS
7.1. Grant of Share Purchase Award. The term "Share Purchase
Award" means the right to purchase Shares of the Company and to pay for such
Shares through a loan made by the Company to an employee (a "Purchase Loan") as
set forth in this Article 7.
7.2. Terms of Purchase Loans. (a) Purchase Loan. Each
Purchase Loan shall be evidenced by a promissory note. The term of the Purchase
Loan shall be a period of years, as determined by the Committee, and the
proceeds of the Purchase Loan shall be used exclusively by the Participant for
purchase of Shares from the Company at a purchase price equal to the Fair Market
Value on the date of the Share Purchase Award.
(b) Interest on Purchase Loan. A Purchase Loan shall
be non-interest bearing or shall bear interest at whatever rate the Committee
shall determine (but not in excess of the maximum rate permissible under
applicable law), payable in a manner and at such times as the Committee shall
determine. Those terms and provisions as the Committee shall determine shall be
incorporated into the promissory note evidencing the Purchase Loan.
-6-
<PAGE>
(c) Forgiveness of Purchase Loan. Subject to Section
7.4 hereof, the Company may forgive the repayment of up to 100% of the principal
amount of the Purchase Loan, subject to such terms and conditions as the
Committee shall determine and set forth in the promissory note evidencing the
Purchase Loan (the "Conditions"). A Participant's Purchase Loan can be prepaid
at any time, and from time to time, without penalty.
7.3. Security for Loans. (a) Stock Power and Pledge. Purchase
Loans granted to Participants shall be secured by a pledge of the Shares
acquired pursuant to the Share Purchase Award. Such pledge shall be evidenced by
a pledge agreement (the "Pledge Agreement") containing such terms and conditions
as the Committee shall determine. Purchase Loans shall be recourse or
non-recourse with respect to a Participant, as determined from time to time by
the Committee. The share certificates for the Shares purchased by a Participant
pursuant to a Share Purchase Award shall be issued in the Participant's name,
but shall be held by the Company as security for repayment of the Participant's
Purchase Loan together with a stock power executed in blank by the Participant
(the execution and delivery of which by the Participant shall be a condition to
the issuance of the Share Purchase Award). The Participant shall be entitled to
exercise all rights applicable to such Shares, including, but not limited to,
the right to vote such Shares and the right to receive dividends and other
distributions made with respect to such Shares. When the Purchase Loan and any
accrued but unpaid interest thereon has been repaid or otherwise satisfied in
full, the Company shall deliver to the Participant the share certificates for
the Shares purchased by a Participant under the Share Purchase Award.
(b) Release and Delivery of Share Certificates During
the Term of the Purchase Loan. The Company shall release and deliver to each
Participant certificates for Shares purchased by a Participant pursuant to a
Share Purchase Award, in such amounts and on such terms and conditions as the
Committee shall determine, which shall be set forth in the Pledge Agreement.
(c) Release and Delivery of Share Certificates Upon
Repayment of the Purchase Loan. The Company shall release and deliver to each
Participant certificates for the Shares purchased by the Participant under the
Share Purchase Award and then held by the Company, provided the Participant has
paid or otherwise satisfied in full the balance of the Purchase Loan and any
accrued but unpaid interest thereon. In the event the balance of the Purchase
Loan is not repaid, forgiven or otherwise satisfied within 90 days after (i) the
date repayment of the Purchase Loan is due (whether in accordance with its term,
by reason of acceleration or otherwise), or (ii) such longer time as the
Committee, in its discretion, shall provide for repayment or satisfaction, the
Company shall retain those Shares then held by the Company in accordance with
the Pledge Agreement.
7.4. Termination of Employment. (a) Termination of Employment
by Death, Disability or by the Company Without Cause; Change of Control. In the
event of a Participant's termination of employment by reason of death,
"disability" or by the Company without "cause," or in the event of a "change of
control," the Committee shall have the right (but shall not be required) to
forgive the remaining unpaid amount (principal and interest) of the Purchase
Loan in whole or in part as of the date of such occurrence. "Change of Control,"
"disability" and "cause" shall have the respective meanings as set forth in the
promissory note evidencing the Purchase Loan.
(b) Termination of Employment by Voluntary
Resignation. In the event of a Participant's termination of employment for any
reason other than death or "disability," the Participant shall repay to the
Company the entire balance of the Purchase Loan and any accrued but unpaid
interest
-7-
<PAGE>
thereon, which amounts shall become immediately due and payable, unless
otherwise determined by the Committee.
7.5. Restrictions on Transfer. No Share Purchase Award or
Shares purchased through such an Award and pledged to the Company as collateral
security for the Participant's Purchase Loan (and accrued and unpaid interest
thereon) may be otherwise pledged, sold, assigned or transferred (other than by
will or by the laws of descent and distribution).
ARTICLE 8.
RESTRICTED AWARDS
8.1. Restricted Share Awards. (a) Grant. A grant of Shares
made pursuant to this Article 8 is referred to as a "Restricted Share Award."
The Committee may grant to any employee an amount of Shares in such manner, and
subject to such terms and conditions relating to vesting, forfeitability and
restrictions on delivery and transfer (whether based on performance standards,
periods of service or otherwise) as the Committee shall establish (such Shares,
"Restricted Shares"). The terms of any Restricted Share Award granted under this
Plan shall be set forth in a written agreement (a "Restricted Share Agreement")
which shall contain provisions determined by the Committee and not inconsistent
with this Plan. The provisions of Restricted Share Awards need not be the same
for each Participant receiving such Awards.
(b) Issuance of Restricted Shares. As soon as
practicable after the date of grant of a Restricted Share Award by the
Committee, the Company shall cause to be transferred on the books of the
Company, Shares registered in the name of the Company, as nominee for the
Participant, evidencing the Restricted Shares covered by the Award; provided,
however, such Shares shall be subject to forfeiture to the Company retroactive
to the date of grant, if a Restricted Share Agreement delivered to the
Participant by the Company with respect to the Restricted Shares covered by the
Award is not duly executed by the Participant and timely returned to the
Company. All Restricted Shares covered by Awards under this Article 8 shall be
subject to the restrictions, terms and conditions contained in the Plan and the
Restricted Share Agreement entered into by and between the Company and the
Participant. Until the lapse or release of all restrictions applicable to an
Award of Restricted Shares, the share certificates representing such Restricted
Shares shall be held in custody by the Company or its designee.
(c) Shareholder Rights. Beginning on the date of
grant of the Restricted Share Award and subject to execution of the Restricted
Share Agreement as provided in Sections 8.1(a) and (b), the Participant shall
become a shareholder of the Company with respect to all Shares subject to the
Restricted Share Agreement and shall have all of the rights of a shareholder,
including, but not limited to, the right to vote such Shares and the right to
receive distributions made with respect to such Shares; provided, however, that
any Shares distributed as a dividend or otherwise with respect to any Restricted
Shares as to which the restrictions have not yet lapsed shall be subject to the
same restrictions as such Restricted Shares and shall be represented by book
entry and held as prescribed in Section 8.1(b).
(d) Restriction on Transferability. None of the
Restricted Shares may be assigned or transferred (other than by will or the laws
of descent and distribution), pledged or sold prior to lapse or release of the
restrictions applicable thereto.
-8-
<PAGE>
(e) Delivery of Shares Upon Release of Restrictions.
Upon expiration or earlier termination of the forfeiture period without a
forfeiture and the satisfaction of or release from any other conditions
prescribed by the Committee, the restrictions applicable to the Restricted
Shares shall lapse. As promptly as administratively feasible thereafter, subject
to the requirements of Section 10.1, the Company shall deliver to the
Participant or, in case of the Participant's death, to the Participant's
beneficiary, one or more stock certificates for the appropriate number of
Shares, free of all such restrictions, except for any restrictions that may be
imposed by law.
8.2. Terms of Restricted Shares. (a) Forfeiture of Restricted
Shares. Subject to Section 8.2(b), all Restricted Shares shall be forfeited and
returned to the Company and all rights of the Participant with respect to such
Restricted Shares shall terminate unless the Participant continues in the
service of the Company as an employee until the expiration of the forfeiture
period for such Restricted Shares and satisfies any and all other conditions set
forth in the Restricted Share Agreement. The Committee in its sole discretion,
shall determine the forfeiture period (which may, but need not, lapse in
installments) and any other terms and conditions applicable with respect to any
Restricted Share Award.
(b) Waiver of Forfeiture Period. Notwithstanding
anything contained in this Article 8 to the contrary, the Committee may, in its
sole discretion, waive the forfeiture period and any other conditions set forth
in any Restricted Share Agreement under appropriate circumstances (including the
death, disability or retirement of the Participant or a material change in
circumstances arising after the date of an Award) and subject to such terms and
conditions (including forfeiture of a proportionate number of the Restricted
Shares) as the Committee shall deem appropriate.
ARTICLE 9.
GENERALLY APPLICABLE PROVISIONS
9.1. Option Period. Subject to Section 3.1(b), the period for
which an Option is exercisable shall not exceed ten years from the date such
Option is granted, provided, however, in the case of an Option that is not
intended to be an "incentive share option," the Committee may prescribe a period
in excess of ten years. After the Option is granted, the option period may not
be reduced.
9.2. Fair Market Value. If the Shares are listed or admitted
to trading on a securities exchange registered under the Exchange Act, the "Fair
Market Value" of a Share as of a specified date shall mean the average of the
high and low price of the shares for the day immediately preceding the date as
of which Fair Market Value is being determined (or if there was no reported sale
on such date, on the last preceding date on which any reported sale occurred)
reported on the principal securities exchange on which the Shares are listed or
admitted to trading. If the Shares are not listed or admitted to trading on any
such exchange but are listed as a national market security on Nasdaq, traded in
the over-the- counter market or listed or traded on any similar system then in
use, the Fair Market Value of a Share shall be the average of the high and low
sales price for the day immediately preceding the date as of which the Fair
Market Value is being determined (or if there was no reported sale on such date,
on the last preceding date on which any reported sale occurred) reported on such
system. If the Shares are not listed or admitted to trading on any such
exchange, are not listed as a national market security on Nasdaq and are not
traded in the over-the-counter market or listed or traded on any similar system
then in use, but are quoted on Nasdaq or any similar system then in use, the
Fair Market Value of a Share shall be
-9-
<PAGE>
the average of the closing high bid and low asked quotations on such system for
the Shares on the date in question. If the Shares are not publicly traded, Fair
Market Value shall be determined by the Committee in its sole discretion using
appropriate criteria. An Option shall be considered granted on the date the
Committee acts to grant the Option or such later date as the Committee shall
specify.
9.3. Exercise of Options. Options granted under the Plan shall
be exercised by the Optionee thereof (or by his executors, administrators,
guardian or legal representative, as provided in Sections 9.6 and 9.7 hereof) as
to all or part of the Shares covered thereby, by the giving of written notice of
exercise to the Company, specifying the number of Shares to be purchased,
accompanied by payment of the full purchase price for the Shares being
purchased. Full payment of such purchase price shall be made within five
business days following the date of exercise and shall be made (i) in cash or by
certified check or bank check, (ii) with the consent of the Committee, by
delivery of a promissory note in favor of the Company upon such terms and
conditions as determined by the Committee, (iii) with the consent of Committee,
by tendering previously acquired Shares (valued at its Fair Market Value, as
deter- mined by the Committee as of the date of tender), or (iv) with the
consent of the Committee, any combination of (i), (ii) and (iii). Such notice of
exercise, accompanied by such payment, shall be delivered to the Company at its
principal business office or such other office as the Committee may from time to
time direct, and shall be in such form, containing such further provisions
consistent with the provisions of the Plan, as the Committee may from time to
time prescribe. In no event may any Option granted hereunder be exercised for a
fraction of a Share. The Company shall effect the transfer of Shares purchased
pursuant to an Option as soon as practicable, and, within a reasonable time
thereafter, such transfer shall be evidenced on the books of the Company. No
person exercising an Option shall have any of the rights of a holder of Shares
subject to an Option until certificates for such Shares shall have been issued
following the exercise of such Option. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date of such
issuance.
9.4. Transferability of Options. No Option that is intended to
be "incentive share option" shall be assignable or transferable by the Optionee,
other than by will or the laws of descent and distribution, and may be exercised
during the life of the Optionee only by the Optionee or his guardian or legal
representative. An Option that is intended to be a "nonqualified share option"
may be assignable or transferable as the Committee may determine, subject to the
following: An Optionee who has been granted "nonqualified share options" may
transfer any or all of such options only to any one or more of the following
persons: (i) the spouse, parent, issue, spouse of issue, or issue of spouse
("issue" shall include all descendants whether natural or adopted) of such
Optionee; or (ii) a trust for the benefit of those persons described in clause
(i) above or for the benefit of such Optionee, or for the benefit of any such
persons and such Optionee; provided, however, that such transferee shall be
bound by all of the terms and conditions of this Plan and shall execute an
agreement satisfactory to the Company evidencing such obligation; and provided
further, however, that such Optionee shall remain bound by the terms and
conditions of this Plan. The Company shall cooperate with an Optionee's
transferee and the Company's transfer agent in effectuating any transfer
permitted pursuant to this Section 9.4.
9.5. Termination of Employment. In the event of the
termination of employment of an Optionee or the termination or separation from
service of an advisor or consultant or a Director (who is an Optionee) for any
reason (other than death or disability as provided below), any Option(s) granted
to such Optionee under this Plan and not previously exercised or expired shall
be deemed cancelled and terminated on the day of such termination or separation,
unless the Committee decides, in its sole discretion, to extend the term of the
Option for a period not to exceed three months after the date of such
termination or separation, provided, however, that in no instance may the term
of the Option, as so
-10-
<PAGE>
extended, exceed the maximum term established pursuant to Section 3.1(b)(ii) or
9.1 above. Notwithstanding the foregoing, in the event of the termination or
separation from service of an Optionee for any reason other than death or
disability, under conditions satisfactory to the Company, the Committee may, in
its sole discretion, allow any "nonqualified share options" granted to such
Optionee under the Plan and not previously exercised or expired to be
exercisable for a period of time to be specified by the Committee, provided,
however, that in no instance may the term of the Option, as so extended, exceed
the maximum term established pursuant to Section 9.1 above.
9.6. Death. In the event an Optionee dies while employed by
the Company or any of its subsidiaries or affiliates or during his term as a
Director of the Company or any of its subsidiaries or affiliates, as the case
may be, any Option(s) granted to him not previously expired or exercised shall,
to the extent exercisable on the date of death, be exercisable by the estate of
such Optionee or by any person who acquired such Option by bequest or
inheritance, at any time within one year after the death of the Optionee, unless
earlier terminated pursuant to its terms, provided, however, that if the term of
such Option would expire by its terms within six months after the Optionee's
death, the term of such Option shall be extended until six months after the
Optionee's death, provided further, however, that in no instance may the term of
the Option, as so extended, exceed the maximum term established pursuant to
Section 3.1(b)(ii) or 9.1 above.
9.7. Disability. In the event of the termination of employment
of an Optionee or the separation from service of a Director (who is an Optionee)
due to total disability, the Optionee, or his guardian or legal representative,
shall have the unqualified right to exercise any Option(s) which have not been
previously exercised or expired and which the Optionee was eligible to exercise
as of the first date of total disability (as determined by the Committee), at
any time within one year after such termination or separation, unless earlier
terminated pursuant to its terms, provided, however, that if the term of such
Option would expire by its terms within six months after such termination or
separation, the term of such Option shall be extended until six months after
such termination or separation, provided further, however, that in no instance
may the term of the Option, as so extended, exceed the maximum term established
pursuant to Section 3.1(b)(ii) or 9.1 above. The term "total disability" shall,
for purposes of this Plan, be defined in the same manner as such term is defined
in Section 22(e)(3) of the Code.
9.8. Amendment and Modification of the Plan. The Board of
Directors of the Company may, from time to time, alter, amend, suspend or
terminate the Plan as it shall deem advisable, subject to any requirement for
shareholder approval imposed by applicable law or any rule of any stock exchange
or quotation system on which Shares are listed or quoted; provided that the
Board of Directors may not amend the Plan in any manner that would result in
noncompliance with Rule 16b-3 of the Exchange Act or any applicable law, except
as otherwise provided in Sections 3.2 or 9.10 hereof; and further provided that
the Board of Directors may not, without the approval of the Company's
shareholders, amend the Plan to (a) increase the number of Shares that may be
the subject of Options under the Plan (except for adjust- ments pursuant to
Section 9.9 hereof), (b) reduce the minimum option price specified by Sections
3.1(b) and 4.3 hereof, (c) increase the maximum permissible term of any Option
specified by Section 3.1(b)(ii) or 9.1 hereof, and (d) remove responsibility for
administering the Plan from the Committee. In addition, no amendments to, or
termination of, the Plan shall in any way impair the rights of an Optionee or a
Participant under any Award previously granted without such Optionee's or
Participant's consent.
9.9. Adjustments. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination,
-11-
<PAGE>
repurchase, or exchange of Shares or other securities, the issuance of warrants
or other rights to purchase Shares or other securities, or other similar
corporate transaction or event affects the Shares with respect to which Options
have been or may be issued under the Plan, such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as the Committee may deem
equitable, adjust any or all of (i) the number and type of Shares that
thereafter may be made the subject of Options, (ii) the number and type of
Shares subject to outstanding Options and share appreciation rights, and (iii)
the grant or exercise price with respect to any Option, or, if deemed
appropriate, make provision for a cash payment to the holder of any outstanding
Option; provided, in each case, that with respect to "incentive share options,"
no such adjustment shall be authorized to the extent that such adjustment would
cause such options to violate Section 422(b) of the Code or any successor
provision; and provided further, that the number of Shares subject to any Option
denominated in Shares shall always be a whole number.
9.10. Other Provisions. Notwithstanding anything in this Plan
to the contrary, if the Board of Directors determine that the Plan cannot, or
that an Award need not, satisfy the requirements of Rule 16b-3 of the Exchange
Act (such that grants of Awards are not exempt from Section 16(b) of the
Exchange Act), then the Committee shall have the authority to waive or modify
those provisions of the Plan which are intended to satisfy such Rule 16b-3
requirements.
ARTICLE 10.
MISCELLANEOUS
10.1. Tax Withholding. The Company shall notify an Optionee or
Participant of any income tax withholding requirements arising as a result of
the grant of any Award, exercise of an Option or share appreciation rights or
any other event occurring pursuant to this Plan. The Company shall have the
right to withhold from such Optionee or Participant such withholding taxes as
may be required by law, or to otherwise require the Optionee or Participant to
pay such withholding taxes. If the Optionee or Participant shall fail to make
such tax payments as are required, the Company or its subsidiaries or affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to such Optionee or Participant or to
take such other action as may be necessary to satisfy such withholding
obligations.
10.2. Right of Discharge Reserved. Nothing in the Plan nor the
grant of an Award hereunder shall confer upon any employee, Director or other
individual the right to continue in the employment or service of the Company or
any subsidiary or affiliate of the Company or affect any right that the Company
or any subsidiary or affiliate of the Company may have to terminate the
employment or service of (or to demote or to exclude from future Options under
the Plan) any such employee, Director or other individual at any time for any
reason. Except as specifically provided by the Committee, the Company shall not
be liable for the loss of existing or potential profit from an Award granted in
the event of termination of an employment or other relationship even if the
termination is in violation of an obligation of the Company or any subsidiary or
affiliate of the Company to the employee or Director.
10.3. Nature of Payments. All Awards made pursuant to the Plan
are in consideration of services performed or to be performed for the Company or
any subsidiary or affiliate of the Company. Any income or gain realized pursuant
to Awards under the Plan and any share appreciation rights consti-
-12-
<PAGE>
tutes a special incentive payment to the Optionee, Participant or Holder and
shall not be taken into account, to the extent permissible under applicable law,
as compensation for purposes of any of the employee benefit plans of the Company
or any subsidiary or affiliate of the Company except as may be determined by the
Committee or by the Directors or directors of the applicable subsidiary or
affiliate of the Company.
10.4. Severability. If any provision of the Plan shall be held
unlawful or otherwise invalid or unenforceable in whole or in part, such
unlawfulness, invalidity or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which remain in full force and
effect. If the making of any payment or the provision of any other benefit
required under the Plan shall be held unlawful or otherwise invalid or
unenforceable, such unlawfulness, invalidity or unenforceability shall not
prevent any other payment or benefit from being made or provided under the Plan,
and if the making of any payment in full or the provision of any other benefit
required under the Plan in full would be unlawful or otherwise invalid or
unenforceable, then such unlawfulness, invalidity or unenforceability shall not
prevent such payment or benefit from being made or provided in part, to the
extent that it would not be unlawful, invalid or unenforceable, and the maximum
payment or benefit that would not be unlawful, invalid or unenforceable shall be
made or provided under the Plan.
10.5. Gender and Number. In order to shorten and to improve the
understandability of the Plan document by eliminating the repeated usage of such
phrases as "his or her" and any masculine terminology herein shall also include
the feminine, and the definition of any term herein in the singular shall also
include the plural except when otherwise indicated by the context.
10.6. Governing Law. The Plan and all determinations made and
actions taken thereunder, to the extent not otherwise governed by the Code or
the laws of the United States, shall be governed by the laws of the State of
North Carolina and construed accordingly.
10.7. Effective Date of Plan; Termination of Plan. The Plan shall
be effective on the date of the approval of the Plan by the holders of a
majority of the shares entitled to vote at a duly constituted meeting of the
shareholders; provided, however, that the adoption of the Plan is subject to
such shareholder approval within 12 months after the date of adoption of the
Plan by the Board of Directors. The Plan shall be null and void and of no effect
if the foregoing condition is not fulfilled and in such event each Award and
related share appreciation rights shall, notwithstanding any of the preceding
provisions of the Plan, be null and void and of no effect. Awards may be granted
under the Plan at any time and from time to time on or prior to November 7,
2006, on which date the Plan will expire except as to Awards and related share
appreciation rights then outstanding under the Plan. Such outstanding Awards and
share appreciation rights shall remain in effect until they have been exercised
or terminated, or have expired.
10.8. Captions. The captions in this Plan are for convenience of
reference only, and are not intended to narrow, limit or affect the substance or
interpretation of the provisions contained herein.
-13-
<PAGE>
FRONT ROYAL, INC.
AMENDMENT TO
1996 INCENTIVE PLAN
The first sentence of Paragraph 2.1 of the 1996 Incentive Plan
of Front Royal, Inc., a North Carolina corporation (the "Company"), adopted on
November 7, 1996 by the Board of Directors of the Company and approved by the
shareholders of the Company on December 19, 1997, is hereby deleted in its
entirety and the following substituted in lieu thereof:
2.1 Number of Shares. Subject to the adjustment provisions of
Section 9.9 hereof, the aggregate number of Shares which may be issued under
Awards under the Plan, whether pursuant to Options, share appreciation rights,
Share Purchase Awards or Restricted Share Awards, shall not exceed 1,915,000.
-14-
<PAGE>
F. R. ACQUISITION CORP.
1992 STOCK OPTION PLAN
<PAGE>
F. R. ACQUISITION CORP.
1992 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
1.01. Affiliate means any "subsidiary corporation" or "parent corporation" as
such terms are defined in Section 424 of the Code.
1.02. Agreement means a written agreement (including any amendment or supplement
thereto) between the Company and a Participant specifying the terms and
conditions of an Option granted to such Participant.
1.03. Board means the Board of Directors of the Company.
1.04. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.05. Committee means the Management Committee of the Board which shall be
composed of the Class B Directors of the Board at such time as Common Stock is
outstanding. In the event there is no Common Stock outstanding, the Management
Committee shall consist of the Chief Executive Officer of the Company and the
President of Front Royal Insurance Company.
1.06. Common Stock means the Class B common stock of the Company; provided that
in the event the Class B common stock of the Company is converted into Class A
common stock of the Company, the term "Common Stock" shall mean the Class A
common stock of the Company.
1.07. Company means F. R. Acquisition Corp.
<PAGE>
1.08. Fair Market Value means, on any given date, the fair market value of a
share of Common Stock as determined by the Committee using any reasonable method
in good faith.
1.09. Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock at the price set forth in an
Agreement.
1.10. Participant means an employee of, or consultant to, the Company or any
Affiliate who satisfies the requirements of Article IV and is selected by the
Committee to receive an Option.
1.11. Plan means the F. R. Acquisition Corp. 1992 Stock Option Plan.
1.12. Ten Percent Shareholder means any individual owning more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of an Affiliate. An individual shall be considered to own any voting stock
owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionally
any voting stock owned (directly or indirectly) by or for a corporation, estate
or trust of which such individual is a shareholder, partner or beneficiary.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining
employees and consultants with
-2-
<PAGE>
ability and initiative by enabling employees and consultants to participate in
its future success and to associate their interests with those of the Company
and its shareholders. The Plan is intended to permit the grant of both Options
qualifying under Section 422 of the Code ("incentive stock options") and Options
not so qualifying. No Option that is intended to be an incentive stock option
shall be invalid for failure to qualify as an incentive stock option. The
proceeds received by the Company from the sale of Common Stock pursuant to this
Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
3.01. General. Except as provided in this Article III, the Plan shall be
administered by the Committee. The Committee shall have authority to grant
Options upon such terms (not inconsistent with the provisions of this Plan) as
the Committee may consider appropriate. Such terms may include conditions (in
addition to those contained in this Plan) on the exercisability of all or any
part of an Option. Notwithstanding any such conditions, the Committee may, in
its discretion, accelerate the time at which any Option may be exercised. In
addition, the Committee shall have complete authority to interpret all
provisions of this Plan; to prescribe the form of Agreements; to adopt, amend,
and rescind rules and regulations pertaining to the administration of the Plan;
and to make all other determinations necessary or
-3-
<PAGE>
advisable for the administration of this Plan. The express grant in the Plan of
any specific power to the Committee shall not be construed as limiting any power
or authority of the Committee. Any decision made, or action taken, by the
Committee or in connection with the administration of this Plan shall be final
and conclusive. No member of the Committee shall be liable for any act done in
good faith with respect to this Plan or any Agreement or Option. All expenses of
administering this Plan shall be borne by the Company.
3.02. Delegation by the Committee. The Committee, in its discretion, may
delegate to one or more officers of the Company, all or part of the Committee's
authority and duties. In the event of such delegation, and as to matters
encompassed by the delegation, references in the Plan to the Committee shall be
interpreted as a reference to the Committee's delegate or delegates. The
Committee may revoke or amend the terms of a delegation at any time but such
action shall not invalidate any prior actions of the Committee's delegate or
delegates that were consistent with the terms of the Plan.
ARTICLE IV
ELIGIBILITY
4.01. General. Any executive officer or key employee of, or consultant to, the
Company or any Affiliate (including any corporation that becomes an Affiliate
after the adoption of this Plan) is eligible to participate in this Plan if the
Committee, in its sole discretion, determines that such person
-4-
<PAGE>
has contributed or can be expected to contribute to the profits or growth of the
Company or an Affiliate. Any such employee or consultant may be granted one or
more Options. A member of the Committee or any officer of the Company or an
Affiliate to whom the Committee has delegated its authority under the Plan may
not participate in any decision regarding the grant to him of an Option under
this Plan.
4.02. Grants. The Committee will designate individuals to whom Options are to be
granted and will specify the number of shares of Common Stock subject to each
award or grant; provided, however, the number of shares so specified, as to any
particular Participant, shall be subject to the approval of the Board, which
approval shall not be unreasonably withheld. All Options under this Plan shall
be evidenced by Agreements which shall be subject to applicable provisions of
this Plan and to such other provisions as the Committee may adopt. No
Participant may be granted incentive stock options (under all incentive stock
option plans of the Company and its Affiliates) which are first exercisable in
any calendar year for stock having an aggregate Fair Market Value (determined as
of the date an option is granted) exceeding $100,000. The preceding annual
limitation shall not apply with respect to Options that are not incentive stock
options.
-5-
<PAGE>
ARTICLE V
STOCK SUBJECT TO PLAN
5.01. Source of Shares. Upon the exercise of any Option the Company may deliver
to the Participant (or the Participant's broker if the Participant so directs),
authorized but unissued Common Stock.
5.02. Maximum Number of Shares. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to the exercise of Options under this Plan is
250,000, subject to increases and adjustments as provided in this Article V and
Article IX.
5.03. Forfeitures, etc. If an Option is terminated, in whole or in part, for any
reason other than its exercise, the number of shares or Common Stock allocated
to the Option or portion thereof may be reallocated to other Options.
ARTICLE VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an Option
shall be determined by the Committee on the date of grant. The price per share
for Common Stock purchased on the exercise of any Option that is an incentive
stock option shall not be less than the Fair Market Value on the date the Option
is granted; provided, however, that the price per share shall not be less than
110% of the Fair Market Value in the case of an incentive stock option that is
granted to a Ten Percent Shareholder.
-6-
<PAGE>
ARTICLE VII
EXERCISE OF OPTIONS
7.01. Maximum Option Period. The maximum period in which an Option may be
exercised shall be determined by the Committee on the date of grant. No Option
that is an incentive stock option shall be exercisable after the expiration of
10 years from the date the Option was granted or 5 years in the case of an
incentive stock option that is granted to a Ten Percent Shareholder. The terms
of any Option may provide that it is exercisable for a period less than such
maximum period.
7.02. Conditions on Exercise.
(a) No Option shall become exercisable unless the Notes, together with all
accrued and unpaid interest, have been paid in full on or before December 31,
1996.
(b) If the Notes, together with all accrued and unpaid interest, are repaid
prior to January 1, 1997, an Option shall become exercisable based on the date
of repayment of the Notes and the Cumulative Net Income of the Company, as
described in the following schedule:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Date First % of Shares Repayment Date Cumulative
Exercisable Exercisable On or Before Net Income
----------- ----------- ------------ ----------
<S> <C> <C> <C>
January 1, 1993 20% December 31, 1992 ($293,597)
as of 12/31/92
January 1, 1994 40% December 31, 1993 $1,164,794
as of 12/31/93
January 1, 1995 60% December 31, 1994 $3,698,758
as of 12/31/94
</TABLE>
-7-
<PAGE>
<TABLE>
<S> <C> <C> <C>
January 1, 1996 80% December 31, 1995 $7,713,845
as of 12/31/95
January 1, 1997 100% December 31, 1996 $13,820,456
as of 12/31/96
</TABLE>
For each Percentage Point by which the Cumulative Net Income is less than the
amount set forth above in Column 4, the percentage in Column 2 shall be reduced
as follows:
Repayment Date
On or Before CNI As of % Reduction
------------ --------- -----------
December 31, 1992 December 31, 1992 .4%
December 31, 1993 December 31, 1993 .8%
December 31, 1994 December 31, 1994 1.2%
December 31, 1995 December 31, 1995 1.6%
December 31, 1996 December 31, 1996 2.0%
Notwithstanding the above, an Option that becomes exercisable by virtue of
satisfying the conditions of this Section 7.02(b) and is held by a Participant
whose employment terminated prior to the Option becoming exercisable for any
reason, other than for Cause, shall be exercisable only with respect to the
percentage of shares that would have been exercisable on the date of his
termination of employment if the Notes have been repaid on or prior to that
date.
(c) For purposes of this Section 7.02, the following definitions apply:
(1) Cause means termination of employment for (i) failure for any
reason to comply with any directive (determined to be in the best interest
of the Company and its Shareholders) issued to the employee by the Board,
(ii) conviction of a felony
-8-
<PAGE>
or a crime involving moral turpitude (meaning a crime that includes the
commission of an act of gross depravity, dishonesty, or bad morals), (iii)
commission of an act of dishonesty, fraud or embezzlement against the
Company or (iv) willful violation of the provisions of any employment
agreement between the Company and the employee or gross neglect of duties
by the employee.
(2) Cumulative Net Income, as of any date, means the sum of the Net
Income of the Company for each Fiscal Year beginning in 1992 and continuing
through the end of the Fiscal Year immediately preceding the date of
determination.
(3) Fiscal Year means the twelve-month period on which the Company's
books and records are kept. The Company's fiscal year is the calendar year.
(4) Net Income for any Fiscal Year means the net income of the
Company, as determined in accordance with generally accepted accounting
principles, consistently applied, and set forth on the Company's audited
financial statements.
(5) Notes means the 9% Senior Subordinated Notes due December 31, 1996
which have been executed and delivered by the Company.
(6) Percentage Point means 1% (rounded to the nearest whole
percentage) of the Cumulative Net
-9-
<PAGE>
Income for any Fiscal Year specified in Column 4 of the schedule.
7.03. Nontransferability. Any Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option must be transferred to the person or
persons or entity or entities specified in such will or by such laws. During the
lifetime of the Participant to whom the Option is granted, the Option may be
exercised only by the Participant. No right or interest of a Participant in any
Option shall be subject to any lien, obligation, or liability nor shall it
create any liability on such Participant.
7.04. Employee Status. For purposes of determining the applicability of Section
422 of the Code (relating to incentive stock options), or in the event that the
terms of any Option provide that it may be exercised only during employment or
within a specified period of time after termination of employment, the Committee
may decide to what extent leaves of absence for governmental or military
service, illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
ARTICLE VIII
METHOD OF EXERCISE
8.01. Exercise. Subject to the provisions of Articles VII and X, an Option may
be exercised in whole at any time or in part from time to time at such times and
in compliance with
-10-
<PAGE>
such requirements as the Committee shall determine. An Option granted under this
Plan may be exercised with respect to any number of whole shares less than the
full number of whole shares for which the Option could be exercised. A partial
exercise of an Option shall not affect the right to exercise the Option from
time to time in accordance with this Plan and the applicable Agreement with
respect to remaining shares subject to the Option.
8.02. Payment. Unless otherwise provided by the Agreement, payment of the Option
price shall be made in cash or a cash equivalent acceptable to the Committee.
ARTICLE IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options may be granted under this
Plan shall be proportionately adjusted, and the terms of outstanding Options
shall be adjusted, as the Committee shall determine to be equitably required in
the event that (a) the Company (i) effects one or more stock dividends, stock
split-ups, subdivisions or consolidations of shares or (ii) engages in a
transaction to which Section 424 of the Code applies or (b) there occurs any
other event which, in the judgment of the Committee necessitates such action.
Any determination made under this Article IX by the Committee shall be final and
conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of
-11-
<PAGE>
any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, outstanding Options.
ARTICLE X
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Option shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with applicable federal and state
laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company shall have the right to rely on an
opinion of its counsel as to such compliance. Any share certificate issued to
evidence Common Stock for which an Option is exercised may bear such legends and
statements as the Committee may deem advisable to assure compliance with federal
and state laws and regulations. No Option shall be exercisable, no Common Stock
shall be issued, no certificate for shares shall be delivered, and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Committee may
-12-
<PAGE>
deem advisable from regulatory bodies having jurisdiction over such matters.
ARTICLE XI
GENERAL PROVISIONS
11.01. Effect on Employment. Neither the adoption of this Plan, its operation,
nor any documents describing or referring to this Plan (or any part thereof)
shall confer upon any employee or consultant any right to continue in the employ
of, or under contract with, the Company or any Affiliate or in any way affect
any right and power of the Company or an Affiliate to terminate the employment
of any employee or consultant at any time with or without assigning a reason
therefor.
11.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
11.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to
-13-
<PAGE>
refer to any amendment to or successor of such provision of law.
ARTICLE XII
AMENDMENT
The Committee may amend or terminate the Plan from time to time; provided,
however, that no amendment may become effective without the approval of a
majority of the holders of the issued and outstanding shares of Class A common
stock of the Company if (i) the amendment increases the aggregate number of
shares of Common Stock that may be issued under the Plan or (i) the amendment
changes the class of individuals eligible to become Participants. No amendment
shall, without a Participant's consent, adversely affect any rights of such
Participant under any Option outstanding at the time such amendment is made.
ARTICLE XIII
DURATION OF PLAN
No Option may be granted under this Plan more than ten years after the
earlier of the date that the Plan is adopted by the Committee or the date that
the Plan is approved by shareholders as provided in Article XIV. Options granted
before that date shall remain valid in accordance with their terms.
ARTICLE XIV
EFFECTIVE DATE OF PLAN
-14-
<PAGE>
Options may be granted under this Plan upon its adoption by the Committee,
provided that no Option will be effective unless this Plan is approved by
shareholders holding a majority of the Company's outstanding voting stock,
voting either in person or by proxy at a duly held shareholders' meeting within
twelve months of such adoption.
-15-
<PAGE>
FRONT ROYAL, INC.
Resolutions to be Adopted by the
Board of Directors
with respect to the 1992 Stock Option Plan
December 1, 1995
RESOLVED, that Section 1.05 of the 1992 Stock Option Plan (the "Plan") shall be
amended and restated to provide as follows:
1.05. Committee means the Compensation Committee of the Board.
RESOLVED, that Section 7.02 of the Plan, other than paragraph (c)(1) thereof,
shall be deleted in its entirety; and
RESOLVED, that, the Board of Directors hereby waives the Conditions on Exercise
set forth on Exhibit A to each written agreement specifying the terms and
conditions of options granted pursuant to the Plan entered into between the
Company and an optionee pursuant to the Plan prior to the date hereof for which
options have not been forfeited prior to the date hereof; and
RESOLVED, that the Board of Directors hereby confirms that the members of the
Compensation Committee of the Board of Directors are J. Adam Abram, Ira M.
Lubert, Lewis P. Wilkinson and Richard W. Wright.
Messrs. Wright and Abram abstained from voting with respect to the amendment of
the terms of the Conditions on Exercise attached as Exhibit A to the option
agreements.
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of the ____ day of
July, 1997, by and among FRONT ROYAL, INC., a North Carolina corporation (the
"Company"), and each of the persons listed on the signature pages hereto (each
of which is individually a "Purchaser" and all of which are collectively the
"Purchasers").
The parties hereby agree as follows:
1. Sale and Purchase of Securities.
1.1 Sale and Purchase. Subject to the terms and conditions of (a) this
Agreement, (b) the Registration Rights Agreement, by and among the Company, the
Purchasers and certain other shareholders of the Company, as amended (the
"Registration Rights Agreement"), and (c) the Shareholders Agreement, dated as
of December 31, 1996, by and among the Company and the other parties listed as
signatories thereto, as amended (the "Shareholders Agreement"), (i) the Company
will issue and sell to the Purchasers, and each Purchaser, severally and not
jointly, will purchase at the Closing (as defined in Section 2.1), the number of
units specified opposite the name of such Purchaser on the signature pages
hereto (or, as to any such purchaser, such lesser number of Units as the Company
shall determine in its complete discretion) ("Units") each consisting of one
hundred shares of the Company's Class C Common Stock, no par value ("Class C
Common Shares"), together with one hundred associated Rights pursuant to Section
1.3 of this Agreement ("Rights"), and a warrant ("Warrant") to purchase 7.874
Class A Common Shares of the Company pursuant to Section 1.2 of this Agreement,
at a purchase price of $400 per Unit, for a total aggregate purchase price for
all Purchasers of Two Hundred Ninety Three Thousand Two Hundred Dollars
($293,200).
1.2 Warrants. The Warrants shall be issued at the Closing in the form
attached hereto as Exhibit 1.2.
1.3 Rights. The Rights shall be issued at the Closing pursuant the terms of
the Rights Agreement, dated as of the date hereof, among the Company and the
signatories thereto in the form attached hereto as Exhibit 1.3.
1.4 Allocation of Purchase Price. The parties agree that the purchase price
of $400 per Unit shall be allocated as follows:
<PAGE>
$398.92 shall be allocated to the 100 Class C Common Shares forming
part of each Unit, $1.00 shall be allocated to the 100 Rights forming part
of each Unit, and $.07874 shall be attributable to the Warrant to purchase
7.874 Class A Common Shares forming part of each Unit.
2. Closing Date: Delivery: Use of Proceeds.
2.1 (a) Closing Date. The closing of the purchase and sale of the Units
shall be held at the offices of Robinson Silverman Pearce Aronsohn & Berman LLP,
at 10:00 A.M. on July ____, 1997, or as promptly thereafter as the conditions
set forth in Section 5 have been met, or at such other time and place as the
Company and the Purchasers may mutually agree. Such time is hereinafter referred
to as the "Closing" and the date of the Closing is hereinafter referred to as
the "Closing Date."
(b) Delivery by the Purchasers. At the Closing each Purchaser shall pay to
the Company, by means of wire transfer of immediately available funds, an amount
equal to the product of $400 and the number of Units set forth opposite such
Purchaser's name on the signature pages hereto (or, such lesser number of Units
as the Company shall determine in its discretion), and the Company will issue
and deliver to each such Purchaser certificates evidencing the Class C Common
Shares so purchased, together with the Rights and Warrants purchased by them.
2.2 Use of Proceeds. The Company shall use the proceeds of the sale of the
Units sold and purchased hereby for additional working capital and to repay
certain senior bank debt.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser as follows:
3.1 Capitalization. (a) Upon filing of the Amendment to the Articles of
Incorporation referred to in Section 5.1(a)(iii) the authorized capital stock of
the Company shall consist of 25,200,000 shares of capital stock, (i) 20,000,000
of which are designated Class A Common Stock, no par value (the "Class A Common
Shares"), (ii) 700,000 of which are designated Class B Common Stock, no par
value (the "Class B Common Shares"), (iii) 3,500,000 of which are designated
Class C Common Stock, no par value (the "Class C Common Shares") (the Class A
Common Shares, Class B Common Shares and the Class C Common Shares,
collectively, the "Common Shares") and (iv) 1,000,000 shares of preferred stock,
of which 155,000 have been designated Series A Convertible Preferred Stock (the
"Series A Preferred Shares"). There are 5,442,030 Class A Common Shares issued
and outstanding, 272,895 Class B Common Shares issued and outstanding, 3,175,000
Class C Common Shares issued and outstanding and 155,000 Series A
-2-
<PAGE>
Preferred Shares issued and outstanding. All such outstanding shares of capital
stock have been duly authorized and validly issued and are fully paid and
non-assessable. There are no other shares of capital stock issued and
outstanding. Upon completion of the Closing, there will be an additional 73,300
Class C Common Shares (for a total of 3,248,300 Class C Common Shares) issued
and outstanding and all such outstanding shares will be duly authorized and
validly issued, fully paid and non-assessable.
(b) The Class C Common Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid, nonassessable and free and clear of all Liens, other than (i) the
restrictions on transfer and other agreements relating to the Class C Common
Shares contained in this Agreement and in the Shareholders' Agreement, (ii)
restrictions on transfer arising under the Securities Act of 1933, as amended
(the "Act"), and under state securities and "blue sky" laws, and (iii) any Liens
granted on the Class C Common Shares with the consent of the holder thereof. The
Company has duly and validly reserved out of its authorized shares of capital
stock 5,772 Class A Common Shares for issuance upon exercise of the Warrants by
certain shareholders of the Company. Upon issuance of such reserved Class A
Common Shares in accordance with the exercise provisions of the Warrants, such
Class A Common Shares will be duly and validly issued, fully paid, nonassessable
and free and clear of all Liens. For purposes of this Agreement, "Lien" shall
mean any lien, pledge, charge, security interest, encumbrance, title retention
agreement, restriction, advance, claim or option.
3.2 Authority, Validity and Enforceability. The Company has full corporate
power and authority to enter into this Agreement, the Registration Rights
Agreement and the Shareholders' Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. All corporate action on the part of the Company and its directors,
officers, and stockholders necessary for the authorization, execution, delivery
and performance by the Company of its obligations under this Agreement, the
Registration Rights Agreement and the Shareholders' Agreement and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation the issuance and sale of the Class C Common Shares, the
Warrants and the Rights will have had been taken by the Closing Date. Each of
this Agreement, the Registration Rights Agreement and the Shareholders'
Agreement has been duly executed and delivered by the Company and, upon Closing,
is a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms except (a) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including, without limitation, the
effect of statutory or other laws regarding
-3-
<PAGE>
fraudulent conveyances and preferential transfers, and (b) for the limitations
imposed by general principles of equity. The foregoing exceptions set forth in
subsections (a) and (b) of this Section 3.2 are hereinafter referred to as the
"Enforceability Exceptions."
3.3 No Violation or Breach. Subject to Section 3.4 hereof, neither the
execution and delivery of this Agreement, the Registration Rights Agreement or
the Shareholders' Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby or thereby will violate, result in a
breach of any of the terms or provisions of, constitute a default (or an event
which, with the giving of notice or the passage of time or both, would
constitute a default) under, result in the acceleration of any indebtedness
under or performance required by, result in any right of termination of,
increase any amounts payable under, decrease any amounts receivable under,
change any other rights pursuant to, or conflict with, any agreement, indenture
or other instrument to which the Company or any of its subsidiaries (each a
"Front Royal Subsidiary") is a party or by which any of their respective
properties are bound, or any law, regulation, judgment, decree, order or award
of any court, governmental body or arbitrator (domestic or foreign) applicable
to the Company or any Front Royal Subsidiary, except that the issuance of Class
A Common Shares upon exercise of the Warrants or the Rights may require
adjustments under the terms of other warrants or options issued by the Company.
3.4 Consents and Approvals. All consents, approvals and authorizations of,
and declarations, filings and registrations with, and payments of all taxes,
fees, fines and penalties to, any governmental or regulatory authority (domestic
or foreign) or any other person (either governmental or private) required to be
obtained or made by the Company or any Front Royal Subsidiary in connection with
the execution and delivery by the Company of this Agreement, the Registration
Rights Agreement (other than necessary filings to register the Company's
securities under the Act pursuant to such Agreement) or the Shareholders'
Agreement or the consummation by the Company of the transactions contemplated
hereby or thereby, have been or will be by the Closing Date, obtained, made and
satisfied, other than filings required to be made after but not before the
Closing by any Front Royal Subsidiary with the appropriate insurance department
under the insurance holding company act provisions of the insurance law of the
state of domicile of each such Front Royal Subsidiary, which filings shall be
made by each respective Front Royal Subsidiary on a timely basis after the
Closing.
3.5 Brokerage Fees. None of the Company or any Front Royal Subsidiary has
taken any action in connection with this Agreement or the transactions
contemplated hereby which would
-4-
<PAGE>
give rise to any valid claim against the Company or any Front Royal Subsidiary
or any of the Purchasers for any brokerage or finder's fee.
3.6 Charter Documents and By-laws. The Company has heretofore made
available to the Purchasers true and complete copies of the Articles of
Incorporation and By-Laws of the Company as in effect on the date hereof.
3.7 Minute Books. The minute books of the Company and the Front Royal
Subsidiaries accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of the stockholders
of each respective company since the date of formation of such company, and all
formal actions taken at all meetings and all consents in lieu of meetings of the
board of directors of the Company and the Front Royal Subsidiaries and all
committees thereof since the date of formation of such company. All of such
minute books have been made available for inspection by the Purchasers.
3.8 Statutory Statements. The Company has made available to the Purchasers
(a) the Front Royal Statutory Statements and (b) any annual statutory statements
of Front Royal Insurance Company ("Front Royal Insurance"), Hamilton Insurance
Company ("Hamilton Insurance") and Colony Insurance Company ("Colony Insurance")
that were filed for the year ended December 31, 1996 in any jurisdiction (other
than Virginia and Ohio) and which differ from the Front Royal Annual Statement
for the year ended December 31, 1996. Each such Front Royal Statutory Statement
(i) complied in all material respects with all applicable laws when so filed,
(ii) was prepared in accordance with SAP and (iii) presents fairly in all
material respects the financial position of Front Royal Insurance, Hamilton
Insurance and Colony Insurance as of the respective dates thereof and the
related summary of operations and changes in capital and surplus and in cash
flows of Front Royal Insurance, Hamilton Insurance and Colony Insurance for and
during the respective periods covered thereby. No material deficiency has been
asserted by any insurance regulatory authority with respect to any such
Statutory Statement. "Front Royal Statutory Statements," when used in this
Agreement, shall mean, collectively, the annual statements filed by each of
Front Royal Insurance, Hamilton Insurance and Colony Insurance on the NAIC
prescribed convention blank for each of the years ended December 31, 1995 and
1996, filed with the Virginia Department of Insurance or the Ohio Department of
Insurance, as the case may be, pursuant to the Virginia Insurance Law and the
Ohio Insurance Law, respectively (including management's discussion and analysis
and the supporting memorandum to the actuarial opinions given in connection with
each such Front Royal Statutory Statement).
-5-
<PAGE>
3.9 Financial Information. The Company has made available to the Purchasers
true and complete copies of the consolidated balance sheets and consolidated
statements of operations and stockholders' equity and of cash flows of the
Company and the Front Royal Subsidiaries for each of the fiscal years ended as
of December 31, 1995 and December 31, 1996, together with all related notes and
schedules thereto (the "Financial Statements"). The Financial Statements were
prepared from the books and records of the Company and the Front Royal
Subsidiaries and present fairly the consolidated financial condition and results
of operations of the Company and the Front Royal Subsidiaries as of the dates
thereof or for the periods covered thereby in accordance with generally accepted
accounting principles consistently applied ("GAAP").
3.10 Disclosure. The Company has provided each Purchaser with all the
information which such Purchaser has requested for deciding whether to purchase
the Class C Common Shares, Warrants and Rights and all information which the
Company believes is reasonably necessary to enable such Purchaser to make such
decision. The information provided by the Company in the Company's Offering
Memorandum dated December 20, 1996 as supplemented (the "Offering Memorandum")
and this Agreement, does not and will not as of the Closing contain any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made, not
false or misleading. Copies of all documents heretofore or hereafter delivered
or made available by the Company to the Purchasers pursuant hereto were or will
be complete and accurate records of such documents. The Company knows of no
information or fact that has or is reasonably likely to have a Material Adverse
Effect that has not been disclosed to the Purchasers in writing. The
projections, taken as a whole, furnished to the Purchasers by the Company in the
Offering Memorandum, were made with due care based on assumptions which the
Company believed in good faith to be reasonable as of the date thereof. These
projections were made by the Company based on assumptions which the Company did
not consider improbable or unlikely, including, but not limited to, allocations
of general expenses of the Company and its Subsidiaries.
3.11 Registration Rights. Except as granted pursuant to and identified in
the Registration Rights Agreement, the Company has not granted or agreed to
grant any registration rights of any type to any person or entity.
3.12 No Registration. Subject to the truth and accuracy of the
representations of the Purchasers in this Agreement, the issuance, sale and
delivery of the Class C Common Shares, Warrants and Rights to the Purchasers, as
contemplated by
-6-
<PAGE>
this Agreement are exempt from the registration requirements of the Act, and any
applicable state securities law relating thereto.
4. Representations and Warranties of the Purchasers. Each of the Purchasers
represents and warrants, severally and not jointly, to the Company as follows as
to itself only:
4.1 Acquisition of Securities. This Agreement is made with such Purchaser
in reliance upon such Purchaser's representation to the Company, which by such
Purchaser's execution of this Agreement such Purchaser hereby confirms, that the
Class C Common Shares, Warrants and Rights to be received by such Purchaser will
be acquired for investment for such Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same.
4.2 No Registration. Such Purchaser understands and acknowledges that the
offering of the Class C Common Shares, Warrants and Rights pursuant to this
Agreement will not be registered under the Act, or under any other applicable
blue sky or state securities law on the grounds that the offering and sale of
the Class C Common Shares, Warrants and Rights contemplated by this Agreement
are exempt from registration pursuant to Section 4(2) of the Act and the
regulations thereunder and exempt from qualification pursuant to comparable
available exceptions in various states, and that the Company's reliance upon
such exemptions is predicated upon such Purchaser's representations set forth in
this Agreement.
4.3 Consents and Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, or payment of any tax, fee, fine or
penalty to, any governmental or regulatory authority (domestic or foreign) or
any other person (either governmental or private), is required to be obtained or
made by such Purchaser in connection with the execution and delivery by such
Purchaser of this Agreement, the Registration Rights Agreement, the
Shareholders' Agreement or the consummation by such Purchaser of the
transactions contemplated hereby.
4.4 Investment Representations. Such Purchaser (a) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment hereunder; and (b)
has the ability to bear the economic risks of such Purchaser's prospective
investment, including a complete loss of the investment.
4.5 Authorization. Such Purchaser has full power and authority to enter
into this Agreement and to perform its
-7-
<PAGE>
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement is a valid and binding agreement of each Purchaser, enforceable
in accordance with its terms, subject to the Enforceability Exceptions.
4.6 Brokerage Fees. Such Purchaser has not taken any action in connection
with this Agreement or the transactions contemplated hereby which would give
rise to any valid claim against the Company, the Front Royal Subsidiaries or any
of the Purchasers for any brokerage or finder's fee.
4.7 Accredited Investor Status. Such Purchaser is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated by the SEC under
the Act.
4.8 ERISA. Such Purchaser will not acquire the Units with the assets of any
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and no "prohibited transactions" under ERISA
and the Code will occur in connection with the Purchaser's acquisition of the
Units.
4.9 Access to Information. Such Purchaser has had the opportunity to ask
questions of, and receive answers from, management of the Company, and all such
questions have been answered to the satisfaction of such Purchaser. All
information that such Purchaser has requested has been provided to such
Purchaser to its satisfaction.
5. Conditions.
5.1 Conditions to Closing.
(a) Conditions to Purchaser Obligations. The obligation of each of the
Purchasers to purchase the Class C Common Shares, Warrants and Rights and to
perform their obligations pursuant to Section 2.1(b) at the Closing, is subject
to the fulfillment on or prior to the Closing Date of the following conditions,
any of which may be waived in accordance with the provisions of Section 10.1
hereof:
(i) Representations and Warranties Correct; Performance of
Obligations. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
the Closing Date.
(ii) Consents and Waivers. The Company shall have obtained any and all
consents, permits and waivers necessary or appropriate to be obtained by
the Company
-8-
<PAGE>
for consummation of the transactions contemplated by this Agreement,
including all authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required to be obtained by the Company in connection with
the lawful issuance and sale of the Class C Common Shares, Warrants and
Rights pursuant to the terms of this Agreement.
(iii) Articles of Incorporation. The Articles of Amendment to the
Articles of Incorporation of the Company in the form of Exhibit 5.1(a)(iii)
shall have been duly adopted and shall have been properly filed with the
North Carolina Secretary of State and shall constitute the Articles of
Incorporation of the Company. The Company shall have delivered to such
Purchaser facsimile evidence that such Articles have been so filed.
(b) Conditions to Company Obligations. The Company's obligation to sell and
issue the Class C Common Shares, Warrants and Rights pursuant to this Agreement
is subject to the fulfillment on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company as to any one or more of
the Purchasers if such waiver will not adversely affect the other Purchasers:
(i) Representations and Warranties Correct. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date with
the same force and effect as if they had been made on and as of said date.
(ii) Payments by Purchasers. The payments by the Purchasers required
by Section 2.1(b) shall have been made.
(iii) Consents and Waivers. The Company shall have obtained the
following consents and waivers:
I. Waiver by the holders of 3/4 of Class C Common Shares of their
preemptive rights under Section 6.3 of that certain Subscription
Agreement, dated as of December 31, 1996, between the Company, Moore
Global Investments, Ltd., Remington Investment Strategies, L.P., High
Ridge Capital Partners Limited Partnership and the other purchasers
set forth therein (the "Original Subscription Agreement");
-9-
<PAGE>
II. Consent of holders of 2/3 of the Registrable Securities (as
such term is defined in the Registration Rights Agreement) to permit
the purchasers to become parties to such agreement;
III. Waiver by certain parties to that certain Shareholder &
Registration Rights Agreement, dated as of December 31, 1996, of such
parties' preemptive rights under Section 4 of such agreement;
IV. Waiver by First Union National Bank of North Carolina, as
agent ("First Union"), of Section 6.14 of that certain Credit
Agreement, dated as of December 18, 1996, between the Company, First
Union and the Lenders (as defined therein);
and any and all consents, permits and waivers necessary or appropriate to
be obtained by the Company for consummation of the transactions
contemplated by this Agreement, including all authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required to be obtained by the
Company in connection with the lawful issuance and sale of the Class C
Common Shares, Warrants and Rights pursuant to the terms of this Agreement.
6. Affirmative Covenants of the Company. The Company hereby covenants and
agrees with each Purchaser that after the Closing and for so long as such
Purchaser owns Class C Common Shares, Warrants or Class A Common Shares or as
otherwise specifically provided herein, as follows:
6.1 Financial Information and Inspection Right. The Company will furnish to
each Purchaser, at such Purchaser's request as soon as practicable (and in any
event within 120 days) after the end of each fiscal year, a consolidated balance
sheet as at the end of such fiscal year, and a related consolidated statement of
operations, consolidated statement of changes in stockholders' equity and a
consolidated statement of cash flows for the year then ended, for each of the
Company and each corporation or entity of which the Company owns, directly or
indirectly, beneficially or of record, a 50% or greater equity interest,
including Rockwood (a "Subsidiary"). Such financial statements shall be prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP") and shall be accompanied by the report, and a copy of the annual
management review letter, of an independent public accountant of national
reputation.
-10-
<PAGE>
6.2 Certain Preemptive Rights. (a) Except as hereinafter provided in this
Section 6.2, if after the date hereof the Company proposes to issue additional
shares of common equity securities or securities convertible, exchangeable or
exercisable for common equity securities ("Additional Shares"), the Company
shall deliver to each holder of then outstanding Class C Common Shares written
notice thereof, which notice shall include a general description of the terms of
such proposed issuance of Additional Shares (including the number of Additional
Shares to be so issued), the purchase price per Additional Share to be issued
and the anticipated issuance date. Within ten (10) days of delivery of such
notice, each holder may by written notice (the "Additional Shares Offer") offer
to purchase in such proposed issuance up to a maximum number of the Additional
Shares such that immediately after the purchase of such Additional Shares by
such holder, the percentage of all shares of common equity securities issued and
outstanding on a fully diluted basis (assuming conversion of warrants, options
and other instruments of the Company convertible into or exchangeable for common
equity securities other than the Warrants or the Rights) owned by such holder
shall be unchanged as a result of such issuance. Any holder who fails to provide
the Company with an Additional Shares Offer within such ten (10) day period
shall be deemed to have waived its right to buy any Additional Shares or
otherwise to participate in such proposed issuance. If the terms of the proposed
issuance of Additional Shares set forth in the notice provided by the Company
pursuant to this paragraph shall have materially changed from the date of such
notice, the Company shall deliver to each holder of then outstanding Class C
Common Shares an additional notice and such holder shall again have the rights
set forth in this paragraph (and, if such holder shall have provided the Company
with an Additional Shares Offer, such holder shall be entitled to amend such
offer) in accordance with the time periods set forth in this paragraph.
(b) The rights and obligations set forth in this Section 6.2 shall not
apply to any issuances of Additional Shares in respect of (i) warrants or
options to acquire any common equity securities which are outstanding on the
date hereof or on the Closing Date, (ii) any stock option or employee benefit
plan of the Company now existing or hereafter adopted by the Board of Directors
or shareholders of the Company, (iii) any Initial Public Offering, (iv)
securities of the Company issued or issuable pursuant to the this Agreement or
in connection with the Warrants or Rights pursuant hereto, (v) any merger or
acquisition involving the Company which has been approved by the Board, (vi) a
stock split, stock dividend or recapitalization of the Company, or (vii) any
acquisition or similar transaction of the Company not intended primarily to
raise capital. For purposes of this Agreement, "Initial Public Offering" shall
mean the first underwritten public offering of Class A Common Shares by or for
the account of the Company and offered on a "firm commitment" or
-11-
<PAGE>
"best efforts" basis pursuant to an offering registered under the Act on Form
S1, Form SB-1 or their equivalents.
(c) The provisions of this Section 6.2 shall terminate upon the initial
closing under an Initial Public Offering.
6.3 Availability of Class A Common Shares Upon Conversion and Exercise. The
Company will, from time to time, in accordance with the laws of the state of
North Carolina, increase its authorized number of Class A Common Shares if at
any time the number of Class A Common Shares remaining unissued and available
for issuance shall be insufficient to permit the conversion into Class A Common
Shares of all then outstanding securities convertible into Class A Common
Shares, including, without limitation, the Class C Common Shares, the Warrants
and the Rights.
7. Negative Covenants and Related Matters.
7.1 Negative Covenants of the Company.
(a) The Company shall not take any action requiring, under the Company's
Articles of Incorporation, as amended by the Articles of Amendment thereto
referred to in Section 5.1(a)(iii) hereof, the affirmative vote of holders of
the Class C Common Shares without first having obtained such vote required
thereunder.
(b) Without the approval of at least three-fourths (3/4) of the members of
the Company's Board of Directors (rounded up to the nearest whole number of
members), voting at a meeting duly called and held or by unanimous written
consent, the Company shall not purchase or otherwise reacquire any outstanding
shares of its capital stock ranking senior to the Class C Common Shares as to
dividend rights or liquidation preferences.
8. Restrictions on Transfer: Legends.
8.1 Restrictions on Transfer. Each of the Purchasers agrees that the Class
C Common Shares, the Rights and the Warrants may not be sold, transferred or
disposed of, and the Company will be entitled to refuse to register the transfer
of the Class C Common Shares and the Warrants, unless such sale, transfer or
disposition is effected pursuant to (i) an effective registration statement
under the Act and in compliance with all applicable state laws or (ii) an
opinion of counsel reasonably satisfactory to the Company, or other evidence
reasonably satisfactory to the Company, to the effect that such sale, transfer
or disposition without registration may be effected without violation of the Act
or any applicable state laws.
-12-
<PAGE>
8.2 Legend on Securities. (a) The Warrants and all certificates
representing the Class C Common Shares and Rights shall bear a legend to the
following effect:
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY APPLICABLE STATE SECURITIES
LAWS. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITY REPRESENTED BY THIS CERTIFICATE MAY BE MADE
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IF THE COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION OF
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, OR NO-ACTION
LETTERS FROM THE SECURITIES AND EXCHANGE COMMISSION AND ANY STATE
SECURITIES COMMISSION, THE APPROVAL OF WHICH IS REQUIRED, OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM
THE REGISTRATION PROVISIONS OF THE ACT AND THE RULES AND REGULATIONS IN
EFFECT THEREUNDER, AND ANY APPLICABLE STATE SECURITIES LAWS.
and any other legends required by applicable state blue sky laws.
9. Indemnification. The Company agrees to indemnify each Purchaser (the
"Indemnified Parties") for, and hold each Indemnified Party harmless from and
against: (i) any and all damages, losses and other liabilities of any kind,
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any kind, including,
without limitation, reasonable fees and disbursements of one counsel for such
Indemnified parties (selected by the Purchasers) (all of which expenses shall be
periodically reimbursed as incurred) ((i) and (ii), collectively, "Losses"), in
each case, suffered or incurred in connection with (A) any investigative,
administrative or judicial proceeding or claim, brought or threatened by a third
party, relating to or arising out of this Agreement, the Registration Rights
Agreement, the Shareholders Agreement or the transactions contemplated hereby
and thereby or the Company's use of the proceeds received in connection with the
sale of the Class C Common Shares, Warrants and Rights hereunder, (B) any
material inaccuracy in any representation or warranty made or incorporated by
reference in this Agreement, and (C) any breach by the Company of any covenant
or agreement made or incorporated by reference in this Agreement, the
Registration Rights Agreement or the Shareholders' Agreement.
10. Miscellaneous.
-13-
<PAGE>
10.1 Modifications, Amendments and Waivers. The provisions of this
Agreement may be amended or waived only upon the written agreement of (a) the
Company and (b) the holder or holders of at least three-fourths (3/4) of the
Class C Common Shares then outstanding, and the Class A Common Shares then
outstanding that were issued upon conversion of the Class C Common Shares or
exercise of the Warrants and/or Rights, voting together as one class. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any provision or condition of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in writing.
10.2 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal law, and not the law pertaining to
conflicts or choice of law, of the State of New York.
10.3 Survival and Remedies. The representations of the parties made herein
shall survive the transactions contemplated hereby, notwithstanding any
investigation made by the Purchasers, for a period of two (2) years; provided,
however, that the representations and warranties contained in Sections 3.2 and
3.3 shall survive indefinitely. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto or in connection with the transactions contemplated hereby shall
be deemed to be representations and warranties by the Company hereunder as of
the date of such certificate or instrument.
10.4 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of the Purchasers or
holders of Class C Common Shares, Warrants and Rights are also for the benefit
of, and enforceable by, any subsequent holders of such securities and the Class
A Common Shares into which such Class C Common Shares, Warrants and/or Rights
are converted, except any subsequent holder who acquires any such security in a
registered public offering.
10.5 Entire Agreement. This Agreement, the Registration Rights Agreement,
as amended, the Shareholders Agreement, as amended, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subject matter hereof and
thereof.
10.6 Notices. All notices and other communications required or permitted
hereunder shall be effective upon receipt and shall be in writing and delivered
personally, by facsimile
-14-
<PAGE>
transmission, by overnight delivery service or by mail, postage prepaid,
addressed (a) if to a Purchaser, at such Purchaser's address set forth below its
name on the signature pages hereto, or at such other address as such Purchaser
shall have furnished to the Company in writing or (b) if to the Company, at 220
Gateway Blvd., Suite 205, Morrisville, North Carolina 27560, Attention: J. Adam
Abram, Chief Executive Officer and Gregg T. Davis, Chief Financial Officer,
telecopy number (919) 469-3557, or at such other address as the Company shall
have furnished to the Purchasers in writing, with a copy to Robinson Silverman
Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, New York
10104, Attention: Kenneth L. Henderson, Esq., telecopy number (212) 541-4630.
10.7 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
10.8 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
10.10 Construction of Agreement. None of the parties hereto or their
respective counsel shall be deemed to have drafted this Agreement for purposes
of construing the terms hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any party hereto. The phrase, "to the knowledge of the Company,"
whenever used in this Agreement with respect to any subject matter, shall mean
to the best knowledge of the president, chief financial officer, or any vice
president responsible for either claims of the Front Royal who in the course or
human resources, of the Company or any Subsidiaries who has actual knowledge, or
who, in the course of the normal performance of his or her operational
responsibilities, would have knowledge, of such subject matter.
10.11 Termination. This Agreement may be terminated at any time prior to
the Closing by either the Company or any Purchaser upon 15 days written notice
to the non-terminating party if the Closing shall not have occurred on or before
July ____, 1997.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the day and year first above written.
THE COMPANY:
FRONT ROYAL, INC.
By:
------------------------
Name:
Title:
-16-
<PAGE>
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PURCHASERS
125 Units By:
$50,000 ---------------------------
Ward Johnson
Address:
125 Units THE WARD JOHNSON TRUST
$50,000
By:
---------------------------
Name:
Title:
Address:
150 Units By:
$60,000 ---------------------------
John Yediny
Address:
18 Units By:
$7,200 ---------------------------
Phillip Kift
Address:
12.5 Units By:
$5,000 ---------------------------
Grace Cashman
Address:
12.5 Units By:
$100,000 ---------------------------
Douglas Wall
Address:
-17-
<PAGE>
10 Units By:
$4,000 ---------------------------
David Hay
Address:
10 Units By:
$4,000 ---------------------------
Judy Young
Address:
5 Units By:
$2,000 ---------------------------
Dale Pilkington
Address:
132.5 Units PRIMA PARTNERS, L.P.
$53,000
By:
---------------------------
Name:
Title:
Address:
132.5 Units VIRGINIA CAPITAL MANAGEMENT,INC.
$53,000
By:
---------------------------
Name:
Title:
Address:
-18-
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
FIRST AMENDMENT (this "Amendment") TO AMENDED AND RESTATED REGISTRATION
RIGHTS AGREEMENT, dated as of December 31, 1996 (the "Registration Rights
Agreement"), between FRONT ROYAL, INC., a North Carolina corporation (the
"Company"), the Purchasers, the First Parties, the Second Parties, the Third
Parties and the Fourth Parties thereto (collectively, the "Original Parties")
and the additional signatories described below. Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to them in the
Registration Rights Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to Section 3.03 of the Registration Rights Agreement,
such agreement may be amended upon the written consent of the holders of more
than two-thirds of the Registrable Securities; and
WHEREAS, the Original Parties consenting to this Amendment are holders of
more than two-thirds of the Registrable Securities and hereby wish to amend the
Registration Rights Agreement so that each of the holders of Units comprised of
additional shares of the Company's Class C Common Stock (the "Preferred
Shares"), additional Class A Common Stock Purchase Warrants (the "Warrants") and
additional Rights (the "Additional Holders") who are signatories hereto, will be
added as Fourth Parties to the Registration Rights Agreement on the terms and
conditions set forth herein and therein;
NOW, THEREFORE, the Company, the holders of at least two-thirds of the
Registrable Securities and the Additional Holders hereby agree that the
Registration Rights Agreement is amended as follows:
1. Additional Holders. Each of the Additional Holders identified on
the signature page hereto are hereby added as Fourth Parties to the
Registration Rights Agreement and by executing this Amendment, hereby agree
to be bound by the terms and obligations hereof and by the terms and
obligations of the Registration Rights Agreement and shall be entitled to
the benefits thereof.
2. Additional Fourth Warrants. The Warrants are hereby deemed to be
additional "Fourth Warrants" as such term is defined in the Registration
Rights Agreement, subject to the terms set forth for the Fourth Warrants in
such agreement and entitled to the benefits thereof.
<PAGE>
3. Registration Rights Agreement. Except as expressly amended by this
Amendment, the Registration Rights Agreement is not hereby amended,
supplemented or otherwise modified and shall remain in full force and
effect.
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which, taken together, shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the ____ day of July, 1997.
FRONT ROYAL INC.
By:
-----------------------------
Name:
Title:
ADDITIONAL FOURTH PARTIES:
---------------------------------
Ward Johnson
THE WARD JOHNSON TRUST
By:
-----------------------------
Name:
Title:
---------------------------------
John Yediny
---------------------------------
Philip Kift
---------------------------------
Grace Cashman
---------------------------------
Douglas Wall
<PAGE>
---------------------------------
David Hay
---------------------------------
Judy Young
---------------------------------
Dale Pilkington
PRIMA PARTNERS, L.P.
By:
-----------------------------
Name:
Title:
VIRGINIA CAPITAL MANAGEMENT, INC.
By:
-----------------------------
Name:
Title:
<PAGE>
NO: AW__________ _________ Class A
Purchase Warrants
VOID AFTER December 31, 2006
NEITHER THIS WARRANT NOR THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES REPRESENTED BY
THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND NEITHER SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER
MANNER TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS THEREOF AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.
THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS WARRANT ARE SUBJECT TO A
SUBSCRIPTION AGREEMENT, DATED AS OF AUGUST 25, 1997. A COPY OF SUCH AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICE OF FRONT ROYAL, INC.
FRONT ROYAL, INC.
CLASS A COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated August 25, 1997
FRONT ROYAL, INC., a North Carolina corporation (the "Company"), hereby
certifies that, for value received, [__________________] or its registered
assigns ("Holder"), is the owner of the number of Class A Common Stock Purchase
Warrants ("Warrants") specified above. Each Class A Purchase Warrant initially
entitles the Holder, subject to the terms set forth below, to purchase from the
Company [__________] shares of Class A Common Stock, no par value (the "Class A
Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares"), at the exercise price of $0.01 per whole Warrant
Share (as adjusted from time to time as provided in Section 7, the "Exercise
Price") at any time and from time to time commencing on the Exercise Date (as
hereinafter defined) and until and including December 31, 2006 (the "Expiration
Date"), all subject to the following terms and conditions:
1. Series of Warrants. The Warrants represented hereby are part of a series
of Warrants issued pursuant to a Subscription Agreement dated as of August 25,
1997 (the
<PAGE>
"Subscription Agreement"). The transferability of this Warrant Certificate and
the Warrant Shares is subject to the terms of the Subscription Agreement.
2. Registration of Warrant; Transfers. (a) The Company shall register this
Warrant Certificate, upon records to be maintained by the Company for that
purpose (the "Warrant Register"), in the name of the record Holder hereof from
time to time. The Company may deem and treat the registered Holder of this
Warrant Certificate as the absolute owner hereof for the purpose of any exercise
hereof or any distribution to the Holder, and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
(b) The Company shall register the transfer of any of the Warrants
represented by this Warrant Certificate upon the Warrant Register, upon
surrender of this Warrant Certificate, with the Form of Assignment attached
hereto duly completed and signed, to the Company at the office specified in or
pursuant to Section 3(b). Upon any such registration of transfer, a Warrant
Certificate, in substantially the form of this Warrant Certificate evidencing
the Warrants so transferred, shall be issued to the transferee and a new Warrant
Certificate evidencing the remaining portion of the Warrants not so transferred,
if any, shall be issued to the transferring Holder.
(c) This Warrant Certificate is exchangeable, upon the surrender hereof by
the Holder at the office of the Company specified in or pursuant to Section 3(b)
for a new Warrant Certificate, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such new
Warrant Certificate will be dated the date of such exchange.
3. Duration and Exercise of Warrants. (a) Subject to Sections 3(d) and
Section 10, this Warrant shall be exercisable by the registered Holder on any
business day before 5:00 p.m., New York time, at any time and from time to time
on or after the Exercise Date to and including the Expiration Date. At 5:00
p.m., New York time on the Expiration Date, any Warrants not exercised prior
thereto shall be and become void and of no value.
(b) Subject to Sections 3(d), 4, 8 and 10, upon surrender of this Warrant
Certificate, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at 2200 Gateway Blvd., Suite
205, Morrisville, North Carolina, 27560, Attention: Chief Financial Officer, or
at such other address as the Company may specify in writing to the then
registered Holder, and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, in
lawful money of the United States of America, all as specified by the Holder in
the Form of Election to Purchase, the Company shall promptly issue and cause to
be delivered to or upon the written order of the Holder and in such name or
names as the Holder may designate, a certificate for the Warrant Shares issuable
upon such exercise. Any person so designated by the Holder to receive Warrant
Shares shall be deemed to have become the holder of record of such Warrant
Shares as of the Date of Exercise.
A "Date of Exercise" means the date on which the Company shall have
received (i) a Warrant Certificate, with the Form of Election to Purchase
attached thereto appropriately
-2-
<PAGE>
completed and duly signed, and (ii) payment of the Exercise Price for the number
of Warrant Shares so indicated by the Holder hereof to be purchased.
(c) No single exercise of Warrants evidenced hereby may be for less than
250 Warrant Shares. If less than all of the Warrants Shares which may be
purchased under this Warrant Certificate are exercised at any time, the Company
shall issue, at its expense, a new Warrant Certificate evidencing the right to
purchase the remaining number of Warrant Shares for which no exercise has been
evidenced by this Warrant Certificate.
(d) Notwithstanding the provisions of Section 3(a) and 7(b), the Warrants
shall become immediately exercisable by the Holder (i) upon the sale, in one or
a series of related transactions, of all or substantially all of the assets of
the Company and its Subsidiaries, taken as a whole, (ii) if, as a result of one
or a series of related transactions, the holders of the issued and outstanding
shares of Common Stock (as defined below), determined on a fully diluted basis
as if all outstanding warrants, options and convertible securities had been
exercised or converted, immediately prior to the effective date for such
transaction or last of such transactions beneficially own (as such term is
defined under Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended), in the aggregate, less than 55% of the issued and outstanding
voting securities of the Company, determined on a fully diluted basis as if all
outstanding warrants, options and convertible securities had been exercised or
converted, or the successor to the Company if such transaction was a merger or
consolidation in which the Company was not the surviving entity, or (iii) if
members comprising the Board of Directors on the date hereof cease for any
reason to comprise at least a majority of the Board of Directors, provided,
that, any person who becomes a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the directors comprising the Board of
Directors on the date hereof (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for all purposes of
this definition, considered as though such person were a member of the Board of
Directors on the date hereof (each of such events, a "Trigger Event"); provided,
however, that if as at the end of the fiscal quarter immediately prior to the
effective date of any Trigger Event (the "Measurement Date") the Book Value per
Share is greater than the Formula Amount as at the Measurement Date, then the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$.01 per Warrant, pro rata in an amount equal to the number of Warrants
represented hereby multiplied by the Adjustment Factor as at the Measurement
Date for each $.01 by which the Book Value per Share at such Measurement Date
exceeds the Formula Amount for such Measurement Date.
4. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of the
Warrants; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares in a name other than that of the Holder,
and the Company shall not be required to issue or deliver the certificates for
Warrant Shares unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid. The
Holder shall be responsible for all other tax
-3-
<PAGE>
liability that may arise as a result of holding or transferring the Warrants or
receiving Warrant Shares upon exercise hereof.
5. Replacement of Warrant Certificate. If this Warrant Certificate is
mutilated, lost, stolen or destroyed, the Company may in its discretion issue in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for, this Warrant Certificate, a new Warrant Certificate, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction and indemnity, if requested, reasonably satisfactory to it.
Applicants for a new Warrant Certificate under such circumstances shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
6. Reservation of Warrant Shares. The Company will at all times as long as
this Warrant is exercisable, reserve and keep available out of the aggregate of
its authorized but unissued Class A Common Stock or its authorized and issued
Class A Common Stock held in its treasury, for the purpose of enabling it to
issue Warrant Shares upon exercise of the Warrants, the number of Warrant Shares
which are deliverable upon the exercise of the Warrants.
7. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of each Warrant are subject to adjustment from time to
time as set forth in this Section 7. Upon each such adjustment of the Exercise
Price pursuant to this Section 7, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase with respect to each Warrant, at the
Exercise Price resulting from such adjustment, the number of Warrant Shares
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares issuable upon exercise of a Warrant
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. All determinations with respect
to adjustments hereunder shall be made by the Board of Directors in good faith.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make any distributions on shares of its
Common Stock payable in shares of its capital stock (whether payable in shares
of such Common Stock or of capital class of any class), (ii) subdivide
outstanding shares of Class A Common Stock into a larger number of shares, (iii)
combine outstanding shares of Class A Common Stock into a smaller number of
shares, or (iv) issue by reclassification of shares of Class A Common Stock any
shares of capital stock of the Company, then the Exercise Price shall be
adjusted by multiplying it by a fraction the numerator of which shall be the
number of shares of Class A Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Class A Common Stock
outstanding after such event. Any adjustment made pursuant to this Section 7(a)
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(b) In case of any reclassification of the Class A Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all
-4-
<PAGE>
or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Class A Common Stock is converted into other
securities, cash or property, the Holder shall have the right thereafter,
subject to Section 3(d), to exercise this Warrant to purchase only the shares of
stock and other securities and property receivable upon or deemed to be held by
holders of Class A Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the Holder shall be entitled upon
such event to receive such amount of securities or property as the shares of the
Class A Common Stock which may be purchased by exercise of this Warrant
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange would have been entitled.
(c) In case:
i. the Company shall take a record of the holders of its Class A
Common Stock (or other Stock or securities at the time receivable upon the
exercise of the Warrants) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
ii. of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation, or
iii. of any voluntary dissolution, liquidation or winding-up of the
Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice, in accordance with Section 9, specifying, as the
case may be, (A) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (B) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Class A Common Stock (or such
stock or securities at the time receivable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Class A Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
fifteen days prior to the date therein specified.
(d) In any case in which any adjustment under this Section 7 is required to
be made effective as of the record date for a specified event, the Company may
elect to defer until occurrence of such event (A) issuing to the Holder, if an
exercise under this Warrant is made after such record date, the Warrant Shares
and other capital stock of the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise on the basis of the Exercise Price prior to
adjustment and (B) paying to the Holder any amount in cash in lieu of a
fractional share pursuant to Section 8 hereof, provided, however, that the
Company shall deliver to the Holder a due bill
-5-
<PAGE>
or other appropriate instrument evidencing the Holder's right to receive such
additional Warrant Shares, other capital stock and/or cash upon the occurrence
of the event requiring such adjustment.
(e) Any determination that the Company or the Board of Directors must make
pursuant to this Section 7 shall be conclusive if made in good faith.
8. Fractional Shares. The Company shall not be required to issue fractional
Warrant Shares on the exercise of this Warrant. The number of full Warrant
Shares which shall be issuable upon the exercise of this Warrant shall be
computed on the basis of the aggregate number of Warrant Shares purchasable on
exercise of this Warrant so presented. If any fraction of a Warrant Share would,
except for the provisions of this Section 8, be issuable on the exercise of this
Warrant, the Company shall pay an amount in cash equal to the Fair Market Value
of a Warrant Share multiplied by such fraction.
9. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by registered
or certified mail, postage prepaid, addressed as follows: (1) if to the Company,
to FRONT ROYAL, INC., 2200 Gateway Blvd., Suite 205, Morrisville, North
Carolina, 27560, Attention: Chief Financial Officer, or to facsimile no. (919)
469-3557; or (ii) if to the Holder, to the Holder at the address or facsimile
number appearing on the Warrant Register or such other address or facsimile
number as the Holder may provide to the Company in accordance with this Section
9. Any notice or other communications or deliveries hereunder shall be deemed
given and effective on the earliest of (i) the date of transmission, if
delivered via facsimile at the facsimile number specified in this Section 9,
(ii) four (4) days after deposit in the United States mails, (iii) the date when
posted, if sent by nationally recognized courier service or (iv) upon actual
receipt by the party to whom such notice is required to be given.
10. Redemption of Warrants by the Company. The Warrants may be redeemed at
the option of the Company, at a redemption price of $.01 per Warrant, at any
time after any Determination Date if the Book Value per Share is greater than
the Applicable Repurchase Threshold at (i) such Determination Date and, (ii) in
the case of any Determination Date other than December 31, 2000, at the end of
each of the immediately preceding three fiscal quarters. The Company shall have
the right to redeem such number of the Warrants as is equal to (x) in the case
of a redemption following the December 31, 2000 Determination Date, the number
of Warrants represented hereby multiplied by the Adjustment Factor as at such
Determination Date times each $.01 by which the Book Value per Share at such
Determination Date exceeds the Applicable Repurchase Threshold at such
Determination Date, and (y) in the case of any redemption on account of any
Determination Date other than December 31, 2000, all the Warrants. Notice of
redemption shall be given to the Holder in accordance with Section 9. From and
after the giving of any notice of redemption, the Holder shall no longer have
any rights to exercise the Warrants and shall have no rights with respect to the
Warrants except to receive the redemption price upon surrender of this Warrant
Certificate. All computations of the Applicable Repurchase Threshold, the number
of Warrants redeemable by the Company and redemption price shall be adjusted to
reflect any stock dividends and any stock splits or
-6-
<PAGE>
combinations or similar transactions taking place after the Original Issue Date
through the Determination Date.
11. Certain Definitions.
"Adjustment Factor" shall mean two percent (2%), adjusted as appropriate to
take into account any stock dividends, stock splits or combinations or similar
transactions occurring after the Original Issue Date that resulted in
adjustments to the Formula Amount or the Applicable Repurchase Threshold, as
applicable.
"Applicable Repurchase Threshold" shall mean with respect to a
Determination Date: (i) in the case of December 31, 2000, $7.25, and (ii) in the
case of any other Determination Date and any other date, $7.75; in each case
adjusted to take into account any stock dividends, stock splits or combinations,
or similar transactions occurring after the Original Issue Date and prior to the
Determination Date.
"Book Value per Share" as at any date shall mean (A) the sum of (i) the
consolidated stockholders equity of the Company and its subsidiaries as at such
date, including preferred and common stockholders equity determined in
accordance with generally accepted accounting principles consistently applied,
as set forth (x) in the case of a determination of Book Value per Share at the
end of any fiscal year of the Company, in the audited balance sheet of the
Company at such fiscal year end, and (y) in the case of a determination of Book
Value per Share at the end of any fiscal quarter other than a fiscal year end,
in the unaudited balance sheet of the Company at such fiscal quarter end
regularly prepared by the Company; plus (ii) the aggregate consideration
receivable by the Company from the exercise or conversion of any then
outstanding warrants, options and rights to acquire Common Stock and securities
convertible into Common Stock other than the Warrants and Rights issued by the
Company pursuant to the Subscription Agreement; divided by (B) the total number
of shares of Common Stock outstanding at such date of determination, other than
treasury shares, plus the number of shares of Common Stock that would be
outstanding if all then outstanding options, warrants and rights to acquire
Common Stock, and all securities convertible into Common Stock, then
outstanding, other than the Warrants and Rights issued pursuant to the
Subscription Agreement, were exercised or converted. For purposes of the
foregoing, with respect to any security convertible into Common Stock, the
amount receivable by the Company upon such conversion shall be the amount
received by the Company from the issuance of the convertible security plus any
additional consideration payable by the holder thereof upon conversion into
Common Stock.
"Common Stock" shall mean, collectively, the Class A Common Stock; the
Class B Common Stock, no par value, of the Company; the Class C Common Stock, no
par value, of the Company; and any other class of equity securities of the
Company designated as common stock.
"Determination Date" shall mean December 31, 2000, and any fiscal quarter
end prior to December 31, 2000, as at which the Applicable Repurchase Threshold
is being determined for purposes of Section 10.
-7-
<PAGE>
"Exercise Date" shall mean June 1, 2001 or such earlier date as may be
determined in accordance with Section 3(d).
"Fair Market Value" of a Warrant Share means on any particular date (a) the
average of the last sale price per share of the Class A Common Stock on the five
trading days preceding such date on the principal stock exchange on which the
Class A Common Stock has been listed or, if there is no such price on such date,
then the last price on such exchange on the date nearest preceding such date, or
(b) if the Common Stock is not listed on any stock exchange, the average of the
bid and asked price for a share of Class A Common Stock in the over-the-counter
market, as reported by Nasdaq at the close of business on the five trading days
preceding such date, or (c) if the Class A Common Stock is not quoted on Nasdaq,
the average of the bid and asked price for a share of Class A Common Stock in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on the five trading days preceding
such date, or (d) if the Class A Common Stock is not publicly traded, the fair
market value of a share of Class A Common Stock as determined by the Board of
Directors of the Company in good faith.
"Formula Amount" shall mean, as at any Measurement Date, the Initial Book
Value plus the result of the following formula: (i) $7.25, less the Initial Book
Value, divided by (ii) sixteen (16), and multiplied by (iii) the number of
fiscal quarters from January 1, 1997 through the Measurement Date, including the
fiscal quarter ending on the Measurement Date. The Formula Amount shall be
adjusted as appropriate to take into account any stock dividends, stock splits
or combinations, or similar transactions occurring after the Original Issue
Date.
"Initial Book Value" shall mean the Book Value per Share as at December 31,
1996 (taking into account the consummation of the transactions contemplated in
the Subscription Agreement and the acquisition of Rockwood Casualty Insurance
Company).
"Original Issue Date" shall mean August 25, 1997, the date on which the
Warrants were originally issued pursuant to the Subscription Agreement.
12. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(b) Nothing in this Warrant shall be construed to give to any person or
corporation other than the Company, the Holder and any registered holder of
Warrant Shares any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company, the
Holder and any other registered holder of Warrant Shares.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of North Carolina without regard
to the principles of conflicts of law thereof.
-8-
<PAGE>
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.
FRONT ROYAL, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
-9-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Class
A Common Stock under the foregoing Warrant)
To Front Royal, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Class A Common Stock ("Class A Common Stock"), no par value, of Front
Royal, Inc. and encloses herewith $________ in cash (or encloses herewith
evidence of payment of such sum), which sum represents the Exercise Price (as
defined in the Warrant) for the number of shares of Class A Common Stock to
which this Form of Election to Purchase relates, together with any applicable
taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Class A Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_________________________________
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the number of shares of Class A Common Stock issuable upon this exercise
shall not be all of the shares of Class A Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right to
purchase the shares of Class A Common Stock not issuable pursuant to the
exercise evidenced hereby be issued in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ____________, 19__ Name of Holder:
(Print)________________________
(By:)__________________________
(Title:)
<PAGE>
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase the ____________ shares of Class A Common Stock of FRONT
ROYAL, INC. to which the within Warrant relates and appoints ________________
attorney to transfer said right on the books of FRONT ROYAL, INC. with full
power of substitution in the premises.
Dated:
_______________, 199_
-----------------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
-----------------------------------------------
Address
In the presence of:
- --------------------------
<PAGE>
STOCK AND ASSET PURCHASE AND SALE AGREEMENT
among
FRONT ROYAL, INC.
and
PNIC HOLDINGS, INC.,
as Buyer;
PREFERRED NATIONAL FINANCIAL CORP.,
WYCON CORPORATION,
UNITED AMERICAN FINANCIAL SERVICES CORPORATION,
AND
AMERICLAIM ADJUSTMENT CORP.,
as Sellers;
and
STEPHEN WEICHOLZ
(for certain limited purposes specified
in Section 14.8)
March 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS......................................................... 2
1.1 "Additional Escrow Amount".......................................... 2
1.2 "Adjustment Difference Amount"...................................... 2
1.3 "Affiliate"......................................................... 2
1.4 "Agreement"......................................................... 2
1.5 "Americlaim Assets"................................................. 2
1.6 "Americlaim Assumed Liabilities".................................... 2
1.7 "Americlaim Assumption Agreement"................................... 2
1.8 "Americlaim Excluded Assets"........................................ 2
1.9 "Americlaim Financial Statements.................................... 2
1.10 "Annual Statutory Statements"....................................... 2
1.11 "Assumption Agreements"............................................. 3
1.12 "Bills of Sale"..................................................... 3
1.13 "Britamco".......................................................... 3
1.14 "Britamco Financial Statements...................................... 3
1.15 "Britamco Runoff Agreement"......................................... 3
1.16 "Business Day"...................................................... 3
1.17 "Buyer"............................................................. 3
1.18 "Buyer's Closing Certificate"....................................... 3
1.19 "Buyer Disclosure Schedule"......................................... 3
1.20 "Cash and Invested Assets Purchase Price Adjustment"................ 3
1.21 "Class A Common Stock".............................................. 3
1.22 "Closing"........................................................... 3
1.23 "Closing Date"...................................................... 3
1.24 "Code............................................................... 4
1.25 "Companies" ........................................................ 4
1.26 "Contracts"......................................................... 4
1.27 "Control"........................................................... 4
1.28 "Deloitte & Touche"................................................. 4
1.29 "Deposit"........................................................... 4
1.30 "Employee Plans".................................................... 4
1.31 "Employees"......................................................... 4
1.32 "Employment Agreements"............................................. 4
1.33 "Ernst & Young"..................................................... 4
1.34 "Equipment Leases".................................................. 4
1.35 "ERISA"............................................................. 4
1.36 "ERISA Affiliate"................................................... 5
1.37 "Escrow Agent"...................................................... 5
1.38 "Escrow Agreement".................................................. 5
1.39 "Final Certificate"................................................. 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1.40 "Final Closing Balance Sheet"....................................... 5
1.41 "Florida Code"...................................................... 5
1.42 "Florida Department"................................................ 5
1.43 "Front Royal"....................................................... 5
1.44 "GAAP".............................................................. 5
1.45 "GAAP Book Value of PNIC"........................................... 5
1.46 "GAAP Book Value Purchase Price Adjustment"......................... 5
1.47 "Holdings".......................................................... 5
1.48 "HSR Act"........................................................... 5
1.49 "Indemnity Claim"................................................... 5
1.50 "Intellectual Property"............................................. 6
1.51 "Law"............................................................... 6
1.52 "Lien".............................................................. 6
1.53 "Material Adverse Effect"........................................... 6
1.54 "Material Front Royal Subsidiaries"................................. 6
1.55 "Most Recent Company Financial Statements".......................... 6
1.56 "Non-Compete Agreement"............................................. 6
1.57 "Opinions of Buyer's Counsel"....................................... 6
1.58 "Opinion of Sellers' Counsel"....................................... 6
1.59 "Pension Plan"...................................................... 6
1.60 "Permits"........................................................... 6
1.61 "Permitted Lien".................................................... 7
1.62 "PNIC".............................................................. 7
1.63 "PNIC Shares"....................................................... 7
1.64 "Policyholders' Surplus"............................................ 7
1.65 "Policyholders' Surplus Purchase Price Adjustment".................. 7
1.66 "Preliminary Calculation Certificate"............................... 7
1.67 "Preliminary Closing Balance Sheet" ................................ 7
1.68 "Preliminary Purchase Price Adjustment Amount"...................... 7
1.69 "Purchase Price".................................................... 7
1.70 "Purchase Price Adjustment Amount".................................. 7
1.71 "Purchase Price Escrow Amount"...................................... 7
1.72 "Purchase Securities"............................................... 7
1.73 "Purchase Shares"................................................... 7
1.74 "Purchase Warrants"................................................. 7
1.75 "Quarterly Statutory Statements".................................... 8
1.76 "Registration Rights Agreement"..................................... 8
1.77 "Relationship Agreements"........................................... 8
1.78 "Reserves".......................................................... 8
1.79 "Reserve Estimate Midpoint"......................................... 8
1.80 "Reserve Purchase Price Adjustment"................................. 8
1.81 "SAP"............................................................... 8
1.82 "Securities Act".................................................... 8
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1.83 "Seller" or "Sellers"............................................... 8
1.84 "Seller Assets"..................................................... 8
1.85 "Seller Assumed Liabilities"........................................ 8
1.86 "Seller Excluded Assets"............................................ 8
1.87 "Seller Financial Statements"....................................... 9
1.88 "Seller Shares"..................................................... 9
1.89 "Sellers' Closing Certificates...................................... 9
1.90 "Sellers' Disclosure Schedule"...................................... 9
1.91 "Software Licenses"................................................. 9
1.92 "Statutory Statements".............................................. 9
1.93 "Subsidiary"........................................................ 9
1.94 "Unamark"........................................................... 9
1.95 "Unamark Assets".................................................... 9
1.96 "Unamark Assumed Liabilities"....................................... 9
1.97 "Unamark Assumption Agreement"...................................... 9
1.98 "Unamark Excluded Assets"........................................... 9
1.99 "Unamark Financial Statements....................................... 9
1.100 "Wycon Assets"...................................................... 10
1.101 "Wycon Assumed Liabilities"......................................... 10
1.102 "Wycon Assumption Agreement"........................................ 10
1.103 "Wycon Excluded Assets"............................................. 10
1.104 "Wycon Financial Statements"........................................ 10
1.105 "Year 2000 Conformity".............................................. 10
ARTICLE 2 SALE AND PURCHASE OF SHARES AND ASSETS.............................. 10
2.1 Sale and Purchase of PNIC Shares.................................... 10
2.2 Sale and Purchase of Unamark Assets and Assignment and
Assumption of Certain Unamark Liabilities........................... 11
2.3 Sale and Purchase of Wycon Assets and Assignment and
Assumption of Certain Wycon Liabilities............................. 11
2.4 Sale and Purchase of Americlaim Assets and Assignment and
Assumption of Certain Americlaim Liabilities........................ 12
ARTICLE 3 PURCHASE PRICE...................................................... 13
3.1 The Purchase Price.................................................. 13
3.2 Payment of Purchase Price........................................... 14
3.3 Purchase Price Adjustment........................................... 14
3.4 Escrow Amounts...................................................... 16
ARTICLE 4 THE CLOSING......................................................... 18
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
4.1 Closing............................................................. 18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND STEPHEN WEICHOLZ............................................ 19
5.1 Organization and Good Standing...................................... 20
5.2 Capitalization...................................................... 20
5.3 Authority, Validity and Enforceability.............................. 20
5.4 No Violation or Breach.............................................. 21
5.5 Subsidiaries........................................................ 21
5.6 Seller Assets....................................................... 21
5.7 Seller Shares....................................................... 21
5.8 Compliance with Other Instruments and Laws.......................... 22
5.9 Consents. ......................................................... 22
5.10 Litigation.......................................................... 22
5.11 No Brokers.......................................................... 22
5.12 Absence of Certain Changes.......................................... 23
5.13 Financial Statements................................................ 24
5.14 Licenses and Permits................................................ 25
5.15 Insurance Regulatory Filings........................................ 26
5.16 Reserves............................................................ 26
5.17 Insurance Issued.................................................... 27
5.18 Reinsurance Policies................................................ 27
5.19 Taxes............................................................... 28
5.20 Contracts........................................................... 29
5.21 Employees........................................................... 30
5.22 Employee Benefit Matters............................................ 30
5.23 Assets and Properties............................................... 31
5.24 Operating Insurance................................................. 32
5.25 Bank Accounts....................................................... 32
5.26 Charter Documents and Bylaws........................................ 32
5.27 Minute Books........................................................ 32
5.28 Acquisition for Investment.......................................... 32
5.29 Year 2000........................................................... 33
5.30 Transactions with Interested Persons................................ 33
5.31 PNIC Business....................................................... 33
5.32 Undisclosed Liabilities............................................. 33
5.33 Britamco Business................................................... 34
5.34 Disclosure.......................................................... 34
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER............................. 34
6.1 Organization and Good Standing of Buyer............................. 34
6.2 Capitalization of Buyer............................................. 34
6.3 Authority, Validity and Enforceability as to Buyer.................. 35
6.4 No Violation or Breach by Buyer..................................... 35
6.5 Consents............................................................ 36
6.6 Issuance of Purchase Shares......................................... 36
6.7 Acquisition for Investment.......................................... 36
6.8 Litigation.......................................................... 36
6.9 No Brokers.......................................................... 37
6.10 Initial Public Offering............................................. 37
6.11 Subsidiaries........................................................ 37
6.12 Compliance with Other Instruments and Laws.......................... 37
6.13 Absence of Certain Changes.......................................... 37
6.14 Financial Statements................................................ 39
6.15 Licenses and Permits................................................ 39
6.16 Insurance Regulatory Filings........................................ 40
6.17 Reserves............................................................ 40
6.18 Undisclosed Liabilities............................................. 40
6.19 Charter Documents and Bylaws........................................ 41
6.20 Disclosure.......................................................... 41
ARTICLE 7 CERTAIN MATTERS PENDING THE CLOSING................................. 41
7.1 Carry on in Regular Course.......................................... 41
7.2 Indebtedness........................................................ 43
7.3 Issuance of Stock................................................... 43
7.4 Compensation........................................................ 43
7.5 Compliance with Law................................................. 43
7.6 Access to Information............................................... 43
7.7 Cooperation; Reasonable Efforts..................................... 45
7.8 Regulatory Filings.................................................. 45
7.9 Consents............................................................ 45
7.10 Publicity........................................................... 45
7.11 No Solicitation..................................................... 45
7.12 Discussions with Florida Department................................. 46
7.13 Articles and Bylaws................................................. 46
7.14 PNIC Business....................................................... 46
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 8 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF BUYER........................................................ 46
8.1 Compliance with Agreement........................................... 46
8.2 Proceedings and Instruments Satisfactory............................ 47
8.3 No Litigation....................................................... 47
8.4 Representations and Warranties...................................... 47
8.5 Agreements.......................................................... 47
8.6 Additional Deliveries at Closing.................................... 48
8.7 Regulatory Approvals................................................ 48
8.8 Consents............................................................ 48
8.9 Directors and Officers.............................................. 48
8.10 Waiting Periods..................................................... 48
8.11 Books and Records................................................... 48
8.12 Direct Written Premiums of PNIC..................................... 48
8.13 Britamco Business................................................... 49
8.14 Audited Financial Statements........................................ 49
8.15 Statutory Statements................................................ 49
8.16 Book Value of PNIC.................................................. 49
8.17 Officers Certificate................................................ 49
ARTICLE 9 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE SELLERS.................................................. 49
9.1 Compliance with Agreement........................................... 50
9.2 Proceedings and Instruments Satisfactory............................ 50
9.3 No Litigation....................................................... 50
9.4 Representations and Warranties...................................... 50
9.5 Agreements.......................................................... 50
9.6 Additional Deliveries at Closing.................................... 51
9.7 Regulatory Approvals................................................ 51
9.8 Consents............................................................ 51
9.9 Waiting Periods..................................................... 51
9.10 The Dividend........................................................ 51
9.11 Officers Certificate................................................ 51
ARTICLE 10 CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS......................... 52
10.1 Employee Benefit Plan Matters....................................... 52
10.2 Confidentiality..................................................... 53
10.3 Use of Names........................................................ 53
10.4 Non-Solicitation of Employees....................................... 53
10.5 Initial Public Offering............................................. 53
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
10.6 Britamco Business................................................... 53
10.7 Certain Tax Matters................................................. 53
10.8 Britamco Financial Statements....................................... 57
ARTICLE 11 INDEMNIFICATION..................................................... 57
11.1 Survival of Representations and Warranties.......................... 57
11.2 Indemnification by Sellers.......................................... 58
11.3 Indemnification by Buyer............................................ 59
11.4 Limitation of Liability............................................. 59
11.5 Notice of Indemnity Claims.......................................... 59
11.6 Indemnity Amounts to be Computed on After-Tax Basis................. 60
11.7 Remedies Cumulative................................................. 61
ARTICLE 12 TERMINATION......................................................... 61
12.1 Termination......................................................... 61
12.2 Effect of Termination............................................... 61
12.3 Amendment........................................................... 61
12.4 Extension; Waiver................................................... 61
ARTICLE 13 DEPOSIT; PAYMENTS ON TERMINATION.................................... 62
13.1 Deposit............................................................. 62
13.2 Distribution........................................................ 62
13.3 Payment to Sellers.................................................. 62
13.4 Payment to Buyer.................................................... 62
ARTICLE 14 MISCELLANEOUS....................................................... 63
14.1 Entire Agreement.................................................... 63
14.2 Expenses............................................................ 63
14.3 Governing Law....................................................... 63
14.4 Assignment.......................................................... 63
14.5 Further Assurances.................................................. 63
14.6 Notices............................................................. 63
14.7 Counterparts; Facsimile Signature; Headings......................... 64
14.8 Certain Matters Relating to Stephen Weicholz........................ 65
14.9 Specific Performance................................................ 65
14.10 Severability........................................................ 65
14.11 No Reliance......................................................... 65
</TABLE>
vii
<PAGE>
EXHIBITS
1.7 - Form of Assumption Agreement
1.12 - Form of Bills of Sale
1.15 - Form of Britamco Runoff Agreement
1.18 - Form of Buyer's Closing Certificate
1.32 - Employment Agreements
1.38 - Form of Escrow Agreement
1.56 - Form of Non-Compete Agreement
1.76 - Form of Registration Rights Agreement
1.77 - Relationship Agreements
1.89 - Form of Sellers' Closing Certificates
3.1 - Form of Purchase Warrant
3.3 - Form of Preliminary Calculation Certificate
3.4 - Form of Final Certificate
SCHEDULES
1.34 - Equipment Leases
1.61 - Permitted Liens
1.91 - Software Licenses
2.2(a) - Unamark Excluded Assets
2.2(b) - Unamark Assumed Liabilities
2.3(a) - Wycon Excluded Assets
2.3(b) - Wycon Assumed Liabilities
2.4(a) - Americlaim Excluded Assets
2.4(b) - Americlaim Assumed Liabilities
3.1 - Purchase Price Allocation
5.1 - Sellers' Jurisdictions of Organization
5.2 - Capitalization of Sellers
5.9 - Seller Consents
5.10 - Seller Litigation
5.12 - Seller Changes
5.13(b) - Seller Financial Statements
5.14 - Licenses and Permits
5.15 - Deficiencies
5.16 - Reserves Exceptions
5.17 - Insurance Issued
5.18 - Reinsurance
5.19 - Tax Matters
5.20 - Contracts
5.21 - Employees
5.22(d) - Benefit Plans
5.23(a) - Intellectual Property
5.23(b) - Investment Assets
viii
<PAGE>
5.23(d) - Leased Property
5.24 - Operating Insurance
5.25 - Bank Accounts
5.29 - Year 2000
5.30 - Related Party Agreements
5.32 - Certain Liabilities
6.2 - Buyer Capitalization
6.5 - Buyer Consents
6.8 - Litigation
6.11 - Subsidiaries
6.13 - Certain Changes
6.15 - Licenses and Permits
6.16 - Deficiencies
6.18 - Undisclosed Liabilities
ix
<PAGE>
STOCK AND ASSET PURCHASE AND SALE AGREEMENT
STOCK AND ASSET PURCHASE AND SALE AGREEMENT, dated as of March 6,
1998, among Front Royal, Inc., a North Carolina corporation ("Front Royal"),
PNIC Holdings, Inc., a North Carolina corporation ("Holdings" and, together
with Front Royal, "Buyer"), Preferred National Financial Corp., a Florida
corporation ("PNFC"), Wycon Corporation, a Florida corporation ("Wycon"),
Americlaim Adjustment Corp., a Florida corporation ("Americlaim"), United
American Financial Services Corporation, a Florida corporation ("Unamark"),
and Stephen Weicholz ("Stephen Weicholz"), for certain limited purposes
specified in Section 14.8. PNFC, Wycon, Unamark and Americlaim, are each
referred to herein as a "Seller" and are collectively referred to herein as
the "Sellers".
RECITALS
WHEREAS, PNFC wishes to sell to Holdings, and Holdings
wishes to purchase from PNFC, the PNIC Shares owned by PNFC which constitute
all of the issued and outstanding PNIC Shares;
WHEREAS, Unamark wishes to sell to Front Royal, and Front
Royal wishes to purchase from Unamark, all of the assets and business of
Unamark, other than certain excluded assets as set forth in this Agreement,
and Unamark wishes to assign to Front Royal, and Front Royal has agreed to
assume from Unamark, certain liabilities of Unamark as set forth in this
Agreement;
WHEREAS, Wycon wishes to sell to Front Royal, and Front
Royal wishes to purchase from Wycon, all of the assets and business of Wycon,
other than certain excluded assets as set forth in this Agreement, and Wycon
wishes to assign to Front Royal, and Front Royal has agreed to assume from
Wycon, certain liabilities of Wycon as set forth in this Agreement; and
WHEREAS, Americlaim wishes to sell to Front Royal, and Front
Royal wishes to purchase from Americlaim, all of the assets and business of
Americlaim, other than certain excluded assets as set forth in this Agreement,
and Americlaim wishes to assign to Front Royal, and Front Royal has agreed to
assume from Americlaim, certain liabilities of Americlaim as set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing, of the
representations, warranties, covenants and agreements contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1
<PAGE>
ARTICLE 1
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified. Reference is made to Sections 3.4 and 10.1 for certain
additional defined terms that are used solely in such Section.
1.1 "Additional Escrow Amount" shall have the meaning set forth in
Section 3.4(a) of this Agreement.
1.2 "Adjustment Difference Amount" shall have the meaning set forth
in Section 3.4 of this Agreement.
1.3 "Affiliate" shall mean, with respect to a specified person or
entity, another person or entity that directly, or indirectly through one or
more intermediaries, Controls or is Controlled by or is under common Control
with the person or entity specified. With respect to any individual person,
"Affiliate" shall also include such person's spouse, siblings, parents and
lineal descendants.
1.4 "Agreement" shall mean this Stock and Asset Purchase and Sale
Agreement, together with the Exhibits and Schedules attached hereto and the
Disclosure Schedules, as the same may be amended from time to time in
accordance with the terms hereof.
1.5 "Americlaim Assets" means all of the assets of Americlaim other
than the Americlaim Excluded Assets.
1.6 "Americlaim Assumed Liabilities" has the meaning set forth in
Section 2.4(b) of this Agreement.
1.7 "Americlaim Assumption Agreement" means the Assumption Agreement
dated the Closing Date between Buyer and Americlaim, substantially in the form
of Exhibit 1.7.
1.8 "Americlaim Excluded Assets" has the meaning set forth in Section
2.4(a) of this Agreement.
1.9 "Americlaim Financial Statements" shall have the meaning set
forth in Section 5.13 of this Agreement.
1.10 "Annual Statutory Statements" shall mean the annual statutory
convention statements of PNIC for each of the years ended December 31, 1994,
1995 and 1996, filed, and for the year ended December 31, 1997 to be filed,
with the Florida Department pursuant to the Florida Code (including
management's discussion and analysis and the supporting memorandum to the
actuarial opinions given in connection with such Annual Statutory Statements).
2
<PAGE>
1.11 "Assumption Agreements" shall mean the Americlaim Assumption
Agreement, the Wycon Assumption Agreement and the Unamark Assumption
Agreement.
1.12 "Bills of Sale" shall mean the bills of sale dated the Closing
Date between Wycon, Americlaim and Unamark, on the one hand, and Front Royal
(or its designee), on the other hand, substantially in the form of Exhibit
1.12.
1.13 "Britamco" means Britamco Underwriters, Inc., a Florida
corporation.
1.14 "Britamco Financial Statements" shall have the meaning set forth
in Section 5.13(b) of this Agreement.
1.15 "Britamco Runoff Agreement" means the Britamco Runoff Agreement
dated the Closing Date between Buyer and Stephen Weicholz, substantially in
the form of Exhibit 1.15.
1.16 "Business Day" shall mean any day except a Saturday, Sunday or
any day on which United States chartered banking institutions are required by
United States, Florida or North Carolina Law to close.
1.17 "Buyer" has the meaning set forth in the first paragraph of this
Agreement.
1.18 "Buyer's Closing Certificate" shall mean the certificate of
Buyer, substantially in the form of Exhibit 1.18.
1.19 "Buyer Disclosure Schedule" shall mean the disclosure schedule,
dated the date hereof, furnished by Buyer to Sellers and containing all lists,
descriptions, exceptions and other information and materials as are required
to be included therein pursuant to this Agreement.
1.20 "Cash and Invested Assets Purchase Price Adjustment" shall have
the meaning set forth in Section 3.3 of this Agreement.
1.21 "Class A Common Stock" shall mean the Class A Common Stock, no
par value, of Front Royal.
1.22 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
1.23 "Closing Date" shall mean a date which is the last day of a
month (or, if the last day of such month is not a Business Day, the next
succeeding Business Day) and which is subsequent to the date on which all
conditions to the Closing have been either satisfied or waived and which is
within thirty Business Days after satisfaction or waiver of the conditions set
forth in Sections 8.7 and 9.7 [Regulatory Approvals], 8.8 and 9.8 [Consents],
and 8.10 and 9.9 [HSR]; provided, that the Buyer or the Sellers may delay the
Closing Date to a date no later than June 30, 1998.
3
<PAGE>
1.24 "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
1.25 "Companies" shall mean Americlaim, PNIC, Unamark and Wycon, and
"Company" shall mean any of them.
1.26 "Contracts" shall have the meaning set forth in Section 5.20.
1.27 "Control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
1.28 "Deloitte & Touche" shall mean Deloitte & Touche, LLP, PNFC's
and Britamco's independent certified public accountants.
1.29 "Deposit" shall have the meaning set forth in Section 13.1.
1.30 "Employee Plans" shall mean any contract, agreement, loan or
arrangement of any of the Companies or the ERISA Affiliates which is an
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
1.31 "Employees" shall have the meaning set forth in Section 5.21
hereof.
1.32 "Employment Agreements" means the Employment Agreements dated
the date hereof between PNIC and each of Scott Weicholz and Dennis Wills,
attached hereto as Exhibit 1.32.
1.33 "Ernst & Young" shall mean Ernst & Young, LLP, Buyer's
independent certified public accountants.
1.34 "Equipment Leases" shall mean the equipment lease obligations of
any of the Sellers listed on Schedule 1.34 of the Disclosure Schedule.
1.35 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.
1.36 "ERISA Affiliate" shall mean each trade or business, whether or
not incorporated, which with any of the Companies is treated as a single
employer under Code Section 414(b), (c), (m) or (o).
1.37 "Escrow Agent" shall mean LeBoeuf, Lamb, Greene & MacRae, LLP.
1.38 "Escrow Agreement" shall mean the Escrow Agreement, dated as of
the date of this Agreement, among Buyer, the Sellers and the Escrow Agent,
substantially in the form of Exhibit 1.38 hereto.
4
<PAGE>
1.39 "Final Certificate" shall have the meaning set forth in Section
3.4 of this Agreement.
1.40 "Final Closing Balance Sheet" shall have the meaning set forth
in Section 3.4 of this Agreement.
1.41 "Florida Code" shall mean the Florida Insurance Code, and the
regulations thereunder.
1.42 "Florida Department" shall mean the Florida Department of
Insurance.
1.43 "Front Royal" shall have the meaning set forth in the first
paragraph of this Agreement.
1.44 "GAAP" shall mean United States generally accepted accounting
principles, consistently applied.
1.45 "GAAP Book Value of PNIC" as at any date shall mean the
stockholders equity of PNIC determined in accordance with GAAP as at such
date.
1.46 "GAAP Book Value Purchase Price Adjustment" shall have the
meaning set forth in Section 3.3 of this Agreement.
1.47 "Holdings" shall have the meaning set forth in the first
paragraph of this Agreement.
1.48 "HSR Act" shall mean Section 7A of the Clayton Act (Title II of
the Hart- Scott-Rodino Antitrust Improvements Act of 1976), as amended, and
the rules and regulations promulgated thereunder.
1.49 "Indemnity Claim" shall have the meaning set forth in Section
11.5 of this Agreement.
1.50 "Intellectual Property" shall have the meaning set forth in
Section 5.23 of this Agreement.
1.51 "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations, permits,
licenses and orders promulgated thereunder.
1.52 "Lien" shall mean any lien, pledge, charge, security interest,
encumbrance, title retention agreement, restriction, advance, claim or option.
5
<PAGE>
1.53 "Material Adverse Effect" shall mean reasonably likely to have a
material adverse effect on the properties, business, results of operations, or
financial condition of any of the Companies.
1.54 "Material Front Royal Subsidiaries" shall mean the Subsidiaries
of Front Royal listed on Schedule 6.11 of the Buyer Disclosure Schedule that
are identified in such Schedule as Material Front Royal Subsidiaries. A
Material Front Royal Subsidiary is a Subsidiary that had total assets at
December 31, 1997 of more than 2% of the total assets of Front Royal and its
Subsidiaries on a consolidated basis determined in accordance with GAAP.
1.55 "Most Recent Company Financial Statements" has the meaning set
forth in Section 5.13(a).
1.56 "Non-Compete Agreement" means the Non-Compete Agreement dated
the Closing Date between Buyer and Stephen Weicholz, substantially in the form
of Exhibit 1.56.
1.57 "Opinions of Buyer's Counsel" shall mean the opinion of Robinson
Silverman Pearce Aronsohn & Berman LLP, counsel to Buyer, and the opinion of
the Mang Law Firm, special Florida insurance regulatory counsel to Buyer, in
form and substance reasonably satisfactory to Sellers and Sellers' counsel.
1.58 "Opinion of Sellers' Counsel" shall mean the opinion of LeBoeuf,
Lamb, Greene & MacRae LLP, counsel to the Sellers, in form and substance
reasonably satisfactory to Buyer and Buyer's counsel.
1.59 "Pension Plan" shall have the meaning set forth in Section 5.22
of this Agreement.
1.60 "Permits" shall mean all licenses, permits and other
governmental authorizations, registrations and approvals required to conduct
the business of each of the Companies, as applicable.
1.61 "Permitted Lien" shall mean the Liens described on Schedule 1.61
of the Sellers' Disclosure Schedule with respect to (a) the Wycon Assets, (b)
the Americlaim Assets and (c) the Unamark Assets.
1.62 "PNIC" means Preferred National Insurance Company, a Florida
corporation.
1.63 "PNIC Shares" means the common stock, par value $1.00 per share,
of PNIC.
1.64 "Policyholders' Surplus" shall mean as at any date with respect
to PNIC the combined capital and surplus of PNIC as at such date, determined
in accordance with SAP.
1.65 "Policyholders' Surplus Purchase Price Adjustment" shall have
the meaning set forth in Section 3.3 hereof.
6
<PAGE>
1.66 "Preliminary Calculation Certificate" shall have the meaning set
forth in Section 3.3 hereof.
1.67 "Preliminary Closing Balance Sheet" shall have the meaning set
forth in Section 3.3(a)(ii).
1.68 "Preliminary Purchase Price Adjustment Amount" shall have the
meaning set forth in Section 3.3 of this Agreement.
1.69 "Purchase Price" shall have the meaning set forth in Section 2.2
of this Agreement.
1.70 "Purchase Price Adjustment Amount" shall have the meaning set
forth in Section 3.3 of this Agreement.
1.71 "Purchase Price Escrow Amount" shall have the meaning set forth
in Section 3.4 of this Agreement.
1.72 "Purchase Securities" means the Purchase Shares, the Purchase
Warrants and the Class A Common Stock issuable upon exercise of the Purchase
Warrants.
1.73 "Purchase Shares" shall have the meaning set forth in Section
3.1 of this Agreement.
1.74 "Purchase Warrants" shall have the meaning set forth in Section
3.1 of this Agreement.
1.75 "Quarterly Statutory Statements" shall mean the quarterly
statutory convention statements of PNIC for the three-month periods ended
March 31, 1997, June 30, 1997, and September 30, 1997, filed with the Florida
Department pursuant to the Florida Code.
1.76 "Registration Rights Agreement" means the Second Amendment,
dated the Closing Date, in the form attached hereto as Exhibit 1.76, to the
Amended and Restated Registration Rights Agreement dated December 31, 1996, as
amended, among Buyer, the Sellers and the other parties thereto.
1.77 "Relationship Agreements" means the Endorsement Agreements dated
on or about the date hereof among PNIC and each of National Lawyers Risk
Management Association, American Society of Accountants, Inc., North American
Title Organization, Inc., and National Society of Dental Practitioners,
attached hereto as Exhibit 1.77.
1.78 "Reserves" as at any date with respect to PNIC shall mean PNIC's
loss, loss adjustment (allocated and unallocated) and unearned premium
reserves).
7
<PAGE>
1.79 "Reserve Estimate Midpoint" shall mean the midpoint of the range
of estimates of Reserves as at the Closing Date established by Deloitte &
Touche for purposes of computing GAAP Book Value of PNIC as at the Closing
Date for purposes of Section 3.3(a)(i).
1.80 "Reserve Purchase Price Adjustment" shall have the meaning set
forth in Section 3.3 of this Agreement.
1.81 "SAP" shall mean statutory accounting practices required,
prescribed or permitted by the Florida Department, or other applicable
regulatory authority, consistently applied throughout the specified period and
in the comparable period in the immediately preceding year.
1.82 "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
1.83 "Seller" or "Sellers" has the meaning set forth in the first
paragraph of this Agreement.
1.84 "Seller Assets" means the Wycon Assets, the Unamark Assets and
the Americlaim Assets.
1.85 "Seller Assumed Liabilities" means the Wycon Assumed
Liabilities, the Unamark Assumed Liabilities and the Americlaim Assumed
Liabilities.
1.86 "Seller Excluded Assets" means the Wycon Excluded Assets, the
Unamark Excluded Assets and the Americlaim Excluded Assets.
1.87 "Seller Financial Statements" has the meaning set forth in
Section 5.13(a) of this Agreement.
1.88 "Seller Shares" means the PNIC Shares.
1.89 "Sellers' Closing Certificates" shall mean the certificates of
each of the Sellers, substantially in the forms attached as Exhibit 1.89.
1.90 "Sellers' Disclosure Schedule" shall mean the disclosure
schedule, dated the date hereof, furnished by Sellers to Buyer and containing
all lists, descriptions, exceptions and other information and materials as are
required to be included therein pursuant to this Agreement.
1.91 "Software Licenses" shall mean all licenses related to software
used by any of PNIC, Wycon, Unamark or Americlaim, including, without
limitation, those listed on Schedule 1.91 of the Sellers' Disclosure Schedule.
1.92 "Statutory Statements" shall mean, collectively, the Annual
Statutory Statements and the Quarterly Statutory Statements.
8
<PAGE>
1.93 "Subsidiary" of any corporation or other business entity shall
mean any corporation or other business entity a majority of the voting stock
(or other beneficial interests) of which, entitled to vote for the election of
directors (or their counterparts), is owned by such corporation or other
business entity and all Subsidiaries of such corporation or other business
entity.
1.94 "Unamark" means United American Financial Services Corporation,
a Florida corporation.
1.95 "Unamark Assets" means all of the assets of Unamark other than
the Unamark Excluded Assets.
1.96 "Unamark Assumed Liabilities" has the meaning set forth in
Section 2.2(b) of this Agreement.
1.97 "Unamark Assumption Agreement" means the Assumption Agreement
dated the Closing Date between Buyer and Unamark, substantially in the form of
Exhibit 1.7.
1.98 "Unamark Excluded Assets" has the meaning set forth in Section
2.2(a) of this Agreement.
1.99 "Unamark Financial Statements" shall have the meaning set forth
in Section 5.13(b) of this Agreement.
1.100 "Wycon Assets" means all of the assets of Wycon other than the
Wycon Excluded Assets.
1.101 "Wycon Assumed Liabilities" has the meaning set forth in
Section 2.3(b) of this Agreement.
1.102 "Wycon Assumption Agreement" means the Assumption Agreement
dated the Closing Date between Buyer and Wycon, substantially in the form of
Exhibit 1.7.
1.103 "Wycon Excluded Assets" has the meaning set forth in Section
2.3(a) of this Agreement.
1.104 "Wycon Financial Statements" shall have the meaning set forth
in Section 5.13(a).
1.105 "Year 2000 Conformity" means that neither performance nor
functionality is affected by dates prior to, during or after the year 2000, in
particular: (a) no value for current date will cause any interruption in
operation; (b) date-based functionality must behave consistently for dates
prior to, during and after the year 2000; (c) in all interfaces and data
storage, the century in any date must be specified either explicitly or by
unambiguous algorithms or inferencing rules; and (d) the year 2000 must be
recognized as a leap year.
9
<PAGE>
Unless the context of this Agreement otherwise requires, (a) words of
any gender are deemed to include the other genders, (b) words using the
singular or plural number also include the plural or singular number,
respectively, (c) the terms "hereof," "herein," "hereby," "hereto," and
derivative or similar words refer to this entire Agreement, (d) the terms
"ARTICLE," "Article" or "Section" refer to the specified ARTICLE, Article or
Section of this Agreement, (e) the phrase "in the ordinary course of business
and consistent with past practice" refers to the business, operations,
affairs, and practice consistent with past practices of such business,
operations, and affairs, (f) the term "including" and other forms of such
term, with respect to any matter or thing, means "including but not limited
to" such matter or thing, and (g) all references to "dollars" or "$" refer to
currency of the United States of America.
ARTICLE 2
SALE AND PURCHASE OF SHARES AND ASSETS
2.1 Sale and Purchase of PNIC Shares. Subject to the terms and
conditions of this Agreement, at the Closing, for the consideration specified
in Section 3.1, PNFC shall sell, assign and transfer to Holdings, and Holdings
shall purchase from PNFC, the PNIC Shares owned by PNFC, which shall
constitute all of the issued and outstanding shares of capital stock of PNIC.
2.2 Sale and Purchase of Unamark Assets and Assignment and Assumption
of Certain Unamark Liabilities. (a) Subject to the terms and conditions of
this Agreement, at the Closing, for the consideration specified in Section
3.1, Unamark shall sell, assign, convey, transfer and deliver to Front Royal
(or its designee), and Front Royal (or its designee) shall purchase from
Unamark, for the consideration specified in Section 3.1, all of Unamark's
right, title and interest in and to all assets of Unamark, other than those
listed on Schedule 2.2(a) (collectively, the "Unamark Excluded Assets"). To
the extent that any of the Unamark Assets are non-assignable or
non-transferable to Buyer, or non-assignable or non-transferable without the
consent of a third party, or shall be subject to any option by any third party
by virtue of a request for permission to assign or transfer by reason of or
pursuant to this Agreement or the transactions contemplated hereby, this
Agreement shall not constitute a contract to assign or transfer the same if an
attempted assignment or transfer would (i) constitute a breach of any such
agreement requiring consent or (ii) create rights in others not desired by
Buyer. If Unamark shall have failed to procure consent to any such assignment
or transfer or waiver of such option with respect to a Unamark agreement prior
to the Closing Date, and the Closing nevertheless takes place, Unamark shall
use its commercially reasonable efforts to make the use and benefit of such
Unamark Asset available to Buyer to the same extent, as nearly as may be
possible, as if such impediment to assignment or transfer did not exist.
(b) Subject to the terms and conditions of this Agreement,
and pursuant to the Unamark Assumption Agreement, effective as of the Closing,
Unamark shall assign to Buyer and Buyer shall assume from Unamark and Buyer
shall thereafter pay, perform and discharge, only the liabilities of Unamark
listed on Schedule 2.2(b) (such liabilities, the "Unamark Assumed
Liabilities"). The Unamark Assumed Liabilities to be assumed by Buyer on the
Closing Date
10
<PAGE>
shall not include any liabilities or obligations of Unamark (i) for funded
debt and indebtedness for borrowed money, (ii) for Federal, state, local or
foreign income or payroll taxes or penalties, fines or interest with respect
thereto payable with respect to the ownership or operation of the Unamark
Assets or payable by or with respect to Unamark for any period prior to the
Closing Date (including payments pursuant to any tax indemnity or tax sharing
agreement), (iii) to indemnify any person by reason of the fact that such
person was a director, officer, employee or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee or agent of another entity, (iv) which constitute a breach
or violation by Unamark of any of the representations, warranties, covenants
or provisions of this Agreement, (v) with respect to any "employee benefit
plan" within the meaning of ERISA, (vi) arising from costs and expenses
related to the transactions contemplated by this Agreement, (vii) criminal
fines and penalties arising from or related to the conduct of the business of
Unamark or (viii) any liabilities of Unamark or, except as specifically set
forth in this Agreement, any of its Affiliates, not specifically set forth on
Schedule 2.2(b).
2.3 Sale and Purchase of Wycon Assets and Assignment and Assumption
of Certain Wycon Liabilities. (a) Subject to the terms and conditions of this
Agreement, at the Closing, for the consideration specified in Section 3.1,
Wycon shall sell, assign, convey, transfer and deliver to Front Royal (or its
designee), and Front Royal (or its designee) shall purchase from Wycon, for
the consideration specified in Section 3.1, all of Wycon's right, title and
interest in and to all assets of Wycon, other than those listed on Schedule
2.3(a) (collectively, the "Wycon Excluded Assets"). To the extent that any of
the Wycon Assets are non-assignable or non-transferable to Buyer, or
non-assignable or non-transferable without the consent of a third party, or
shall be subject to any option by any third party by virtue of a request for
permission to assign or transfer by reason of or pursuant to this Agreement or
the transactions contemplated hereby, this Agreement shall not constitute a
contract to assign or transfer the same if an attempted assignment or transfer
would (i) constitute a breach of any such agreement requiring consent or (ii)
create rights in others not desired by Buyer. If Wycon shall have failed to
procure consent to any such assignment or transfer or waiver of such option
with respect to a Wycon agreement prior to the Closing Date, and the Closing
nevertheless takes place, Wycon shall use its commercially reasonable efforts
to make the use and benefit of such Wycon Asset available to Buyer to the same
extent, as nearly as may be possible, as if such impediment to assignment or
transfer did not exist.
(b) Subject to the terms and conditions of this Agreement,
and pursuant to the Wycon Assumption Agreement, effective as of the Closing,
Wycon shall assign to Buyer and Buyer shall assume from Wycon and Buyer shall
thereafter pay, perform and discharge only the liabilities of Wycon listed on
Schedule 2.3(b) (such liabilities, the "Wycon Assumed Liabilities"). The Wycon
Assumed Liabilities to be assumed by Buyer on the Closing Date shall not
include any liabilities or obligations of Wycon (i) for funded debt and
indebtedness for borrowed money, (ii) for Federal, state, local or foreign
income or payroll taxes or penalties, fines or interest with respect thereto
payable with respect to the ownership or operation of the Wycon Assets or
payable by or with respect to Wycon for any period prior to the Closing Date
(including payments pursuant to any tax indemnity or tax sharing agreement),
(iii) to indemnify any person by reason of the fact that such person was a
director, officer, employee or agent of
11
<PAGE>
any such entity or was serving at the request of any such entity as a partner,
trustee, director, officer, employee or agent of another entity, (iv) which
constitute a breach or violation by Wycon of any of the representations,
warranties, covenants or provisions of this Agreement, (v) with respect to any
"employee benefit plan" within the meaning of ERISA, (vi) arising from costs
and expenses related to the transactions contemplated by this Agreement, (vii)
criminal fines and penalties arising from or related to the conduct of the
business of Wycon or (viii) any liabilities of Wycon or, except as
specifically set forth in this Agreement, any of its Affiliates, not
specifically set forth on Schedule 2.3(b).
2.4 Sale and Purchase of Americlaim Assets and Assignment and
Assumption of Certain Americlaim Liabilities. (a) Subject to the terms and
conditions of this Agreement, at the Closing, for the consideration specified
in Section 3.1, Americlaim shall sell, assign, convey, transfer and deliver to
Front Royal (or its designee), and Front Royal (or its designee) shall
purchase from Americlaim, for the consideration specified in Section 3.1, all
of Americlaim's right, title and interest in and to all assets of Americlaim,
other than those assets listed on Schedule 2.4(a) (the "Americlaim Excluded
Assets"). To the extent that any of the Americlaim Assets are non-assignable
or non-transferable to Buyer, or non-assignable or non-transferable without
the consent of a third party, or shall be subject to any option by any third
party by virtue of a request for permission to assign or transfer by reason of
or pursuant to this Agreement or the transactions contemplated hereby, this
Agreement shall not constitute a contract to assign or transfer the same if an
attempted assignment or transfer would (i) constitute a breach of any such
agreement requiring consent or (ii) create rights in others not desired by
Buyer. If Americlaim shall have failed to procure consent to any such
assignment or transfer or waiver of such option with respect to an Americlaim
agreement prior to the Closing Date, and the Closing nevertheless takes place,
Americlaim shall use its commercially reasonable efforts to make the use and
benefit of such Americlaim Asset available to Buyer to the same extent, as
nearly as may be possible, as if such impediment to assignment or transfer did
not exist.
(b) Subject to the terms and conditions of this Agreement,
and pursuant to the Americlaim Assumption Agreement, effective as of the
Closing, Americlaim shall assign to Buyer and Buyer shall assume from
Americlaim and Buyer shall thereafter pay, perform and discharge only the
liabilities of Americlaim listed on Schedule 2.4(b) (such liabilities, the
"Americlaim Assumed Liabilities"). The Americlaim Assumed Liabilities to be
assumed by Buyer on the Closing Date shall not include any liabilities or
obligations of Americlaim (i) for funded debt and indebtedness for borrowed
money, (ii) for Federal, state, local or foreign income or payroll taxes or
penalties, fines or interest with respect thereto payable with respect to the
ownership or operation of the Americlaim Assets or payable by or with respect
to Americlaim for any period prior to the Closing Date (including payments
pursuant to any tax indemnity or tax sharing agreement), (iii) to indemnify
any person by reason of the fact that such person was a director, officer,
employee or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee or agent of another
entity, (iv) which constitute a breach or violation by Americlaim of any of
the representations, warranties, covenants or provisions of this Agreement,
(v) with respect to any "employee benefit plan" within the meaning of ERISA,
(vi) arising from costs and expenses related to the transactions contemplated
by this Agreement, (vii) criminal fines and penalties arising from or related to
the
12
<PAGE>
conduct of the business of Americlaim or (viii) any liabilities of Americlaim
or, except as specifically set forth in this Agreement, any of its Affiliates,
not specifically set forth on Schedule 2.4(b).
ARTICLE 3
PURCHASE PRICE
3.1 The Purchase Price. The aggregate purchase price (the "Purchase
Price") for the PNIC Shares and the Seller Assets shall consist of (i)
$35,000,000 in cash, subject to adjustment as set forth in Section 3.3(a) and
3.4 below, (ii) 500,000 shares of Class A Common Stock (the "Purchase
Shares"), free and clear of all Liens (other than the restrictions on transfer
referred to in Section 5.28), and (iii) warrants (the "Purchase Warrants"),
free and clear of all Liens (other than the restrictions on transfer referred
to in Section 5.28) to purchase an additional 1,050,000 shares of Class A
Common Stock at an exercise price of $10.00 per share (which Purchase Warrants
shall be substantially in the form of Exhibit 3.1), subject, in the case of
clauses (ii) and (iii), to adjustment as set forth in Section 3.3(b) below.
The Purchase Price shall be allocated among the Sellers as set forth on
Schedule 3.1. The allocation of the Purchase Price shall be reported by Buyer
and the Sellers in a manner consistent with the allocation of the Purchase
Price set forth herein with all federal, state and local and foreign tax
authorities. The Purchase Price shall be payable as provided in Section 3.2.
3.2 Payment of Purchase Price. Payment of the cash portion of the
Purchase Price shall be in U.S. dollars, and shall be made by Buyer at the
Closing in accordance with Section 4.1, subject to Section 3.4, and delivery
of the Purchase Shares and Purchase Warrants shall be made at the Closing in
accordance with Section 4.1.
3.3 Purchase Price Adjustment. (a) (i) The cash portion of the
Purchase Price, as set forth in Section 3.1, shall be adjusted, as
appropriate, as follows:
(A) The cash portion of the Purchase Price shall be
increased or decreased, as appropriate, on a
dollar-for-dollar basis by the amount by which the GAAP Book
Value of PNIC as at the Closing Date is greater than or less
than $35,000,000; provided that the maximum upward increase
in the Purchase Price on account of this Section
3.3(a)(i)(A) shall be $5,000,000. The adjustment described
in this Section 3.3(a)(i)(A) is referred to as the "GAAP
Book Value Purchase Price Adjustment."
(B) If the Closing Date is on or after May 31,
1998, the cash portion of the Purchase Price shall be
decreased by an amount equal to 25% of the amount, if any,
by which the cash and invested assets of PNIC as at the
Closing Date, determined in accordance with GAAP, is less
than $70,000,000. The adjustment described in this Section
3.3(a)(i)(B) is referred to as the "Cash and Invested Assets
Purchase Price Adjustment."
13
<PAGE>
(C) The cash portion of the Purchase Price shall be
increased on a dollar-for-dollar basis by the amount, if
any, by which the Reserves of PNIC as at the Closing Date,
used for purposes of computing the GAAP Book Value of PNIC
as at the Closing Date and for purposes of computing
Policyholders' Surplus as at the Closing Date, exceed the
Reserve Estimate Midpoint by more than $500,000; or shall be
decreased on a dollar-for-dollar basis by the amount, if
any, by which the Reserves of PNIC as at the Closing Date,
used for purposes of computing the GAAP Book Value of PNIC
as at the Closing Date and for purposes of computing
Policyholders' Surplus as at the Closing Date, are less
than the Reserve Estimate Midpoint by more than $500,000.
The adjustment described in this Section 3.3(a)(i)(C) is
referred to as the "Reserve Purchase Price Adjustment."
(D) The cash portion of the Purchase Price shall be
decreased on a dollar-for-dollar basis by the amount by
which the Policyholders' Surplus of PNIC as at the Closing
Date is more than $50,000 less than the GAAP Book Value of
PNIC as at the Closing Date, excluding differences on
account of (i) the treatment of deferred acquisition costs,
(ii) the mark-to-market of the investment portfolio, (iii)
inclusion of nonadmitted assets, (iv) the elimination of the
statutory provision for reinsurance and (v) the treatment of
income taxes. The adjustment described in this Section
3.3(a)(i)(D) is referred to as the "Policyholders' Surplus
Purchase Price Adjustment."
(E) In the event the Closing Date is not the last
day of a month, then all the foregoing computations and
adjustments (including without limitation the computation of
Reserves for purposes of determining the Reserve Estimate
Midpoint) shall be made as of the last day of the month
immediately preceding the Closing Date.
(F) The foregoing adjustments shall be made and
applied cumulatively, and any reductions in the cash portion
of the Purchase Price shall be applied to offset any
increases, and vice versa, and the net resulting adjustment
is referred to herein as the "Purchase Price Adjustment
Amount."
(ii) On the Closing Date PNFC shall deliver to Buyer a
certificate (the "Preliminary Calculation Certificate"),
substantially in the form attached hereto as Exhibit 3.3, setting
forth and/or certifying (1) the best good faith estimate of PNFC and
PNIC as of the Closing Date of (A) the GAAP Book Value of PNIC as at
the Closing Date and the GAAP Book Value Purchase Price Adjustment
(the "GAAP Book Value of PNIC Preliminary Determination Amount"), (B)
the cash and invested assets of PNIC as at the Closing Date and the
Cash and Invested Assets Purchase Price Adjustment (the "Cash and
Invested Assets Preliminary Determination Amount"), (C) the
difference between Policyholders' Surplus and the GAAP Book Value of
PNIC and the Policyholders' Surplus Purchase Price Adjustment (the
"Policyholders' Surplus Difference Preliminary Determination
Amount"), and (D) the reserves of PNIC and the
14
<PAGE>
Reserve Purchase Price Adjustment (the "PNIC Reserves Preliminary
Determination Amount"), and (2) the balance sheet of PNIC as of the
Closing Date prepared on a proforma basis and based on estimates of
historical data and analysis of trends in a good faith effort to
approximate GAAP ("Preliminary Closing Balance Sheet"). The GAAP
Book Value of PNIC Preliminary Determination Amount, the Cash and
Invested Assets Preliminary Determination Amount, the Policyholders'
Surplus Difference Preliminary Determination Amount and the PNIC
Reserves Preliminary Determination Amount are referred to herein as
the "Preliminary Determinations" and the calculations made to derive
the Preliminary Determinations are referred to as the "Preliminary
Calculations." The Preliminary Calculation Certificate shall be
signed by the Chief Financial Officer of PNFC and the Chief
Financial Officer of PNIC.
(iii) At the Closing Date, the cash portion of the Purchase
Price shall be provisionally adjusted in accordance with Section
3.3(a)(i) based on the Preliminary Calculations and the Preliminary
Determinations. The provisional adjustment, if any, to the cash
portion of the Purchase Price resulting from such calculations is
referred to as the "Preliminary Purchase Price Adjustment Amount." At
the Closing, the Buyer shall pay to the Sellers, as appropriate,
$35,000,000, plus or minus the Preliminary Purchase Price Adjustment
Amount, less $1,000,000 to be deposited into escrow in accordance
with Section 3.4.
(b) The number of Purchase Shares and the number of shares
of Class A Common Stock issuable upon exercise of the Purchase Warrants, and
the exercise price therefor, shall be adjusted either upward or downward to
account for any stock splits or stock dividends (or other similar events) with
respect to the Class A Common Stock during the period between the date of this
Agreement and the Closing Date.
3.4 Escrow Amounts. (a) At the Closing, Buyer shall deposit into
escrow with the Escrow Agent, in accordance with the Escrow Agreement, an
aggregate of $2,000,000, consisting of (i) $1,000,000 of the cash portion of
the Purchase Price allocable to PNFC (the "Purchase Price Escrow Amount") and
(ii) $1,000,000 of Buyer's funds (the "Additional Escrow Amount").
(b) The Buyer and PNFC shall arrange for Deloitte & Touche
to deliver, as promptly as practicable after the Closing, to Buyer, PNFC and
Ernst & Young an actuarial reserve study of the Reserves of PNIC as at the
Closing Date and setting forth a range of appropriate Reserves for PNIC as at
such date.
(c) The Buyer and PNFC shall arrange for Deloitte & Touche,
as promptly as practicable after the Closing, to perform an audit of the
Preliminary Closing Balance Sheet, and to prepare and deliver to Buyer, PNIC
and the Escrow Agent financial statements of PNIC as of the Closing Date. Such
financial statements (the "Closing Financial Statements") shall include a
balance sheet (the "Final Closing Balance Sheet") and statements of
operations, changes in shareholders' equity, and statements of cash flows as
at the Closing Date and for the portion of the fiscal year then ended, shall
include all footnote disclosures required by GAAP, shall include
15
<PAGE>
an audited reconciliation of GAAP to SAP, and shall be certified by Deloitte &
Touche in accordance with GAAP. Promptly after its receipt of the Closing
Financial Statements, PNFC shall prepare and deliver to each of Buyer and the
Escrow Agent a final certificate (the "Final Certificate"), substantially in
the form attached hereto as Exhibit 3.4, setting forth its computations of the
Purchase Price Adjustment and the amount of the difference (the "Adjustment
Difference Amount"), if any, between the Preliminary Purchase Price Adjustment
Amount and the Purchase Price Adjustment Amount.
(d) The cost of the actuarial reserve study referred to in
Section 3.4(c) shall be borne equally by PNFC and Buyer, and the cost of the
audit of the Closing Financial Statements shall be borne by PNFC.
(e) Prior to and following the Closing, for the purpose of
reviewing the Preliminary Closing Balance Sheet and the Closing Financial
Statements and related materials, PNFC and PNIC shall permit Buyer,
Tillinghast and Ernst & Young full and complete access to the books and
records of PNIC, to the audit work papers of Deloitte & Touche and to the
personnel of PNFC, PNIC and Deloitte & Touche. Buyer shall have the right at
any time during the thirty (30) day period following its receipt of the Final
Certificate, the Closing Financial Statements and supporting materials to
object to (i) any item or items in the Closing Financial Statements, and (ii)
any other matters set forth in or related to the computations set forth in the
Final Certificate. Any such objection (an "Objection Notice") shall be in
writing, shall be given to PNFC, Deloitte & Touche and to the Escrow Agent,
and shall set forth in reasonable detail the nature and basis for Buyer's
objections. If Buyer does not give an Objection Notice within such thirty (30)
day period, then the Final Certificate and the Final Balance Sheet, as
prepared and delivered by PNFC and Deloitte & Touche, respectively, shall be
final and binding on the parties. Following the giving of an Objection Notice,
Buyer and PNFC shall negotiate in good faith a resolution of all matters set
forth in the Objection Notice. If the parties resolve all such matters, then
they shall make a determination of the Adjustment Difference Amount and shall
issue a Joint Written Direction (as defined in the Escrow Agreement) to the
Escrow Agent. If the parties cannot resolve all such matters within fifteen
(15) days after the date on which Buyer gave the Objection Notice, then
thereafter either of Buyer or PNFC may elect, upon notice to the other, to
submit all unresolved matters to KPMG Peat Marwick or Arthur Andersen, as the
parties may agree (and if they cannot agree, the selection shall be made by
flip of a coin) (the "Independent Party"), which shall resolve all matters in
dispute (but only such matters) between the parties and whose decision as to
the Adjustment Difference Amount shall be conclusive and binding on the
parties. The decision of the Independent Party shall be in writing (such
writing is referred to as an "Independent Direction Certificate"), shall be in
a form substantially similar to the Final Certificate, and shall be delivered
to Buyer, PNFC, Escrow Agent, Deloitte & Touche and Ernst & Young. The fees
and expenses of the Independent Party shall be borne equally by PNFC and
Buyer.
(f) The following provisions shall apply after final
determination of the Adjustment Difference Amount pursuant to subsection (c)
or (e), above. If the Adjustment Difference Amount is zero, then the Escrow
Agent shall deliver the Purchase Price Escrow Amount, plus
16
<PAGE>
any interest or income thereon, to PNFC and the Additional Escrow Amount, plus
any interest or income thereon, to Buyer. If the Adjustment Difference Amount
is greater than zero, then the Purchase Price shall be adjusted either upward
or downward, as applicable, by the Adjustment Difference Amount. If the
Purchase Price, as adjusted by the Preliminary Purchase Price Adjustment
Amount, is adjusted downward by the Adjustment Difference Amount then the
Escrow Agent shall deliver the Adjustment Difference Amount,
plus any interest or income thereon, to Buyer from the Purchase Price Escrow
Amount, deliver the balance of the Purchase Price Escrow Amount, plus interest
or income earned on such balance, to PNFC and shall deliver the Additional
Escrow Amount, plus interest or income thereon, to Buyer. If the Purchase
Price, as adjusted by the Preliminary Purchase Price Adjustment Amount, is
adjusted upward by the Adjustment Difference Amount then the Escrow Agent
shall deliver the Adjustment Difference Amount, plus any interest or income
thereon, to PNFC from the Additional Escrow Amount, deliver the balance of the
Additional Escrow Amount, plus any interest or income earned on such balance,
to Buyer, and shall deliver the Purchase Price Escrow Amount, plus any
interest or income thereon, to PNFC. The right to receive amounts pursuant to
this Section 3.4 shall not be an exclusive remedy to either party on account
of any adjustment to the Purchase Price or other claim under this Agreement,
and if the Purchase Price Escrow Amount or the Additional Escrow Amount is
insufficient to settle in full any adjustments to the cash portion of the
Purchase Price, then Buyer or PNFC, as the case may be, shall be obligated to
pay the shortfall, together with the amount of interest or income which would
have been earned on such amount, at the effective rate of interest earned on
all funds in escrow since the Closing Date, promptly after all amounts are
disbursed pursuant to this Section 3.4.
ARTICLE 4
THE CLOSING
4.1 Closing. (a) The Closing will take place at the offices of
Robinson Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the Americas,
New York, New York 10104, at 10:00 a.m., local time, on the Closing Date.
(b) At the Closing, Buyer shall deliver or cause to be
delivered the following, as the same may be adjusted pursuant to Section 3.3:
(i) $34,000,000 of the Purchase Price (subject to
adjustment pursuant to Section 3.3(a)(iii)) in cash payable by wire
transfer of immediately available funds to an account or accounts
designated by the Sellers and $1,000,000 of the Purchase Price,
together with an additional $1,000,000 of Buyer's own funds, in cash
payable by wire transfer of immediately available funds to an account
or accounts designated by the Escrow Agent to be held in escrow
pursuant to the terms of this Agreement and the Escrow Agreement,
which amount shall be allocated among the Sellers in accordance with
Schedule 3.1;
(ii) one or more certificates, issued in accordance
with Schedule 3.1, representing the Purchase Shares with all required
transfer taxes or stamps paid for or
17
<PAGE>
affixed thereto, free and clear of all Liens (other than Liens that
are solely as a result of Sellers' actions and other than the
restrictions on transfer referred to in Section 5.28);
(iii) the Purchase Warrants, issued in accordance with
Schedule 3.1 with all required transfer taxes or stamps paid for or
affixed thereto, free and clear of all Liens (other than Liens that
are solely as a result of Sellers' actions and other than the
restrictions on transfer referred to in Section 5.28); and
(iv) the other documents or instruments required to be
delivered by Buyer pursuant to Article 9.
(c) At the Closing, PNFC shall deliver to Holdings the
following:
(i) one or more certificates representing the PNIC
Shares accompanied by stock powers duly endorsed in blank, with all
required transfer taxes or stamps paid for or affixed thereto, free
and clear of all Liens (other than Liens that arise solely as a
result of Buyer's actions and other than the restrictions on transfer
referred to in Section 6.7); and
(ii) the other documents or instruments required to be
delivered by PNFC pursuant to Article 8.
(d) At the Closing, Wycon, Unamark and Americlaim shall
deliver to Front Royal the Bills of Sale and the other documents or
instruments required to be delivered by them pursuant to Article 8.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND STEPHEN WEICHOLZ
Each of the following representations and warranties are made on the
following basis: (i) representations and warranties given by the Sellers with
respect to themselves are given severally by each Seller with respect to
itself and not jointly (regardless of whether the representations and
warranties by their terms pertain to a single Seller, multiple Sellers or all
of the Sellers as a group); (ii) representations and warranties with respect
to Wycon and the assets and liabilities of Wycon are deemed made only by Wycon
and Stephen Weicholz (regardless of whether the representations and warranties
by their terms pertain only to Wycon, the assets and liabilities of Wycon or
to the Sellers, the Companies, the Seller Assets or the Sellers' liabilities,
collectively); (iii) representations and warranties with respect to Americlaim
and the assets and liabilities of Americlaim are deemed made only by
Americlaim and Stephen Weicholz (regardless of whether the representations and
warranties by their terms pertain only to Americlaim, the assets and
liabilities of Americlaim or to the Sellers, the Companies, the Seller Assets
or the Sellers' liabilities, collectively); (iv) representations and
warranties with respect to Unamark and the
18
<PAGE>
assets and liabilities of Unamark are deemed made only by Unamark and Stephen
Weicholz (regardless of whether the representations and warranties by their
terms pertain only to Unamark, the assets and liabilities of Unamark or to the
Sellers, the Companies, the Seller Assets or the Sellers' liabilities
collectively); and (v) representations and warranties with respect to PNFC and
PNIC and their respective assets and liabilities are deemed made only by PNFC.
5.1 Organization and Good Standing. (a) Each of the Sellers and PNIC
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction set forth in Schedule 5.1 of the Sellers'
Disclosure Schedule. Each of the Sellers and PNIC has all requisite corporate
power and authority to conduct its business as currently conducted and to own
or lease and to operate its properties. Each of the Companies is duly
qualified or admitted to do business and is in good standing as a foreign
corporation in all jurisdictions in which the ownership, use or leasing of its
assets or properties or the conduct or nature of its business makes such
qualification or admission necessary, except where the failure to be so
qualified or admitted would not have a Material Adverse Effect. Schedule 5.1
of the Sellers' Disclosure Schedule sets forth all jurisdictions in which any
of the Companies are qualified to transact business as a foreign corporation.
5.2 Capitalization. The capitalization of PNIC is set forth on
Schedule 5.2 of the Sellers' Disclosure Schedule. All outstanding shares set
forth on Schedule 5.2 of the Sellers' Disclosure Schedule have been duly
authorized and validly issued and are fully paid and non-assessable. There are
no outstanding securities, rights (pre-emptive or other), subscriptions,
calls, warrants, options, or other agreements (except for this Agreement) that
give any person or entity the right to (i) purchase or otherwise receive or be
issued any shares of capital stock of PNIC (or any interest therein) or any
security convertible into or exchangeable for any shares of capital stock of
PNIC (or any interest therein), (ii) receive any dividend, voting or ownership
rights similar to those accruing to a holder of shares of capital stock of
PNIC, or (iii) participate in the equity, income or election of directors or
officers of PNIC. Except as set forth in Schedule 5.2 of the Sellers'
Disclosure Schedule, there are no proxies, voting trusts or other agreements
or understandings to which PNFC is a party or by which it is bound with
respect to the voting of any of the PNIC Shares.
5.3 Authority, Validity and Enforceability. Each of the Sellers has
full power and authority, corporate or otherwise, to execute, deliver and
perform its obligations under this Agreement and to consummate the
transactions required of it contemplated hereby. The execution, delivery and
performance of this Agreement by each of the Sellers and the consummation by
them of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors and shareholders of each of the Sellers,
respectively. No other action or proceeding on the part of any Seller or PNIC
is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of the Sellers and Stephen Weicholz and
constitutes a valid, legal and binding obligation of each of the Sellers and
Stephen Weicholz, enforceable in accordance with its terms.
19
<PAGE>
5.4 No Violation or Breach. The execution, delivery and performance
by each Seller of this Agreement does not, and the consummation by Sellers of
the transactions contemplated hereby will not (with or without the giving of
notice or the lapse of time or both):
(a) violate or require any consent or approval under any
provision of the Articles of Incorporation (or equivalent charter document) or
bylaws of any Seller or PNIC; or
(b) except as set forth in Section 5.9, violate or result in
a default of, or require any consent or approval under, or result in the
termination of or loss of any right (including any right of acceleration,
termination or cancellation) in or with respect to, any Contract, Permit,
Equipment Lease or Software License, except for such violations or breaches
which would not have a Material Adverse Effect; or
(c) violate or result in a default of, or require any
consent or approval under any judgment, settlement, consent, injunction,
decree, order or ruling of any court or governmental authority, to which any
of the Sellers or PNIC is a party or is otherwise subject; or
(d) result in any Lien upon any properties, assets, business
or agreements of any Seller or PNIC howsoever arising, except for such Liens
which would not have a Material Adverse Effect.
5.5 Subsidiaries. Except for PNIC, which is a wholly-owned subsidiary
of PNFC, no Seller has any Subsidiaries. PNIC has no Subsidiaries.
5.6 Seller Assets.(a) Wycon hereby represents and warrants that it
has good legal title, of record and beneficially, to all of the Wycon Assets,
and at the Closing Wycon will transfer and deliver to Buyer legal and valid
title to the Wycon Assets free and clear of all Liens, other than (i) Liens
created by Buyer, and (ii) Permitted Liens.
(b) Americlaim hereby represents and warrants that it has good legal
title, of record and beneficially, to all of the Americlaim Assets, and at the
Closing Americlaim will transfer and deliver to Buyer legal and valid title to
the Americlaim Assets free and clear of all Liens, other than (i) Liens
created by Buyer, and (ii) Permitted Liens.
(c) Unamark hereby represents and warrants that it has good legal
title, of record and beneficially, to all of the Unamark Assets, and at the
Closing Unamark will transfer and deliver to Buyer legal and valid title to
the Unamark Assets free and clear of all Liens, other than (i) Liens created
by Buyer, and (ii) Permitted Liens.
5.7 Seller Shares. PNFC owns all of the PNIC Shares free and clear of
all Liens. The PNIC Shares represent all of the outstanding shares of issued
and outstanding capital stock of PNIC. Upon delivery by PNFC to Buyer of
certificates representing the PNIC Shares, together with duly executed stock
powers or other instruments of transfer, Buyer will acquire good and valid
title to the PNIC Shares, free and clear of all Liens other than (i) Liens
that arise
20
<PAGE>
solely as a result of Buyer's actions and (ii) restrictions on transferability
generally imposed on transfers of securities by federal and state securities
laws and applicable state insurance laws.
5.8 Compliance with Other Instruments and Laws. None of the Sellers
or PNIC is in violation of any term of its charter or by-laws and none of the
Sellers or PNIC is in violation of any Contract, judgment, decree, order, Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except
for such violations that would not have a Material Adverse Effect.
5.9 Consents. Except as set forth in Schedule 5.9 of the Sellers'
Disclosure Schedule, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained, by any Seller or PNIC in connection with the execution,
delivery and performance of this Agreement by Sellers and the transactions
contemplated hereby, including, without limitation, the sale by the Sellers of
the Seller Shares and the Seller Assets.
5.10 Litigation. Except as set forth on Schedule 5.10 of the Sellers'
Disclosure Schedule, there is no action, proceeding, investigation or claim
pending or, to the best knowledge of each Seller, threatened against or
affecting any Seller or PNIC or its respective assets before any court or
governmental or regulatory authority or body that, if adversely determined,
would have a Material Adverse Effect or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto. There is no
state of facts, and to the best knowledge of each Seller, there has occurred
no event or group of related events, that would form the basis of any claim
against any Seller or PNIC for liability on account of breach of a Contract,
violation of statute or regulation, or otherwise in connection with the
performance of the Contracts or the conduct of their respective businesses
that, if adversely determined, would have a Material Adverse Effect or which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto. Except as set forth on Schedule 5.10 of the Sellers'
Disclosure Schedule, with respect to claims against any of the Sellers or PNIC
made under or in connection with insurance policies issued by the Sellers or
PNIC, there are no claims pending or, to the best knowledge of Sellers
(including without limitation the executive officers of Sellers in their
capacity as such), threatened, as to which liability in excess of applicable
coverage limits has been asserted against any of the Companies, and there are
no claims pending or, to the best knowledge of Sellers (including without
limitation the executive officers of Sellers in their capacity as such)
threatened, for bad faith or for punitive damages against any of the
Companies.
5.11 No Brokers. None of the Sellers or PNIC has employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of any of the transactions contemplated hereby,
other than those persons or entities whose fees shall be the responsibility of
PNFC.
5.12 Absence of Certain Changes. Except as set forth on Schedule 5.12
of the Sellers' Disclosure Schedule, since June 30, 1997, none of the
Companies has:
21
<PAGE>
(a) issued, sold or delivered or agreed to issue, sell or
deliver any shares of its capital stock or any options, warrants or
rights to acquire any such capital stock, or securities convertible
into or exchangeable for such capital stock except for the
transactions contemplated by this Agreement;
(b) incurred any obligations or liabilities, whether
absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities
incurred in the ordinary course of business and obligations and
liabilities under the Contracts;
(c) mortgaged, pledged or subjected to any Lien any of its
assets, tangible or intangible, except in the ordinary course of
business;
(d) acquired or disposed of any material assets or
properties, or entered into any agreement or other arrangement for
any such acquisition or disposition, except in the ordinary course of
business;
(e) except as allowed in Section 7.1(a)(xi) of this
Agreement, declared, made, paid or set apart any sum for any dividend
or other distribution to its shareholders or purchased or redeemed
any shares of its capital stock or any option, warrant or right to
purchase any such capital stock, or reclassified its capital stock;
(f) entered into any employment agreement with any officer
or salaried employee that is not terminable at any time by the
employer, without cause and without penalty;
(g) forgiven or cancelled any debts or claims or waived any
rights of material value;
(h) conducted its business or entered into any transaction
other than in the ordinary course of business;
(i) granted any rights or licenses under any of its trade
names or entered into general agency arrangements;
(j) formed any Subsidiaries;
(k) changed any method of accounting or accounting policies
or procedures, or policy with respect to Reserves, other than as
required by SAP, GAAP or applicable Law, or changed its manner of
application of any such method or policy;
(l) been sued by or, to the best knowledge of the Sellers,
threatened with any suit by, any employee or former employee;
22
<PAGE>
(m) changed its premium rate structure in any material
respect, its insurance underwriting policies, its reinsurance
arrangements or practices or, in any material respect, its insurance
products;
(n) suffered or experienced any change in relations with or
material loss of any employees or customers;
(o) changed its policies, or its manner of application of
its policies, regarding the establishment or determination of
Reserves, including case, IBNR, LAE and ULAE reserves; or
(p) agreed to take any action described in clauses (a)
through (o).
5.13 Financial Statements. (a) PNFC has delivered to Buyer (i) the
Statutory Statements and (ii) any annual statutory statements of PNIC that
were filed for the year ended December 31, 1996 in any jurisdiction which
differ from the Annual Statutory Statement for the year ended December 31,
1996. PNFC hereby represents and warrants that each such Statutory Statement,
and all statutory statements delivered to Buyer pursuant to Section 8.15, (i)
complied (or will comply) in all material respects with all applicable laws
when so filed, (ii) was (or will have been) prepared in accordance with NAIC
Annual Statement instructions and accounting practices and procedures manuals,
except to the extent that (A) applicable state law may differ, or (B)
applicable state rules or regulations require differences in reporting not
related to accounting practices and procedures, (iii) is (or will be) true and
complete in all material respects, and (iv) presents (or will present) fairly
in all material respects the financial position of PNIC as of the respective
dates thereof and the related summary of operations and changes in capital and
surplus and in cash flows of PNIC for and during the respective periods
covered thereby. No material deficiency has been asserted by any insurance
regulatory authority with respect to any such Statutory Statement or will have
been asserted with respect to such statutory statements.
(b) The Sellers have delivered to Buyer the following financial
statements, all of which are attached hereto as Schedule 5.13(b):
(i) audited balance sheets and statements of income, changes
in stockholder's equity and cash flow as of and for the fiscal years
ended December 31, 1996 and December 31, 1995, for PNIC (the "PNIC
GAAP Financial Statements");
(ii) audited financial statements for Britamco prepared on a
SAP basis for the fiscal year ended December 31, 1996, and unaudited
balance sheets and statements of income and changes in stockholders'
equity of Britamco as at and for the six months ended June 30, 1997
(the "Britamco Financial Statements"); and
(iii) unaudited balance sheets and statements of income and
changes in stockholder's equity as of and for the fiscal years ended
December 31, 1996 and December 31, 1995, and as at and for the six
month period ended June 30, 1997, for each of Wycon and Unamark and
as of and for the fiscal years ended August 31, 1997 and
23
<PAGE>
August 31, 1996 and as at and for the three month period ended
November 30, 1997 for Americlaim (the "Wycon Financial Statements,"
the "Unamark Financial Statements" and the "Americlaim Financial
Statements," respectively).
The PNIC GAAP Financial Statements, the Wycon Financial Statements, the
Americlaim Financial Statements, the Britamco Financial Statements and the
Unamark Financial Statements are referred to as the "Seller Financial
Statements." The Wycon Financial Statements, the Britamco Financial Statements
and the Unamark Financial Statements as at June 30, 1997 and for the six
months then ended and the Americlaim Financial Statements as of November 30,
1997 and for the three months then ended, are referred to as the "Most Recent
Seller Financial Statements." The PNIC GAAP Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly in all
material respects the financial condition of PNIC as of such dates and the
results of operations of PNIC for such periods, and are consistent with the
books and records of PNIC (which books and records are correct and complete).
Each of the Americlaim Financial Statements, the Wycon Financial Statements
and the Unamark Financial Statements are internally prepared financial
statements, prepared by each respective Seller in accordance with its internal
accounting policies consistent with past practices and each respective Seller
believes that its financial statements present fairly in all material respects
the financial condition of each respective Seller as of such dates and the
results of operations of each respective Seller for such periods, and are
consistent with the books and records of each respective Seller (which books
and records each Seller believes are correct and complete); provided, however,
that in the case of the Most Recent Seller Financial Statements such financial
statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items.
5.14 Licenses and Permits. Each of the Companies, to the extent
necessary, has all Permits required in each of the jurisdictions listed on
Schedule 5.14 of the Sellers' Disclosure Schedule to engage in the business of
writing or marketing property and casualty insurance policies. PNIC is duly
licensed and qualified to transact those lines of insurance business in those
states and jurisdictions listed on Schedule 5.14 of the Sellers' Disclosure
Schedule. Except as set forth on Schedule 5.14 of the Sellers' Disclosure
Schedule, all such Permits are owned by such Company, are in full force and
effect and none of the Sellers or PNIC has received any notice of any event,
inquiry, investigation or proceeding that could result in a penalty or fine in
excess of $20,000, singly or in the aggregate, or in the suspension,
revocation or limitation on any such Permit, and to the best knowledge of each
of the Sellers, there is no basis for any such fine, penalty, suspension,
revocation or limitation. PNIC possesses the minimum statutory capital and
surplus as required by each such jurisdiction for the type of insurance
written by it in each jurisdiction set forth on Schedule 5.14. All such
Permits held by PNIC shall continue in force after the Closing.
5.15 Insurance Regulatory Filings. Since January 1, 1992, each Seller
and PNIC, to the extent required to do so, has filed or otherwise provided all
reports, data, other information and applications required to be filed or
otherwise provided to the Florida Department and all other federal, state or
local governmental authorities with jurisdiction over such Seller or PNIC
24
<PAGE>
except where the failure to file would not have a Material Adverse Effect. The
Sellers have furnished to Buyer copies of all reports of examinations (whether
financial, market conduct or other) issued by the Florida Department and all
other state insurance regulatory authorities in respect of the Sellers and
PNIC received since January 1, 1992. Except as set forth on Schedule 5.15 of
the Sellers' Disclosure Schedule, no deficiencies material to the financial
condition or operations of any Seller or PNIC have been asserted by the
Florida Department or any other state insurance regulatory authority with
respect to any reports or filings made by or on behalf of any Seller or PNIC
since January 1, 1992. The Sellers have supplied Buyer with copies of all
written responses submitted on behalf of the Sellers since January 1, 1992, in
respect of any report of examination (whether financial, market conduct or
other) of the Sellers or PNIC by the Florida Department or any other state
regulatory authority. Each Seller has made available to Buyer all files of
each Seller and PNIC relating to correspondence with the Florida Department or
any other insurance regulatory authority.
5.16 Reserves. (a) PNFC hereby represents and warrants that the
Reserves established or reflected in the June 30, 1997 and September 30, 1997
Quarterly Statutory Statements (i) were determined in accordance with SAP and
generally accepted actuarial assumptions, (ii) were in accordance with the
requirements specified in the related insurance or reinsurance Contracts in
all material respects, (iii) meet the requirements of the insurance laws of
each applicable jurisdiction in all material respects and (iv) except as
described in Schedule 5.16, were established consistent with the policies and
procedures historically employed by PNIC without alteration.
(b) PNFC hereby represents and warrants that the 1997
Reserve Study performed by Deloitte & Touche will state that there are no
reserve inadequacies on a total loss or LAE or ULAE basis and Reserves will be
established within the range recommended by Deloitte & Touche.
(c) PNFC hereby represents and warrants that the Reserves
established or reflected in the December 31, 1997 Annual Statutory Statement
(i) will be determined in accordance with SAP and generally accepted actuarial
assumptions, (ii) will be in accordance with the requirements specified in the
related insurance or reinsurance Contracts in all material respects, (iii)
will meet the requirements of the insurance laws of each applicable
jurisdiction in all material respects and (iv) will be established consistent
with the policies and procedures historically employed by PNIC without
alteration.
5.17 Insurance Issued. Except as required by Law or except as
disclosed in Schedule 5.17 of the Sellers' Disclosure Schedule:
(a) All outstanding insurance Contracts issued, reinsured or
underwritten by PNIC are, to the extent required under applicable laws, on
forms and at rates approved by the insurance regulatory authority of the
jurisdiction where issued or have been filed with and not objected to by such
authority within the period provided for objection.
(b) All insurance contract claims and expenses payable by
PNIC or (to the knowledge of the Sellers) by any other person or entity that
is a party to or bound by any
25
<PAGE>
reinsurance, coinsurance, or other similar Contract with any Seller or PNIC
have in all material respects been paid in accordance with the terms of the
insurance Contracts under which they arose, except for such claims and
expenses for which such Seller believes there is a reasonable basis to contest
payment.
(c) No outstanding insurance Contract issued, reinsured or
underwritten by any Seller or PNIC entitles the holder thereof or any other
person or entity to receive cash or stock dividends, distributions or other
benefits based on the revenues or earnings of such Seller, PNIC or any other
person or entity.
(d) To the knowledge of each Seller, all amounts to which
any Seller or PNIC is entitled under reinsurance, coinsurance or other similar
contracts (including without limitation amounts based on paid and unpaid
losses) are collectible in the ordinary course of business.
(e) To the knowledge of each Seller, each insurance agent,
at the time such agent wrote, sold, or produced business for any Seller or
PNIC, was duly licensed as an insurance agent (for the type of business
written, sold, or produced by such insurance agent) in the particular
jurisdiction in which such agent wrote, sold, or produced such business.
5.18 Reinsurance Policies. Set forth on Schedule 5.18 of the Sellers'
Disclosure Schedule is a complete and accurate list of all in-force
reinsurance contracts and treaties under which each Company has ceded or
assumed reinsurance obligations. Each contract and treaty set forth on such
Schedule 5.18 (or required to be set forth on such Schedule 5.18) is in full
force and effect and except as set forth in Schedule 5.18 of the Sellers'
Disclosure Schedule will not be terminated or otherwise adversely affected as
a result of the transactions contemplated hereby. Except as set forth on
Schedule 5.18 of the Sellers' Disclosure Schedule, such contract or treaty
under which each Company cedes reinsurance obligations is qualified under all
Laws applicable to reinsurance policies and treaties to receive the statutory
credit assigned to such contract or treaty in the Statutory Statements at the
time such Statutory Statements were prepared. No Company has violated any of
the terms and conditions of any such policies or treaties in any material
respect and, to the knowledge of each Seller, all of the covenants to be
performed by any other party under any such policy and treaties were
negotiated with independent third parties in good faith at arm's length, other
than any such policies or treaties among any Company and its Affiliates as
listed on Schedule 5.18 of the Sellers' Disclosure Schedule. Schedule 5.18 of
the Sellers' Disclosure Schedule separately sets forth all contracts or
treaties of reinsurance no longer in force to which PNIC was a party, under
which, to the knowledge of each Seller (including without limitation the
officers of Sellers in their capacity as such), benefits or liabilities remain
outstanding, except for contracts or treaties which would not have a Material
Adverse Effect. Schedule 5.18 of the Sellers' Disclosure Schedule also sets
forth all disputes between any Seller and PNIC and any third party regarding
any contracts or treaties of reinsurance.
5.19 Taxes. (a) Except as disclosed on Schedule 5.19 of the Sellers'
Disclosure Schedule, none of the Companies has ever filed a consolidated
federal income tax return with (or been included in a consolidated return of)
an affiliated group. Each Seller and PNIC has filed or caused to be filed or
(in the case of returns or reports not yet due) will file all tax returns and
26
<PAGE>
reports required to have been filed by or for it on or before the Closing
Date, and all material information set forth in such returns or reports is or
(in the case of returns or reports not yet filed) will be accurate and
complete. Each Company has paid or made adequate provision for or (with
respect to returns or reports not yet filed) will make adequate provision for
the payment of all taxes, additions to tax, penalties and interest for periods
covered by those returns or reports. Each Seller and PNIC is in compliance
with, and its records contain all information and documents (including,
without limitation, properly completed IRS Forms W-9) necessary to comply
with, all applicable tax information reporting and tax withholding
requirements under federal, state, local, and foreign laws, rules, and
regulations, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Code.
(b) Each of the Companies has collected or withheld all
amounts required to be collected or withheld by it for any taxes, and all such
amounts have been paid to the appropriate governmental agencies or to the
extent required set aside in appropriate accounts for future payment when due.
The balance sheets contained in the Statutory Statements fully and properly
reflect, as of their dates, the liabilities of PNIC for all accrued taxes,
additions to tax, penalties, and interest. Except as disclosed on Schedule
5.19 of the Sellers' Disclosure Schedule, there are no unpaid taxes, additions
to tax, penalties, or interest payable by any Seller or PNIC that (i) are or
could become a Lien on any asset, or otherwise adversely affect the business,
properties, or financial condition, of any Company or (ii) could cause Buyer
to incur any liability therefor.
(c) Schedule 5.19 of the Sellers' Disclosure Schedule
describes all tax elections, consents, and agreements made by or affecting
each of the Companies, lists all types of taxes paid and returns filed by or
on behalf of each of the Companies, and expressly indicates each tax with
respect to which each of the Companies is or has been included in a
consolidated, unitary, or combined return. Except as disclosed on such
Schedule 5.19, none of the Companies has granted (or is subject to) any waiver
of the period of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted against or with
respect to any Company by any taxing authority.
(d) PNIC has not made or entered into, and does not hold any
asset subject to, a consent filed pursuant to Section 341(f) of the Code and
the regulations thereunder. None of the assets of any Company is or will be
required to be treated as being owned by any person (other than such Company)
pursuant to the provisions of Section 168(f)(8) of the Code, as amended and in
effect immediately before the enactment of the Code, and the rules and
regulations thereunder. Except as disclosed on such Schedule 5.19, PNIC is not
required to include in income any amount for an adjustment pursuant to Section
481 of the Code.
(e) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Companies by reason
of Section 280G of the Code.
(f) None of the Sellers or PNIC is a "foreign person" within
the meaning of Section 1445(b)(2) of the Code.
27
<PAGE>
(g) Except as set forth in Schedule 5.19 of the Sellers'
Disclosure Schedule, no Company is a party to any tax allocation or sharing
agreement. No Company has any liability for the taxes of any person (other
than such Company) under Treasury Reg. ss.1502-6 (or any similar provision of
stare, local or foreign law), as a transferee or successor, by contract or
otherwise.
5.20 Contracts. (a) Schedule 5.20 of the Sellers' Disclosure Schedule
contains a complete and correct list of all agreements, contracts and
commitments, written or oral, to which each Company is a party or by which any
Company is bound including, without limitation, Equipment Leases and Software
Licenses, excluding: (a) any of the foregoing listed on Schedule 5.18 of the
Sellers' Disclosure Schedule [Reinsurance]; (b) insurance policies written by
any Company in the ordinary course of business; and (c) agreements, contracts
and commitments in the ordinary course between a Company and any other person
or entity where the obligations to pay or perform services pursuant to all
such agreements, contracts and commitments between such Company and such other
person or entity total less than an aggregate of $20,000.00, and which are
terminable without cost or liability on notice of 30 days or less
(collectively, the "Contracts").
(b) The Sellers have delivered or made available to Buyer
complete and correct copies of all Contracts (including, without limitation,
all Equipment Leases and Software Licenses) together with all amendments
thereto and waivers and consents with respect thereto and accurate
descriptions of all oral agreements. Each of the Contracts is in full force
and effect, and each Company has in all material respects performed all
obligations required to be performed by them to date and are not in default in
any material respect. Except as set forth on Schedule 5.9 of the Sellers'
Disclosure Schedule, each of the Contracts included in the Seller Assets is
assignable to Buyer without the consent of any other party thereto. Other than
powers of attorney granted to surety agents of PNIC in the ordinary course of
business, none of the Sellers or PNIC has outstanding any power of attorney,
except routine powers of attorney relating to representation before
governmental agencies or given in connection with being licensed to conduct
business in another jurisdiction and except for routine authorizations given
to managing general agents.
5.21 Employees. Schedule 5.21 of the Sellers' Disclosure Schedule
lists all persons (the "Employees") employed by each Company on March 5, 1998,
whether on a full time, part time or consulting basis, whose annualized total
compensation exceeds $35,000 and lists the salaries and wages for 1997,
commission schedules and terms of employment of all such Employees. All such
Employees are employees or consultants of Americlaim, Unamark or Wycon. PNIC
has no employees or consultants.
5.22 Employee Benefit Matters. (a) None of the Companies, any ERISA
Affiliate or any employee pension benefit plan (as defined in Section 3(2) of
ERISA) maintained or previously maintained by any of them (a "Pension Plan"),
has incurred any material liability, other than premiums, to the Pension
Benefit Guaranty Corporation ("PBGC") or to the Internal Revenue Service with
respect to any Pension Plan. There is not currently pending with the PBGC with
respect to any Pension Plan any filing with respect to any reportable event
under
28
<PAGE>
Section 4043 of ERISA nor has any reportable event occurred as to which a
filing is required and has not been made.
(b) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior to the
date of this Agreement under the terms of each Employee Plan, ERISA and
collective bargaining agreement. No accumulated funding deficiency (as defined
in Section 302 of ERISA or Section 412 of the Code), whether or not waived,
exists with respect to any Pension Plan (including any Pension Plan previously
maintained by the Sellers or any ERISA Affiliate), and there is no "unfunded
current liability" (as defined in Section 412 of the Code) with respect to any
Pension Plan.
(c) None of the Companies or any ERISA Affiliate has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a multiemployer plan (as defined in Section 3(37) of ERISA)
which has not been satisfied in full.
(d) Schedule 5.22(d) of the Sellers' Disclosure Schedule
sets forth all Employee Plans of or for each of the Companies. All Employee
Plans that are "employee benefit plans," as defined in Section 3(3) of ERISA,
that are maintained by or for any of the Companies or previously maintained by
or for such Company comply and have been administered in compliance in all
material respects with ERISA and all other applicable legal requirements,
including the terms of such plans, collective bargaining agreements and
securities laws. None of the Companies has any material liability under any
such plan.
(e) No prohibited transaction has occurred with respect to
any Employee Plan that is an "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by or for any of the Companies or previously
maintained by or for any of the Companies that would result, directly or
indirectly, in material liability under ERISA or in the imposition of a
material excise tax under Section 4975 of the Code.
(f) The funding under each Employee Plan that is an
"employee welfare benefit plan" (as defined in Section 3(1) of ERISA) does not
exceed the limitation under Section 419A(b) or 419(c) of the Code. None of the
Companies is subject to taxation on the income of any such plan or any such
plan previously maintained by or for any of the Companies or an ERISA
Affiliate.
5.23 Assets and Properties. (a) Schedule 5.23(a) of the Sellers'
Disclosure Schedule contains an accurate and complete list of all domestic and
foreign letters patent, patents, patent applications, patent licenses, trade
names, trademarks, copyrights, unpatented inventions, service marks, trademark
registrations and applications, service mark registrations and applications,
and copyright registrations and applications and software owned by or licensed
to each Company or its Affiliates and used by any of the Companies in
connection with the operation of their respective businesses (collectively the
"Intellectual Property"). Unless otherwise indicated in such Schedule 5.23(a),
one or more of the Companies owns all necessary right, title and interest in
and to the Intellectual Property (including, without limitation, the exclusive
right to use and
29
<PAGE>
license the same), and, to the best knowledge of the Sellers, no person is
infringing on the ownership or use of the Intellectual Property by any
Company.
(b) Schedule 5.23(b) of the Sellers' Disclosure Schedule
contains a list of all debentures, notes, stocks, limited partnership
interests, other securities, mortgages, and other investment assets owned by
each Company as of December 31, 1997. Each Company has good and indefeasible
title to all debentures, notes, stocks, limited partnership interests, other
securities, mortgages, and other investment assets (excluding real property)
owned by it, free and clear of all Liens. Such Schedule 5.23(b) shall be
updated as at the Closing Date for all transactions taking place from January
1, 1998 through the Closing Date.
(c) No Company owns any real property.
(d) Schedule 5.23(d) of the Sellers' Disclosure Schedule
contains a true and complete list and description of all real property leased
by each Company and used by any Company. Each Seller and PNIC has a valid
leasehold interest in all such leased real property.
(e) Each of the Companies has all necessary Software
Licenses for all computer software used by any of the Companies, including
sufficient site or other licenses permitting the use by all users and at all
computer terminals for or with respect to which such software is installed or
made available. With respect to PNIC, all such Software Licenses shall remain
in full force and effect on and after the Closing, and with respect to Wycon,
Americlaim and Unamark, except as set forth on Schedule 5.9 of the Sellers'
Disclosure Schedule, such Software Licenses are freely assignable to Buyer and
Buyer shall have all rights under such licenses on and after the Closing Date.
5.24 Operating Insurance. Schedule 5.24 of the Sellers' Disclosure
Schedule contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability, errors and
omissions and other similar insurance Contracts that insure the business,
operations, or affairs of each Company or affect or relate to the ownership,
use or operations of any of the assets, business or properties of any Company.
5.25 Bank Accounts. Schedule 5.25 of the Disclosure Schedule contains
(a) a true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which each
Company has an account or safe deposit box or maintains a banking, custodial,
trading, trust, or other similar relationship, (b) a true and complete list
and description of each such account, box and relationship, (c) a list of all
signatories for each such account and box and (d) a list of all compensating
balances required with respect to each such account.
5.26 Charter Documents and Bylaws. The Sellers have heretofore made
available to Buyer true and complete copies of the articles of incorporation
(or other charter documents) and bylaws as in effect on the date hereof of
each Seller and PNIC and of each of the entities referred to in Section 1.77.
30
<PAGE>
5.27 Minute Books. The minute books of PNIC accurately reflect in all
material respects all formal actions taken at all meetings and all consents in
lieu of meetings of the stockholders of PNIC since the date of formation of
PNIC, and all formal actions taken at all meetings and all consents in lieu of
meetings of the boards of directors of PNIC and all committees thereof since
the date of formation of PNIC. All of such minute books have previously been
made available for inspection by Buyer.
5.28 Acquisition for Investment. Each of the Sellers is acquiring the
Purchase Securities for its own account for investment and not with a view to
any distribution thereof within the meaning of the Securities Act, and
acknowledges that the issuance of the Purchase Securities pursuant hereto is
intended to be exempt from the Securities Act pursuant to Section 4(2)
thereof, and that the Purchase Securities may not be resold or otherwise
transferred except (a) pursuant to an effective registration statement or an
exemption from registration thereunder, and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws,
and (b) with approval of all necessary authorities under applicable insurance
laws.
5.29 Year 2000. Schedule 5.29 of the Sellers' Disclosure Schedule
sets forth a summary of the extent to which the products, systems and services
used by each Company for its own internal purposes which are dependant in any
way on automatic instructions or any computer hardware or software meet Year
2000 Conformity, and a time schedule adopted by the Companies for implementing
any corrections to ensure Year 2000 Conformity. Sellers shall be solely
responsible for timely implementation of such time schedule and for ensuring
Year 2000 Conformity with respect to the Companies' products, systems and
services.
5.30 Transactions with Interested Persons. To the knowledge of the
Sellers and Stephen Weicholz, after investigation, no Seller, PNIC or officer
or director of any Seller or PNIC, or any Affiliate of any of them owns,
directly or indirectly, on an individual or joint basis, any material interest
in, or serves as an officer or director of, any customer, competitor or
supplier of any of the Companies or any person or entity which has a contract
or arrangement with any of the Companies, except for transactions (a) on terms
no less favorable to such Company than those prevailing in comparable arm's
length transactions, and (b) that will be terminable by Buyer (or by PNIC as
applicable) without penalty after the Closing. Schedule 5.30 of the Sellers'
Disclosure Schedule lists or describes all contracts and other arrangements
between Stephen Weicholz, Scott Weicholz and Darren Marsh or any of their
respective Affiliates and any of the Companies and all services provided by
any of them or any of their Affiliates to any of the Companies.
5.31 PNIC Business. PNFC hereby represents and warrants the that
since June 30, 1997, and prior to the Closing Date, all of PNIC's outstanding
payables and receivables have been, and will be, settled in the ordinary
course of business in a timely manner consistent with the historic practices
of PNIC, and that all business written by PNIC has conformed, and will
conform, to the underwriting and pricing guidelines in place at PNIC on the
date hereof.
31
<PAGE>
5.32 Undisclosed Liabilities. None of the Companies has any
liability, fixed, contingent, liquidated, unliquidated or otherwise (and to
the knowledge of the Sellers there is no basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any liability), except, with respect
to each Company, for (i) liabilities set forth in the Seller Financial
Statements of such Company, including any notes and schedules thereto, (ii)
liabilities which have arisen after the date of the Most Recent Seller
Financial Statements of such Company in the ordinary course of business (none
of which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law), (iii) liabilities disclosed in Schedule 5.32 of the
Sellers' Disclosure Schedule and (iv) liabilities under the Contracts.
5.33 Britamco Business. PNFC and Stephen Weicholz represent and
warrant that Britamco has written no new business with effective dates
subsequent to July 1, 1997.
5.34 Disclosure. None of the Sellers' representations and warranties
contained in this Agreement or in any other agreement delivered or to be
delivered by or on behalf of any of the Sellers in accordance with the terms
of this Agreement, the Statutory Statements, any Schedule included in the
Disclosure Schedule, or any certificates delivered or to be delivered by any
of the Sellers in accordance with the terms hereof contains any untrue
statement of a material fact, or omits or will omit any statement of a
material fact the disclosure of which is necessary in order for the statements
contained herein or therein not to be misleading in any material respect.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Front Royal and Holdings, jointly and severally, hereby represent and
warrant to each Seller as follows:
6.1 Organization and Good Standing of Buyer. Each of Front Royal and
Holdings is a corporation duly organized, validly existing and in good
standing under the laws of North Carolina. All Material Front Royal
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation, as
set forth in Schedule 6.11. Each of Front Royal, Holdings and the Material
Front Royal Subsidiaries has all requisite corporate power and authority to
conduct its business as currently conducted and to own or lease and to operate
its properties. Each of Front Royal, Holdings and the Material Front Royal
Subsidiaries is duly qualified or admitted to do business and is in good
standing as a foreign corporation in all jurisdictions in which the ownership,
use or leasing of its assets or properties or the conduct or nature of its
business makes such qualification or admission necessary, except where the
failure to be so qualified or admitted would not reasonably be likely to have
a material adverse effect on the properties, business, results of operations,
or financial condition of Front Royal or Front Royal and its Subsidiaries
taken as a whole.
32
<PAGE>
6.2 Capitalization of Buyer. The authorized capital stock of Front
Royal is set forth on Schedule 6.2 of the Buyer Disclosure Schedule. All
outstanding shares of capital stock of Front Royal have been duly authorized
and validly issued and are fully paid and non-assessable. Except as set forth
on Schedule 6.2 of the Buyer Disclosure Schedule, and except for any of the
following exercisable by or in favor of Front Royal or another Subsidiary of
Front Royal, there are no outstanding securities, rights (pre-emptive or
other), subscriptions, calls, warrants, options, or other agreements (except
for this Agreement) that give any person or entity the right to (i) purchase
or otherwise receive or be issued any shares of capital stock of Front Royal
or any of the Material Front Royal Subsidiaries (or any interest therein) or
any security convertible into or exchangeable for any shares of capital stock
of Front Royal or any of the Material Front Royal Subsidiaries (or any
interest therein), (ii) receive any dividend, voting or ownership rights
similar to those accruing to a holder of shares of capital stock of Front
Royal or any of the Material Front Royal Subsidiaries, or (iii) participate in
the equity, income or election of directors or officers of Front Royal or any
of the Material Front Royal Subsidiaries. Except as set forth in Schedule 6.2
of the Buyer Disclosure Schedule, there are no proxies, voting trusts or other
agreements or understandings to which Front Royal or any of the Material Front
Royal Subsidiaries is a party with respect to the voting of any voting
securities of Front Royal or any of the Material Front Royal Subsidiaries.
Holdings is an indirect wholly owned Subsidiary of Front Royal.
6.3 Authority, Validity and Enforceability as to Buyer. Each of Front
Royal and Holdings has full corporate power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions required of it contemplated hereby. The execution, delivery and
performance by Front Royal and Holdings of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized
by the respective Boards of Directors of Front Royal and Holdings. No other
action or proceeding on the part of Front Royal or Holdings is necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Front Royal and Holdings, and constitutes a legal, valid and binding
obligation of Front Royal and Holdings, enforceable in accordance with its
terms.
6.4 No Violation or Breach by Buyer. The execution, delivery and
performance of this Agreement by Front Royal and Holdings does not, and the
consummation of the transactions required by Buyer contemplated hereby, will
not (with or without the giving of notice or lapse of time or both):
(a) violate or require any consent or approval under, any
provision of the Articles of Incorporation or bylaws of Front Royal or
Holdings;
(b) except as set forth in Section 6.5, violate or result in
a default of, or require any consent or approval under any agreement, policy,
instrument, contract, commitment, license, franchise, permit or trust to which
Front Royal, Holdings or any of the Material Front Royal Subsidiaries is a
party or is otherwise subject, except for such violations or breaches which
would not reasonably be likely to have a material adverse effect on the
properties, business,
33
<PAGE>
results of operations, or financial condition of Front Royal or of Front Royal
and its Subsidiaries taken as a whole;
(c) violate or result in a default of, or require any
consent or approval under, any judgment, settlement, consent, injunction,
decree, order or ruling of any court or governmental authority to which Front
Royal or any of the Material Front Royal Subsidiaries is a party or otherwise
subject; or
(d) result in any Lien upon any properties, assets, business
or agreements of Front Royal or any of the Material Front Royal Subsidiaries
howsoever arising, except for such Liens which would not have a material
adverse effect on the properties, business, results of operations or financial
condition of Front Royal or of Front Royal and its Subsidiaries, taken as a
whole.
6.5 Consents. Except as set forth on Schedule 6.5 of the Buyer
Disclosure Schedule, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority is
required to be obtained or made, and no consent of any third party is required
to be obtained, by Front Royal or any of its Subsidiaries, in connection with
its execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
6.6 Issuance of Purchase Shares. Upon issuance in accordance with the
terms of this Agreement, the Purchase Shares will be duly authorized, validly
issued, fully paid and nonassessable. The Purchase Warrants, when delivered at
the Closing in accordance with this Agreement will be duly authorized and
executed on behalf of Front Royal and will be enforceable in accordance with
their terms, subject to bankruptcy, insolvency and laws affecting creditors
rights generally and subject to limitations on the ability to obtain equitable
relief. The shares of Class A Common Stock issuable on exercise of the
Purchase Warrants, when issued in accordance with the terms of the Purchase
Warrants and upon payment of the exercise price therefor, will be duly
authorized, validly issued, fully paid and nonassessable. As of the Closing
Date Front Royal shall have reserved for issuance on exercise of the Purchase
Warrants sufficient shares of Class A Common Stock for issuance on exercise of
the Purchase Warrants.
6.7 Acquisition for Investment. Holdings is acquiring the Seller
Shares for its own account for investment and not with a view to any
distribution thereof within the meaning of the Securities Act. Buyer
acknowledges that the offer and sale of the Seller Shares pursuant hereto are
intended to be exempt from the Securities Act pursuant to Section 4(1)
thereof, and that the Seller Shares may not be resold or otherwise transferred
except (a) pursuant to an effective registration statement or an exemption
from registration thereunder, and pursuant to registration or qualification
(or exemption therefrom) under applicable state securities laws, and (b) with
approval of all necessary authorities under applicable insurance laws.
6.8 Litigation. Except as set forth on Schedule 6.8 of the Buyer
Disclosure Schedule, there is no action, proceeding, investigation or claim
pending or, to the best knowledge of Front Royal, threatened against or
affecting Front Royal or any of the Material Front Royal
34
<PAGE>
Subsidiaries or their respective assets before any court or governmental or
regulatory authority or body that, if adversely determined, would have a
material adverse effect on Front Royal or on Front Royal and its Subsidiaries
taken as a whole or which questions the validity of this Agreement or any
action taken or to be taken pursuant hereto. There is no state of facts, and
to the best knowledge of Front Royal, there has occurred no event or group of
related events, that would form the basis of any claim against Front Royal or
any of the Material Front Royal Subsidiaries for liability on account of
breach of a contract, violation of statute or regulation, or otherwise in
connection with the performance of any contract or the conduct of its or the
Material Front Royal Subsidiaries' respective businesses that, if adversely
determined, would have a material adverse effect on Front Royal or on Front
Royal and its Subsidiaries taken as a whole or which questions the validity of
this Agreement or any action taken or to be taken pursuant hereto. Except as
set forth on Schedule 6.8 of the Buyer Disclosure Schedule, with respect to
claims against any of Front Royal or the Material Front Royal Subsidiaries
made under or in connection with insurance policies issued by Front Royal or
its Subsidiaries, there are no claims pending or to the knowledge of Buyer
threatened as to which liability in excess of applicable coverage limits has
been asserted against any of Front Royal or any of the Material Front Royal
Subsidiaries, and there are no claims pending or to the knowledge of Buyer
threatened for bad faith or for punitive damages.
6.9 No Brokers. Buyer has not employed any finder, broker, agent or
other intermediary in connection with the negotiation of this Agreement or the
consummation of the transactions contemplated hereby.
6.10 Initial Public Offering. Front Royal intends to consummate an
initial public offering of its common stock, or otherwise cause the Class A
Common Stock to be listed for trading on a national securities exchange and to
be registered under the Securities Exchange Act of 1934, as amended, as soon
as practicable following the Closing Date, subject to fiduciary
responsibilities and obligations of Front Royal's Board of Directors to Front
Royal's shareholders and subject to market conditions.
6.11 Subsidiaries. The Subsidiaries of Front Royal, and of each such
Subsidiary, are listed on Schedule 6.11 of the Buyer Disclosure Schedule.
Schedule 6.11 identifies the jurisdiction of incorporation of each such
Subsidiary and identifies which of such Subsidiaries are Material Front Royal
Subsidiaries.
6.12 Compliance with Other Instruments and Laws. None of Front Royal
or the Material Front Royal Subsidiaries is in violation of any term of its
charter or by-laws and none of Front Royal or the Material Front Royal
Subsidiaries is in violation of any contract, judgment, decree, order, Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except
for such violations that would not have a material adverse effect on Front
Royal or on Front Royal and its Subsidiaries taken as a whole.
35
<PAGE>
6.13 Absence of Certain Changes. Except as set forth on Schedule 6.13
of the Buyer Disclosure Schedule, since June 30, 1997, none of Front Royal or
any of the Material Front Royal Subsidiaries has:
(a) issued, sold or delivered or agreed to issue, sell or
deliver any shares of its capital stock or any options, warrants or
rights to acquire any such capital stock, or securities convertible
into or exchanged for such capital stock, except for the transactions
contemplated by this Agreement;
(b) incurred any obligations or liabilities, whether
absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities
incurred in the ordinary course of business or in connection with the
financing of transactions contemplated hereby or arising pursuant to
this Agreement and the agreements related hereto;
(c) mortgaged, pledged or subjected to any Lien any of its
assets, tangible or intangible, except in the ordinary course of
business;
(d) acquired or disposed of any material assets or
properties, or entered into any agreement or other arrangement for
any such acquisition or disposition, except in the ordinary course of
business;
(e) declared, made, paid or set apart any sum for any
dividend or other distribution to its shareholders or purchased or
redeemed any shares of its capital stock or any option, warrant or
right to purchase any such capital stock, or reclassified its capital
stock;
(f) forgiven or cancelled any debts or claims or waived any
rights of material value;
(g) conducted its business or entered into any transaction
(other than the transactions contemplated by this Agreement) other
than in the ordinary course of business;
(h) granted any rights or licenses under any of its trade
names or, other than in the ordinary course of business, entered into
general agency arrangements;
(i) changed any method of accounting or accounting policies
or procedures, or policy with respect to Reserves, other than as
required by SAP, GAAP or applicable Law, or changed its manner of
application of any such method or policy;
(j) been sued by or, to the best knowledge of the Buyer,
threatened with any suit by, any employee or former employee;
36
<PAGE>
(k) changed its premium rate structure in any material
respect, its insurance underwriting policies, its reinsurance
arrangements or, in any material respect its insurance products;
(l) suffered or experienced any change in relations with or
material loss of any material employees or customers; or
(m) changed its policies, or its manner of application of
its policies, regarding the establishment or determination of
Reserves, including case, IBNR, LAE and ULAE reserves; or
(n) agreed to take any action described in clauses (a)
through (m).
6.14 Financial Statements. (a) Front Royal has delivered to the
Sellers (i) audited consolidated and consolidating balance sheets and
statements of income, changes in stockholder's equity and cash flow as of and
for the fiscal years ended December 31, 1996 and December 31, 1995 (the "Buyer
Audited Financial Statements"), and (ii) unaudited balance sheets and
statements of income, and changes in stockholder's equity as of and for the
six month period ended June 30, 1997 (the "Buyer Unaudited Financial
Statements" and together with the Buyers Audited Financial Statements, the
"Buyer Financial Statements."). The Buyer Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly in all
material respects the financial condition of Buyer as of such dates and the
results of operations of Buyer for such periods, and are consistent with the
books and records of Buyer (which books and records are correct and complete);
provided, however, that the Buyer Unaudited Financial Statements are subject
to normal year-end adjustments (which will not be material individually or in
the aggregate) and lack footnotes and other presentation items.
6.15 Licenses and Permits. Each of Front Royal and each of the
Material Front Royal Subsidiaries, to the extent necessary, has all licenses,
permits and other governmental authorizations, registrations and approvals
required to conduct its business ("Buyer Permits") in each of the
jurisdictions listed on Schedule 6.15 of the Buyer Disclosure Schedule. Front
Royal and the Material Front Royal Subsidiaries are duly licensed and
qualified to transact those lines of insurance business in those states and
jurisdictions listed on Schedule 6.15 of the Buyer Disclosure Schedule. Except
as set forth on Schedule 6.15 of the Buyer Disclosure Schedule, all such Buyer
Permits are owned by Front Royal or such Subsidiary, are in full force and
effect and none of Front Royal or any of the Material Front Royal Subsidiaries
has received any notice of any event, inquiry, investigation or proceeding
that could result in a penalty or fine in excess of $20,000, singly or in the
aggregate, or in the suspension, revocation or limitation on any such Buyer
Permit, and to the best knowledge of Front Royal, there is no basis for any
such fine, penalty, suspension, revocation or limitation. Front Royal and the
Material Front Royal Subsidiaries, as applicable, possess the minimum
statutory capital and surplus as required by each such jurisdiction for the
type of insurance written by it in each jurisdiction set forth on Schedule
6.15.
37
<PAGE>
6.16 Insurance Regulatory Filings. (a) Since January 1, 1992, Front
Royal and the Material Front Royal Subsidiaries, to the extent required to do
so, have filed or otherwise provided all reports, data, other information and
applications required to be filed or otherwise provided to all federal, state
or local governmental authorities with jurisdiction over them except where the
failure to file would not have a material adverse effect on Front Royal or on
Front Royal and its Subsidiaries taken as a whole. Front Royal has furnished
to the Sellers copies of all reports of examinations (whether financial,
market conduct or other) issued by all state insurance regulatory authorities
in respect of Front Royal and the Material Front Royal Subsidiaries since
January 1, 1992 or, in the case of Subsidiaries, such later date Buyer
acquired such Subsidiary. Except as set forth on Schedule 6.16 of the Buyer
Disclosure Schedule, no deficiencies material to the financial condition or
operations of Front Royal or its Subsidiaries have been asserted by any state
insurance regulatory authority with respect to any reports or filings made by
or on behalf of Front Royal or any Material Front Royal Subsidiary since
January 1, 1992. Front Royal has supplied the Sellers with copies of all
written responses submitted on behalf of Front Royal and the Material Front
Royal Subsidiaries since January 1, 1992, in respect of any report or
examination (whether financial, market conduct or other) of Front Royal and
its Subsidiaries by any state regulatory authority.
(b) The foregoing representations and warranties in Section
6.16(a) are limited as follows: Sellers understand that Front Royal acquired
certain of the Material Front Royal Subsidiaries after January 1, 1992. Such
representations and warranties are limited with respect to any such Material
Front Royal Subsidiary: (i) to the period following the date Front Royal
acquired such Material Front Royal Subsidiary, (ii) to the best knowledge of
Front Royal for any period prior to such acquisition, and (iii) with respect
to any period prior to the acquisition by Front Royal of such Material Front
Royal Subsidiary, to the extent Front Royal obtained representations and
warranties from the sellers in connection with such acquisition, but subject
to any limitations on and qualifications to such representations and
warranties and survival periods applicable thereto.
6.17 Reserves. Front Royal hereby represents and warrants that the
Reserves in respect of the insurance business of the Material Front Royal
Subsidiaries established or reflected in the September 30, 1997 Quarterly
Statutory Statements for such Subsidiaries (a) were determined in accordance
with the requirements specified in the related insurance or reinsurance
contracts in all material respects, (c) meet the requirements of the insurance
laws of each applicable jurisdiction in all material respects, and (d) were
established consistent with the policies and procedures historically employed
by the Front Royal Material Subsidiaries without alteration.
6.18 Undisclosed Liabilities. None of Front Royal or any of the
Material Front Royal Subsidiaries has any liability, fixed, contingent,
liquidated, unliquidated or otherwise (and to the knowledge of Front Royal
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of Front Royal
or any Material Front Royal Subsidiary giving rise to any liability), except
for (i) liabilities disclosed in the Buyer Financial Statements or in the
statutory statements of the Material Front Royal Subsidiaries heretofore
delivered to Sellers, including the notes and schedules thereto, (ii)
liabilities which have arisen after the date of the Buyer Unaudited Financial
Statements in the
38
<PAGE>
ordinary course of business (none of which results from, or arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law), (iii)
liabilities disclosed in Schedule 6.18 of the Buyer Disclosure Schedule, (iv)
liabilities which do not, individually or in the aggregate, have a material
adverse effect on the properties, business, results of operations, or
financial condition of Front Royal or of Front Royal and its Subsidiaries,
taken as a whole.
6.19 Charter Documents and Bylaws. Buyer has heretofore made
available to the Sellers true and complete copies of the articles of
incorporation and bylaws as in effect on the date hereof of each of Front
Royal, Holdings and each of the Material Front Royal Subsidiaries.
6.20 Disclosure. None of the Buyer's representations and warranties
contained in this Agreement or in any other agreement delivered or to be
delivered by or on behalf of Buyer in accordance with the terms of this
Agreement, any Schedule included in the Buyer Disclosure Schedule, or any
certificates delivered or to be delivered by the Buyer in accordance with the
terms hereof contains or will contain any untrue statement of a material fact,
or omits or will omit any statement of a material fact the disclosure of which
is necessary in order for the statements contained herein or therein not to be
misleading in any material respect.
ARTICLE 7
CERTAIN MATTERS PENDING THE CLOSING
With respect to any representation by or obligation of PNIC in this
Article 7, or in any other Article or Section of this Agreement, PNFC shall be
deemed to be making such representation on behalf of PNIC or agreeing to cause
PNIC to undertake such obligation. With respect to any representation by or
obligation of any Subsidiary of Front Royal, and with respect to any
obligation of PNIC after the Closing Date, in this Article 7 or in any other
Article or Section of this Agreement, Front Royal shall be deemed to be making
such representation on behalf of such Subsidiary or agreeing to cause such
Subsidiary or, after the Closing, PNIC to undertake such obligation.
7.1 Carry on in Regular Course. (a) Except as provided in this
Agreement, between the date hereof and the Closing Date each Company shall,
unless Buyer shall otherwise consent, which consent shall not be unreasonably
withheld:
(i) carry on its respective business in the ordinary course
and substantially in the same manner as heretofore carried on,
including, without limitation, collecting all receivables and paying
all payables in accordance with its past practices;
(ii) use its best efforts to preserve its respective
properties, business, and relationships with its respective clients
and customers;
39
<PAGE>
(iii) not (A) change its premium rate structure in any
material respect, its insurance underwriting policies or its
insurance products; (B) change its methods or practices with respect
to establishing or maintaining Reserves from historical practices; or
(C) alter its reinsurance policies or modify or amend any of its
reinsurance agreements;
(iv) not appoint any new agents;
(v) not make any rate filings;
(vi) not create any new Subsidiaries;
(vii) not hire or appoint any new officers or directors;
(viii) not enter into any new employment agreements or amend
any existing employment agreements, and not cause any persons to
become employed by or engaged as consultants to PNIC;
(ix) not allow any of the insurance coverages referred to in
Section 5.24 to lapse or otherwise cease to be in effect, except to
the extent such insurance relates solely to the Wycon Excluded
Assets, the Americlaim Excluded Assets, or the Unamark Excluded
Assets;
(x) not dispose of any material asset; and
(xi) not make, declare or pay any dividend or distribution
on any shares of capital stock of any of the Companies except that
(A) if the GAAP Book Value of PNIC is greater than $40,000,000 as at
any date prior to the Closing, PNFC may cause PNIC to distribute by
way of dividend such amount in excess of $40,000,000; and (B) Wycon
and Unamark shall be able to make S-Corporation distributions to
their stockholders of earnings for the period ended December 31, 1997
and for the period ended as at the Closing Date in accordance with
each of their past practices.
Between the date of this Agreement and the Closing Date, each Seller will
advise Buyer promptly in writing of any material adverse change, or any event
or circumstance that is reasonably likely to result in a material adverse
change, in the properties, business, results of operations, condition
(financial or otherwise) or affairs of any Company.
(b) Between the date of this Agreement and the Closing date
Front Royal and the Material Front Royal Subsidiaries will continue to conduct
their business substantially as presently conducted and will advise the
Sellers promptly in writing of any material adverse change, or in any event or
circumstance that is reasonably likely to result in a material adverse change,
in the properties, business, results of operations, or financial condition of
Front Royal or on Front Royal and its Subsidiaries, taken as a whole.
40
<PAGE>
7.2 Indebtedness. Between the date of this Agreement and the Closing
Date, without the prior written consent of Buyer, none of the Companies shall:
(a) create, incur or assume any indebtedness for borrowed
money;
(b) mortgage, pledge or otherwise encumber or subject to any
Lien any of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts
payable and other liabilities incurred in the ordinary course of
business.
7.3 Issuance of Stock. Between the date of this Agreement and the
Closing Date, PNIC shall not issue any shares of capital stock of any class or
grant any warrants, options or rights to subscribe for any shares of capital
stock of any class or securities convertible into or exchangeable for, or
which otherwise confer on the holder any right to acquire, any shares of
capital stock of any class of PNIC.
7.4 Compensation. Between the date of this Agreement and the Closing
Date, except as specifically disclosed in the Seller Disclosure Schedules, no
Company shall grant any increases in the salaries and wages or increases in
commission schedules of any Employee (other than increases that do not exceed
$5,000 per annum to any Employee), institute any new employee benefits with
respect to such Employees or amend any Employee Plans to increase benefits, in
each case without the written consent of Buyer.
7.5 Compliance with Law. Between the date of this Agreement and the
Closing Date, Front Royal and the Material Front Royal Subsidiaries, and each
Company shall use its respective best efforts to comply in all material
respects with all applicable Law and with all orders of any court or of any
federal, state, municipal or other governmental department.
7.6 Access to Information. (a) At Buyer's expense, Buyer and its
authorized agents, officers and representatives, for the purpose of confirming
the representations and warranties contained in Article 5 and for other
purposes reasonably related to the transactions contemplated hereby, shall
have reasonable access to the properties, books, records, contracts,
information and documents of each Company; provided, however, that such
examinations and investigations, (i) shall be conducted during normal business
hours, (ii) shall not unreasonably interfere with any of their operations and
activities; (iii) shall be germane to rights or obligations arising out of
this Agreement, the operations of the Companies prior to the Closing Date or
to the transactions prior to the Closing Date; (iv) shall be conducted only in
the presence of a designated representative of Sellers, as appropriate; and
(v) shall be subject to prior approval if the information or documents
requested are, in the reasonable opinion of an officer of PNFC , of a nature
that may compromise the competitive position of Sellers. Each Seller and PNIC
shall cooperate in all reasonable respects with Buyer's examinations and
investigations. Buyer shall maintain all information regarding the Companies
in complete confidence and shall not disclose such information to any person,
provided, however, Buyer shall not be required to keep confidential
information that (x) is or becomes generally available to the public other
than as a
41
<PAGE>
result of disclosure by Buyer, (y) is or becomes available to Buyer
on a nonconfidential basis from a source other than the Sellers or PNIC or (z)
Buyer or any of its Affiliates is required to disclose pursuant to applicable
law, rule, regulation or subpoena. The Sellers, Stephen Weicholz and PNIC
acknowledge and agree that nothing in this Section 7.6 shall be deemed to
release Sellers or Stephen Weicholz from any of their representations or
warranties under this Agreement.
(b) Sellers shall permit Ernst & Young to conduct a review
and, at the election of Buyer, an audit, of the financial statements of PNIC
and Sellers as at and for the three month period ended March 31, 1998 and as
at and for any other period ending at or prior to the Closing Date. Sellers
shall permit Tillinghast, Buyer's actuarial consultants, to review the
estimates of Reserves of PNIC as at December 31, 1997, as at March 31, 1998
and as at the Closing Date. Sellers and PNIC shall cooperate fully in such
reviews and audit. Such reviews and audit shall be at the expense of Buyer.
(c) At the Sellers' expense, the Sellers and their
authorized agents, officers and representatives, for the purpose of confirming
the representations and warranties contained in Article 6 and for other
purposes reasonably related to the transactions contemplated hereby, shall
have reasonable access to the properties, books, records, contracts,
information and documents of Front Royal and its Subsidiaries; provided,
however, that such examinations and investigations, (i) shall be conducted
during normal business hours; (ii) shall not unreasonably interfere with any
of Front Royal's or its Subsidiaries' operations and activities; (iii) shall
be germane to the rights or obligations arising out of this Agreement or the
operations of Front Royal and the Material Front Royal Subsidiaries prior to
the Closing Date; (iv) shall be conducted only in the presence of a designated
representative of Buyer; and (v) shall be subject to prior approval if the
information or documents requested are, in the reasonable opinion of an
officer of Front Royal, of a nature that may compromise the competitive
position of Front Royal or any of its Subsidiaries. Buyer shall cooperate in
all reasonable respects with the Sellers' examinations and investigations. The
Sellers shall maintain all information regarding Buyer and its Subsidiaries in
complete confidence and shall not disclose such information to any person
provided, however, the Sellers shall not be required to keep confidential
information that (x) is or becomes generally available to the public other
than as a result of disclosure by the Sellers, (y) is or becomes available to
the Sellers on a nonconfidential basis from a source other than Buyer or its
Subsidiaries or (z) the Sellers or any of their Affiliates are required to
disclose pursuant to applicable law, rule, regulation or subpoena. Buyer
acknowledges and agrees that nothing in this Section 7.6 shall be deemed to
release Buyer from any of its representations or warranties under this
Agreement.
(d) The provisions of Sections 7.6(a) and 7.6(c) shall survive
the Closing for a two year period.
7.7 Cooperation; Reasonable Efforts. Each of the Parties will use his
or its best efforts to the extent commercially reasonable to take all action
and to do all things necessary, proper, or advisable in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in
42
<PAGE>
Article 8 and Article 9), provided, however, that nothing contained in this
Agreement shall require the Sellers or Stephen Weicholz to contribute
additional capital to PNIC to cause the conditions set forth in Section 8.12
or 8.16 to be satisfied.
7.8 Regulatory Filings. Buyer and the Sellers and PNIC will cooperate
in all respects in connection with the giving of any notices to any
governmental authority or self-regulatory organization or securing the
permission, approval, determination, consent or waiver of any governmental
authority or other party required in connection with the consummation of the
transactions contemplated under this Agreement. Each of the parties hereto
agrees to make all required regulatory filings promptly after the date hereof
and to diligently pursue compliance with the Florida Code. Buyer promptly will
furnish to the Sellers copies of the filings with the Florida Department and
all correspondence with the Florida Department with respect thereto.
7.9 Consents. Buyer and each Seller and PNIC shall diligently pursue
obtaining consents of all third parties and governmental authorities necessary
to the consummation of the transactions contemplated by this Agreement.
7.10 Publicity. All general notices, releases, statements and
communications to employees, suppliers, distributors and customers of the
Sellers and PNIC and to the general public and the press relating to the
transactions covered by this Agreement shall be made only at such times and in
such manner as may be mutually agreed upon by the Sellers and Buyer.
7.11 No Solicitation. None of Sellers or PNIC shall, after the date
hereof until the earlier of the Closing or the termination of this Agreement
pursuant to Section 12.1 hereof, directly or indirectly, through any officer,
director, employee, agent or otherwise, solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition
or purchase of all or (other than in the ordinary course of business) a
substantial portion of the assets of, or any equity interest in, any of the
Companies or any business combination with or involving any of the Companies,
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing.
7.12 Discussions with Florida Department. None of the Sellers, PNIC
or any of their respective Affiliates, officers, directors, partners,
employees, agents or representatives shall, from and after the date hereof,
initiate communications or contact whatsoever, whether telephonic or in-person
or otherwise, with the Florida Department regarding any aspect of this
Agreement or any of the transactions contemplated hereby, without providing to
Buyer the reasonable opportunity for an officer or representative of Buyer to
participate therein. Sellers shall promptly advise Buyer of any contact or
communication received by any of Sellers or PNIC from the Florida Department
with respect to the transactions contemplated hereby and shall promptly
furnish to Buyer copies of all filings with the Florida Department and all
correspondence with the Florida Department with respect thereto.
43
<PAGE>
7.13 Articles and Bylaws. The Sellers and PNIC covenant and agree
that, between the date of this Agreement and the Closing Date, none of the
Companies shall amend their Articles or Certificates of Incorporation or
bylaws or merge or consolidate with or into any other corporation or other
entity. Front Royal covenants and agrees that it shall not amend its Articles
of Incorporation or bylaws or merge or consolidate with or into any other
corporation or entity.
7.14 PNIC Business. PNFC hereby represents, warrants and covenants
that since June 30, 1997, and prior to the Closing Date, all of PNIC's
outstanding payables and receivables have been, and will be, settled in the
ordinary course of business in a timely manner consistent with the historic
practices of PNIC, and that all business written by PNIC has conformed, and
will conform, to the underwriting and pricing guidelines in place at PNIC on
the date of this Agreement. PNFC hereby covenants that, until the earlier of
the Closing or termination of this Agreement pursuant to Section 12.1, except
for any dividend permitted by Section 7.1(a)(xi), PNIC shall not pay any
dividends to any holders of PNIC's capital stock without the prior written
consent of Buyer.
ARTICLE 8
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing of the
following express conditions precedent (it being the understanding of the
parties that any of such conditions, except as set forth in Sections 8.7
[Regulatory Approvals] and 8.10 [HSR], may be waived by Buyer):
8.1 Compliance with Agreement. The Sellers shall have performed and
complied in all material respects with all of their respective obligations
under this Agreement that are to be performed or complied with by them prior
to or on the Closing Date.
8.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or otherwise, to be taken by the Sellers in connection with the
transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Buyer and
Buyer's counsel, and the Sellers shall have made available to Buyer for
examination the originals or true and correct copies of all documents that
Buyer may reasonably request in connection with the transactions contemplated
by this Agreement.
8.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
8.4 Representations and Warranties. The representations and
warranties made by the Sellers in this Agreement shall be true and correct as
of the Closing Date with the same force and effect as though such
representations and warranties have been made on the Closing Date, except
44
<PAGE>
as otherwise contemplated hereby and except to the extent that such
representations and warranties were made as of a specified date and as to such
representations and warranties the same shall continue on the Closing Date to
have been true and correct as of the specified date. The parties acknowledge
and confirm that if any representation and warranty made in this Agreement is
not true and correct at any time after the date hereof and prior to the
Closing Date, but is true and correct on the Closing Date, then the condition
set forth in this Section 8.4 shall have been met.
8.5 Agreements. The following agreements shall have been duly and
validly executed and delivered by the parties thereto and shall be in full
force and effect:
(a) the Employment Agreements (which the parties confirm
shall be executed and delivered concurrently with the execution and
delivery of this Agreement);
(b) the Non-Compete Agreement;
(c) the Britamco Runoff Agreement;
(d) the Registration Rights Agreement;
(e) the Relationship Agreements (which the parties confirm
have been executed and delivered prior to the execution and delivery
of this Agreement);
(f) the Assumption Agreements;
(g) the Bills of Sale; and
(h) such additional instruments of conveyance and assignment
and assumption agreements as Buyer may determine to be reasonably
necessary to transfer the Seller Assets to Buyer.
8.6 Additional Deliveries at Closing. Sellers shall have, or shall
cause to have, delivered to Buyer the Opinion of Sellers' Counsel, the
Sellers' Closing Certificates, and the Preliminary Calculations Certificate,
each duly executed and delivered and dated as of the Closing Date. PNFC shall
deliver to Buyer certificates representing the PNIC Shares, accompanied by
stock powers or other instruments of transfer duly endorsed in blank, with all
required transfer taxes or stamps paid for or affixed thereto, free and clear
of all Liens, except as permitted by Section 4.1(c)(i).
8.7 Regulatory Approvals. All required authorizations, registrations
and approvals from federal and state regulatory agencies, including, without
limitation, the Florida Department, with jurisdiction over any of the Sellers
or Buyer to permit the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect (without any material term,
condition or restriction that is reasonably unacceptable to Buyer).
45
<PAGE>
8.8 Consents. There shall have been obtained written consents with
respect to any Contract, and any material agreement to which Front Royal or
any of its Subsidiaries is a party, which requires any third party consent due
to the consummation of the transactions contemplated by this Agreement,
including, without limitation, the consent of Connecticut Indemnity Company.
8.9 Directors and Officers. Each member of the Board of Directors and
each officer of PNIC shall have resigned from such positions effective on the
Closing Date. Each person who is a signatory to any bank, brokerage, custody
or other accounts of PNIC shall have resigned such authority.
8.10 Waiting Periods. All applicable waiting periods under Section 7A
of the Clayton Act and the HSR Act and the rules and regulations thereunder
shall have expired without indication from the Federal Trade Commission or the
United States Justice Department that the transactions contemplated hereby may
be consummated only upon terms which differ adversely from the description of
the transaction set forth in any filing made on behalf of Buyer or Sellers for
any governmental approval.
8.11 Books and Records. The Sellers shall have delivered to Buyer all
minute books, stock records and other corporate and financial records of PNIC.
8.12 Direct Written Premiums of PNIC. Direct written premiums at PNIC
during 1997, as set forth on the statutory financial statements of PNIC for
the year ending December 31, 1997, shall be at least $46,000,000.
8.13 Britamco Business. Britamco shall have written no new business
and no renewal business with effective dates subsequent to July 1, 1997.
8.14 Audited Financial Statements. Sellers shall have delivered to
Buyer financial statements for PNIC; and for PNIC, Wycon, Unamark and
Americlaim on a combined basis, in each case in form suitable for filing with
the Securities and Exchange Commission and covering the fiscal years ended
December 31, 1997, in each case prepared in accordance with GAAP (and in
accordance with SAP, in the case of PNIC) and past practices of the Sellers
and certified by independent certified public accountants acceptable to Buyer.
All costs of preparation, audit and certification of such financial statements
shall be borne by Sellers.
8.15 Statutory Statements. PNFC shall have delivered to Buyer annual
statutory convention statements of PNIC for the year ended December 31, 1997,
as filed with the Florida Department pursuant to the Florida Code, and as
audited by Delolitte & Touche, including management's discussion and analysis
and the supporting memorandum to the actuarial opinions given in connection
with such statutory statements; the quarterly statutory convention statements
of PNIC for the three month period ended March 31, 1998, as filed with the
Florida Department; and, if filed with the Florida Department prior to the
Closing Date, the quarterly statutory convention statements of PNIC for the
six months ended June 30, 1998.
46
<PAGE>
8.16 Book Value of PNIC. As at the Closing Date, the GAAP Book Value
of PNIC shall be not less than $30,000,000.
8.17 Officers Certificate. Each Seller shall deliver to Buyer a
Sellers' Officers Certificate dated the Closing Date executed by such Seller's
Chief Executive Officer and Chief Financial Officer stating that such Seller
has complied and is in compliance with all of the foregoing conditions
applicable to it as of the Closing Date.
ARTICLE 9
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF THE SELLERS
Each and every obligation of each of the Sellers to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the
Closing of the following express conditions precedent (it being the
understanding of the parties that any of such conditions, except as set forth
in Sections 9.7 [Regulatory Approvals] and 9.9 [HSR] may be waived by the
Sellers):
9.1 Compliance with Agreement. Buyer shall have performed and
complied in all material respects with all of its obligations under this
Agreement that are to be performed or complied with by it prior to or on the
Closing Date.
9.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or otherwise, to be taken by Buyer in connection with the
transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to the Sellers
and their respective counsel, and Buyer shall have made available to the
Sellers for examination the originals or true and correct copies of all
documents that the Sellers may reasonably request in connection with the
transactions contemplated by this Agreement.
9.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
9.4 Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall be true and correct as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on the Closing Date, except as otherwise contemplated
hereby and except to the extent that such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true and correct as of
the specified date. The parties acknowledge and confirm that if any
representation and warranty made in this Agreement is not true and correct at
any time after the date hereof and prior to the Closing Date, but is true and
correct on the Closing Date, then the condition set forth in this Section 9.4
shall have been met.
47
<PAGE>
9.5 Agreements. The following agreements shall have been duly and
validly executed and delivered by the parties thereto and shall be in full
force and effect:
(a) the Employment Agreements (which the parties confirm
shall be executed and delivered concurrently with the execution and
delivery of this Agreement);
(b) the Non-Compete Agreement;
(c) the Britamco Runoff Agreement;
(d) the Assumption Agreements; and
(e) the Registration Rights Agreement.
9.6 Additional Deliveries at Closing. Buyer shall have, or shall
cause to have, delivered (a) the Purchase Price and Additional Escrow Amount
in accordance with Articles 3 and 4, including certificates representing the
Purchase Shares, with all required transfer taxes or stamps paid for or
affixed thereto, and the Purchase Warrants, in each case free and clear of all
Liens except as permitted by 4.1(b)(ii) and (iii), and (b) the following
documents, each duly executed and delivered and dated as of the Closing Date:
(i) the Opinions of Buyer's Counsel, and (ii) Buyer's Closing Certificate.
9.7 Regulatory Approvals. All required authorizations, registrations
and approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over any of the Sellers
or Buyer to permit the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect (without any material term,
condition or restriction that is reasonably unacceptable to the Sellers).
9.8 Consents. There shall have been obtained written consent with
respect to any Contract, and any material agreement to which Front Royal or
any of its subsidiaries is a party, which requires any third party consent due
to the consummation of the transactions contemplated by this Agreement.
9.9 Waiting Periods. All applicable waiting periods under Section 7A
of the Clayton Act and the HSR Act and the rules and regulations thereunder
shall have expired without indication from the Federal Trade Commission or the
United States Justice Department that the transactions contemplated hereby may
be consummated only upon terms which differ adversely from the description of
the transaction set forth in any filing made on behalf of Buyer or Sellers for
any governmental approval.
9.10 The Dividend. If PNIC is allowed to pay a dividend pursuant to
Section 7.1(a)(xi), then all required authorizations, registrations and
approvals from applicable regulatory agencies or third parties shall have been
obtained for PNIC to make the dividend and the dividend shall have been paid
in accordance with the terms of this Agreement.
48
<PAGE>
9.11 Officers Certificate. Buyer shall deliver to the Sellers the
Buyer's Closing Certificate dated the Closing Date executed by each of Front
Royal's and Holdings' Chief Executive Officer and by Front Royal's Chief
Financial Officer stating that Buyer has complied and is in compliance with
all of the foregoing conditions applicable to it as of the Closing Date.
ARTICLE 10
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
10.1 Employee Benefit Plan Matters. (a) The Sellers, PNIC and the
Employee Plans shall remain responsible for any employee benefits earned or
accrued on or before the Closing Date and for any liabilities arising out of
the operation of the Employee Plans on or before the Closing Date. Buyer shall
have no responsibility or obligation under or to or arising out of the
Employee Plans or to any participant or beneficiary thereunder.
(b) None of Front Royal or any of its Subsidiaries or
Affiliates shall be obligated to offer employment to any of the Employees of
Americlaim, Unamark or Wycon. In the event Buyer or any Affiliate of Buyer
offers employment to any such Employee, Buyer shall cause (i) each such
Employee employed by Buyer or Affiliate thereof ("Hired Employees") to be
immediately eligible for participation in the Buyer's or Affiliate's, as the
case may be, medical, life, disability, or similar employee welfare benefit
plans ("Buyer's Welfare Plans"), (ii) preexisting condition rules under
Buyer's Welfare Plans shall be waived, and (iii) application of deductibles
under Buyer's health insurance plan shall take into account the status of each
Hired Employee (and his or her eligible dependents) under deductible rules of
the Employee Plans as of the date immediately preceding the Hired Employee's
employment with Buyer.
(c) Buyer shall cause Hired Employees to be credited with
service for employment with the Companies for vesting and eligibility purposes
under Buyer's qualified retirement plans. Buyer shall take all actions
reasonably necessary to provide that Hired Employees can rollover Sellers'
qualified plan distributions to Buyer's qualified plans.
(d) Buyer agrees that it shall offer to all Employees who
are not Hired Employees (the "Non-Hired Employees") and their respective
"qualified beneficiaries" within the meaning of Section 607(3) of ERISA, and
to each former employee of any of the Companies who is as at the Closing Date
participating in the Sellers' health insurance plans pursuant to COBRA (the
"COBRA Participants") and their respective "qualified beneficiaries," the
opportunity to participate in Buyer's health insurance plan upon the Buyer's
plan's terms and conditions implementing COBRA as though (i) in the case of
each Non-Hired Employee, the Non-Hired Employee experienced a "qualifying
event" under Section 603(2) of ERISA as of the Closing Date, and (ii) in the
case of each COBRA Participant, the qualifying event rendering him or her
eligible for COBRA under Sellers' plan took place at a time when he or she was
covered by Buyer's plan.
49
<PAGE>
(e) Sellers shall provide to Buyer such records concerning
the Employee Plans as Buyer may reasonably require to administer Buyer's
Welfare Plans with respect to the Hired Employees, the Non-Hired Employees and
the COBRA Participants. Sellers' obligations hereunder shall survive the
Closing.
10.2 Confidentiality. Following the Closing, the Sellers shall keep
confidential all information concerning the business, operations, properties,
assets and financial affairs of PNIC and Sellers may disclose such information
only upon receipt of prior written consent from Buyer or if such disclosure is
required (a) in connection with the filing of any state or federal income tax
returns of any Seller, (b) in connection with filings made with the Florida
Department, the Securities and Exchange Commission or any national securities
exchange, (c) by order of any judicial or administrative authority or (d) as
may be required under reinsurance or similar agreements to which PNIC is a
party.
10.3 Use of Names. From and after the Closing Date, none of the
Sellers nor their respective Affiliates shall use the names "Preferred
National Insurance," "Unamark," "United American" or "Wycon" or any names
similar thereto or variants thereof, except that Sellers and their Affiliates
may continue to use the names "Wycon" and "United American," and the complete
corporate names of Wycon and Unamark, solely in connection with the runoff of
Britamco's business and the winding-up of business of Wycon, Unamark and
Americlaim. In the case of the "Wycon" name, such use shall be limited in time
to a thirty six month period following the Closing Date. Sellers shall use
reasonable efforts to avoid confusion with the business of Buyer arising out
of the continued use of such names by Sellers. At or promptly after the
Closing, PNFC shall change its corporate name to eliminate the use of the
phrase "Preferred National."
10.4 Non-Solicitation of Employees. The Sellers hereby agree that for
a period commencing on the Closing Date and ending two years thereafter,
neither they, nor any of their Affiliates shall solicit for employment by them
or any of their Affiliates any employees of Front Royal or any of its
Subsidiaries or of PNIC, or any Hired Employees, other than as provided or
contemplated in the Britamco Runoff Agreement.
10.5 Initial Public Offering. Front Royal hereby covenants that it
will as soon as practicable following the Closing Date, subject to the
exercise by Front Royal's Board of Directors of its fiduciary responsibilities
and obligations to Front Royal's shareholders and subject to market
conditions, consummate an initial public offering of its common stock or
otherwise cause the Class A Common Stock to be listed for trading on a
national securities exchange and to be registered under the Securities
Exchange Act of 1934, as amended.
10.6 Britamco Business. Britamco, or any successor thereof, shall
write no new business with effective dates after the date of this Agreement
and, following the Closing, the business of Britamco shall be conducted in
accordance with the terms of the Britamco Runoff Agreement.
50
<PAGE>
10.7 Certain Tax Matters. The following provisions shall govern the
allocation of responsibility as between Buyer and Sellers for certain tax
matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. PNFC
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for PNIC for all periods ending on or prior to the Closing Date which
are filed after the Closing Date. PNFC shall be responsible for the payment of
any federal, state, local or foreign income taxes of PNIC for all periods
ending on or before the Closing Date, if not previously paid or accrued on the
Final Closing Balance Sheet. None of Buyer, any member of the affiliated group
of which Buyer is a member (the "Buyer Group") or PNIC shall be required to
reimburse either Seller or any other person for any such taxes; and PNFC shall
indemnify and hold Buyer, all other members of the Buyer Group and PNIC
harmless from all liabilities for any such taxes (including, without
limitation, any additions to tax, penalties and interest). PNFC shall be
entitled to any refunds (except any refund resulting from carrybacks from
taxable periods beginning after the Closing Date) not heretofore received for
taxable periods of PNIC ending on or before the Closing Date. Buyers shall
promptly pay, or cause PNIC to pay, to Sellers the amount of any such refund
(to which PNFC is entitled hereunder) that is received by PNIC or Buyer;
provided, however, that any amount payable in respect of any such refund shall
be reduced by the amount of any taxes incurred, and the present value (based
on a discount rate of 5%) of any taxes to be incurred, by Buyer, any other
member of the Buyer Group or PNIC as a result of the accrual or receipt of the
refund.
(b) Tax Periods Beginning Before and Ending After the Closing
Date.
(i) Income Taxes. Buyer shall prepare or
cause to be prepared and file or cause to be filed any Tax Returns of PNIC for
Tax periods which begin before the Closing Date and end after the Closing
Date. Buyers and PNIC, on the one hand, and PNFC, on the other hand, shall
each be responsible for the payment of federal, state, local or foreign income
taxes for any such period based on the allocation of income and expenses to
the periods before and after the Closing Date, respectively, as set forth
below. The total federal, state, local or foreign income taxes for the taxable
period shall be allocated among Buyer and PNIC, on the one hand, and PNFC, on
the other, using the following methodology: PNFC shall be liable (to the
extent not previously paid or accrued on the Final Closing Balance Sheet) for
an amount equal to such total taxes multiplied by a fraction, the numerator of
which is the taxable income of PNIC calculated from the beginning of the
period through the Closing Date (based on actual closing of the books of PNIC,
or if not feasible, based upon a pro forma closing of the books) and the
denominator of which is the total taxable income of PNIC calculated for the
entire period; Buyer or PNIC shall be liable for the balance of such federal,
state, local or foreign income taxes. Each of Buyer and PNIC, on the one hand,
and PNFC, on the other, shall be entitled to all refunds of such taxes based
on the foregoing methodology. Any credits relating to a Taxable period that
begins before and ends after the Closing Date shall be taken into account as
though the relevant Taxable period ended on the Closing Date.
(ii) Intangible Personal Property Tax. At the
Closing Date, PNIC shall have paid or accrued on the Final Closing Balance
Sheet its 1998 Florida Intangible Personal Property Tax ("IPPT") obligation.
Buyer shall reimburse PNFC for Buyer's pro rata
51
<PAGE>
share of the IPPT, based on the number of days of the ownership of the stock
of PNIC during 1998.
(iii) Tangible Personal Property Tax. By the
Closing Date, Sellers shall have filed the Tangible Personal Property Tax
returns for Wycon, Americlaim and Unamark for the calendar year 1998. Sellers
shall pay the Tangible Personal Property Tax obligations for Wycon, Americlaim
and Unamark when due. Buyer shall reimburse Sellers for Buyer's pro rata share
of the Tangible Personal Property Tax based on the fraction of the calendar
year 1998 that Buyer is the owner of the Seller Assets.
(iv) Premium Taxes and Fees. Buyer shall file PNIC's
Insurance Premium Taxes and Fees return (Form DR-908) for the calendar year
1998. PNFC and Buyer agree that Form DR-908 includes various taxes and fees.
PNFC shall, within 10 days of the filing of the year end tax return, pay Buyer
a portion of the Total Tax Due on line 11 or equivalent line on the 1998
DR-908 (line 11 was the Total Tax Due on the 1997 DR-908) based on a formula
whereby the Total Tax Due is multiplied by a fraction, the numerator being the
direct written premium from January 1, 1998 through the Closing Date and the
denominator being the direct written premium for the 1998 calendar year,
unless PNIC had previously paid, or accrued on the Final Closing Balance
Sheet, those taxes. Any amounts due and not paid within said 10 day period
shall accrue at the rate of 12% per annum compounded annually. In the event
PNIC's Premium Taxes and Fees were overpaid or accrued in excess of the actual
tax liability, Buyer shall promptly (and in any event within ten days after
the receipt thereof) refund any such excess (net of all applicable income
taxes payable on account of such refund) to PNFC and shall pay interest
thereon at the rate of 12% per annum, compounded annually, on any amounts not
paid within such ten day period.
(c) Cooperation on Tax Matters.
(i) Buyer, PNIC and Sellers shall cooperate
fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this
Section 10.7 and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. PNIC and Sellers
agree (A) to retain all books and records with respect to Tax
matters pertinent to PNIC relating to any taxable period beginning
before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Sellers, any
extensions thereof) of the respective taxable periods, and to abide
by all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, PNIC or Sellers, as the
case may be, shall allow the other party to take possession of such
books and records.
52
<PAGE>
(ii) Buyer and Sellers further agree, upon
request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person
as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(d) Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving PNIC shall be terminated with
respect to PNIC as of the Closing Date and, after the Closing Date, PNIC shall
not be bound thereby or have any liability thereunder.
(e) Certain Taxes. Buyer shall pay all documentary, stamp
and similar taxes incurred in connection with the issuance of the Purchase
Shares. All transfer, documentary, sales, use, stamp, registration and other
similar Taxes incurred in connection with the sale of the Seller Assets shall
be the responsibility of Sellers.
(f) Changes to Certain Tax Items of the Companies. Except as
may be required by law or as provided in the following sentence or in Section
10.7(g), no amended tax return shall be filed, no change in any tax accounting
method shall be made, and no tax election shall be made or revoked by, on
behalf of, or with respect to PNIC for any taxable period ending on or before
the Closing Date without the express written consent of PNFC, on the one hand,
and Buyer, on the other hand.
(g) Entitlement to Certain Tax Benefits. PNFC acknowledges
that PNIC and Buyer shall be entitled to the tax benefit of any loss, credit
or other item of PNIC that has arisen or arises before the Closing Date but
cannot be used in a taxable period ending on or before the Closing Date and
therefore is reportable in or carried forward to a taxable period ending after
the Closing Date. Buyer agrees that (to the extent permissible under
applicable law) any loss arising after the Closing Date shall be carried
forward only and, if so permitted, then no loss shall be carried back into a
taxable period ending on or before the Closing Date.
(h) Tax Contests. If any party to this Agreement receives
any written notice from any taxing authority proposing an adjustment to any
tax for which any other party hereto may be obligated to indemnify under this
Agreement, within ten business days thereafter such party shall give to the
others written notice thereof that describes such proposed adjustment in
reasonable detail, and shall indicate the amount (estimated, if necessary) of
the increase in tax that may be suffered by Buyer, Sellers or PNIC, as the
case may be. The failure to give notice pursuant to this Section 10.7(h),
however, shall not reduce the obligations of a party hereunder unless, and
then only to the extent, such failure prejudices the rights of the other party
to contest such tax adjustment. Each Seller, including its duly appointed
representatives, shall be responsible for defending against (and shall have
the right to negotiate, resolve, settle or contest) any claim for taxes
imposed on PNIC made by any taxing authority for any taxable period, or
portion thereof, ending on or before the Closing Date; provided, however, that
Sellers shall keep Buyer advised of the status (and any change in status) of
such claims and may not resolve or settle any such claim for taxes without the
consent of Buyer, which consent shall not be
53
<PAGE>
unreasonably withheld, provided that if resolution or settlement will result
in any adverse tax or other economic consequence to either Buyer or PNIC, such
failure to give consent shall not be deemed unreasonable hereunder.
(i) Coordination of Benefits. The indemnities provided in
this Section 10.7 are in addition to, but not in duplication of, the
indemnities provided in Article 11 hereof.
10.8 Britamco Financial Statements. In connection with the initial
public offering referred to in Section 10.5, Front Royal may elect or may be
required by the Securities and Exchange Commission (the "SEC") to include in
its registration statement historical financial information and financial
statements relating to Britamco. In any such event, PNFC shall cooperate with
Front Royal in making available such financial information and in the
preparation of such financial statements. In the event any such historical
financial statements or information relating to Britamco is not currently
available in the form requested by Front Royal or required by the SEC, then
PNFC shall assist Front Royal in the preparation thereof. Any third-party
accounting fees incurred in connection with the preparation of certified
financial statements for Britamco on a GAAP basis shall be borne by Front
Royal, except that if the SEC requires historical financial statements for
Britamco on a GAAP for the fiscal year of Britamco ended December 31, 1997,
then the third- party accounting fees incurred in connection with the
preparation of such financial statements for the fiscal year ended December
31, 1997 shall be borne by PNFC. The parties confirm that the SEC shall be
deemed to have required such financial statements only if (a) a comment letter
from the SEC staff regarding the registration statement shall have indicated
that such financial statements are or may be required, and (b) Front Royal and
its independent auditors shall have made reasonable efforts to persuade the
SEC staff that such financial statements are not required under applicable
rules and regulations.
ARTICLE 11
INDEMNIFICATION
11.1 Survival of Representations and Warranties. The right to enforce
claims for breaches of representations and warranties, of each Seller and
Stephen Weicholz, on the one hand, and Buyer, on the other hand, contained in
this Agreement and the respective obligations of the parties with respect
thereto, shall survive the making of this Agreement, any investigations made
by or on behalf of the parties hereto and the Closing Date, and shall continue
in full force and effect until the expiration of two years from the Closing
Date (except (a) with respect to the representations and warranties contained
in Sections 5.19 [Taxes] and 5.22 [Employee Benefit Matters] of the Agreement
the remedy for breach of which shall continue in full force and effect until
any claims or liabilities with respect thereto shall be barred by the
expiration of the applicable statute of limitations or any extensions thereof,
and (b) with respect to Section 5.2 and 6.2 [Capitalization] and the
indemnification provided pursuant to Sections 11.2(c) and (g) and Sections
11.3(c) and (d), to which there shall be no expiration), at which respective
times all such representations and warranties and liabilities shall expire and
terminate, except for any claims relating to any specific breaches of any
representations or warranties which are asserted in
54
<PAGE>
writing on or before the applicable termination date. Each of the parties
agrees to give notice to the breaching party of any breach of any such
representation, warranty, covenant, or agreement, describing such breach in
reasonable detail, as soon as practicable after the discovery thereof;
provided, however, that the failure to receive such notice shall not relieve
the breaching party from any liability in respect to such breach unless and to
the extent that the breaching party shall be prevented from curing such breach
solely as a direct result of its failure to receive a timely notice. Any claim
for indemnification for which notice has been given within the prescribed
period may be prosecuted to conclusion notwithstanding the subsequent
expiration of such period.
11.2 Indemnification by Sellers. After the Closing Date and subject
to the limitations set forth below, including without limitation the
limitations described in Section 11.4, each Seller and Stephen Weicholz, as
applicable, agree to and do hereby indemnify and hold Buyer and each of its
Affiliates, officers, directors and employees harmless against any claims,
suits, losses, expenses, damages, obligations, liabilities (including costs
and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of such Seller or PNIC (in the
case of PNIC, prior to Closing), as applicable, to perform any of its
covenants or agreements set forth herein;
(b) the inaccuracy of any representation or warranty made
herein by such Seller or Stephen Weicholz, as applicable;
(c) any liabilities of any Seller except for (i) those
liabilities incurred by Buyer pursuant to this Article 11, (ii) liabilities of
such Seller that are actually the primary obligations of PNIC and (iii) the
Seller Assumed Liabilities;
(d) any liabilities of any Seller or PNIC arising prior to
the Closing other than (i) with respect to PNIC, those liabilities
specifically set forth or provided for in the Statutory Statements or
otherwise specifically provided for in this Agreement or disclosed in any
Schedule of the Sellers' Disclosure Schedule, (ii) with respect to Wycon, the
Wycon Assumed Liabilities, (iii) with respect to Unamark, the Unamark Assumed
Liabilities, (iv) with respect to Americlaim, the Americlaim Assumed
Liabilities and (v) any liabilities described in Section 5.32(i), (ii), (iii)
or (iv) of this Agreement.
(e) any Employee Plan or Pension Plan maintained prior to
the Closing Date by such Seller or PNIC or maintained at any time by such
Seller, including any Losses arising out of any claim that Buyer or any of its
Subsidiaries has liability as a successor employer to any of the Sellers;
(f) any actions of such Seller or PNIC prior to the Closing
Date relating to the Employees or any other persons employed by such Seller or
PNIC; or
55
<PAGE>
(g) any fines or penalties assessed against any of the
Sellers or PNIC for actions engaged in prior to the Closing Date.
11.3 Indemnification by Buyer. After the Closing Date, and subject to
the limitations set forth below, including, without limitation, the
limitations described in Section 11.4, Buyer agrees to and does hereby
indemnify and hold each Seller and their respective Affiliates, officers,
directors and employees harmless against any Losses resulting to such Seller
or its Affiliates from any of the following:
(a) any breach or failure of Buyer to perform any of its
covenants or agreements set forth herein;
(b) the inaccuracy of any representations or warranties made
by Buyer herein;
(c) any liabilities of PNIC relating solely to the
operations of PNIC after the Closing Date (provided Sellers are not required
to indemnify Buyer for any of such liabilities under this Agreement); or
(d) any liabilities referred to in Section 11.2(c)(i), (ii),
or (iii), except that with respect to liabilities referred to in Section
11.2(c)(ii), any such indemnification shall be provided solely by PNIC and not
by Buyer or any other Affiliate of Buyer.
11.4 Limitation of Liability. Buyer shall not have any liability to
indemnify the Sellers in respect of Losses incurred by Sellers pursuant to
Section 11.3, and Sellers shall not have any liability to indemnify Buyer in
respect of Losses incurred by Buyer pursuant to Section 11.2, in either case
unless and until the aggregate amount of such Losses exceeds $25,000, in which
event the party seeking indemnity may recover the full amount of such Losses,
other than the initial $25,000.
11.5 Notice of Indemnity Claims. If a party intends to assert a claim
for indemnification (an "Indemnified Party") under this Article 11 (an
"Indemnity Claim"), the Indemnified Party shall provide notice of such
Indemnity Claim, to the party from whom indemnification is sought (the
"Indemnifying Party") as soon as reasonably practicable and in any event
within 30 days after becoming aware of such Indemnity Claim. The failure to
receive such notice shall not relieve the Indemnifying Party from any
liability in respect of such claim unless and to the extent that the
Indemnifying Party shall be prevented from curing such situation as a direct
result of its failure to receive timely notice. At the time the Indemnity
Claim is made and thereafter, the Indemnified Party shall provide the
Indemnifying Party with copies of any materials in its possession describing
the facts or containing information providing the basis for the Indemnity
Claim. If the Indemnity Claim involves a claim by a third party (a "Third
Party Indemnity Claim"), the Indemnifying Party may assume and control at its
expense the defense of the claim by the third party, provided that the
Indemnifying Party agrees in writing with respect to such Third Party
Indemnity Claim that it is obligated hereunder to indemnify and hold the
Indemnified Party harmless in accordance with the terms of this Article 11;
and provided, further, that the Indemnified Party shall be entitled to
participate in the defense of such claim at
56
<PAGE>
its own expense. Notwithstanding the foregoing, in the event of a Third Party
Indemnity Claim in which an Indemnifying Party and the Indemnified Party are
named as co-defendants, the Indemnified Party shall have the right to retain
separate counsel and to defend such action, at the expense of the Indemnifying
Party, if the Indemnified Party reasonably determines on advice of counsel
that (i) there exists a conflict of interest such that the Indemnifying Party
and the Indemnified Party cannot be represented by the same counsel, or (ii)
there are material defenses available to the Indemnified Party that are
separate from those that can be asserted by the Indemnifying Party. The
failure of the Indemnifying Party to assume the defense of any such claim
shall not affect any indemnification obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party,
which shall not unreasonably be withheld. A party shall not be liable under
this Article 11 for any such settlement effected without its consent. In the
event an Indemnified Party fails to consent to a settlement of a Third Party
Claim recommended by the Indemnifying Party, then the amount of
indemnification payable with respect to such Third Party Claim shall not
exceed the amount of such settlement offer plus all Losses incurred with
respect to such claim prior to the date the Indemnified Party rejected the
settlement offer.
11.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount
of any indemnification payable under any of the provisions of this Article 11
shall be (a) net of any federal or state income tax benefit realized or the
then-present value (based on a discount rate of 5%) of any such income tax
benefit to be realized by the Indemnified Party (or, where Buyer is the
Indemnifying Party, any of the Sellers) by reason of the facts and
circumstances giving rise to the indemnification, and (b) increased by the
amount of any federal or state income tax required to be paid by the
Indemnified Party on the accrual or receipt of the indemnification payment.
For purposes of the preceding sentence, the amount of any state income tax
benefit or cost shall take into account the federal income tax effect of such
benefit or cost.
11.7 Remedies Cumulative. Each indemnified party shall be entitled to
the indemnification provided in this Article 11 from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
ARTICLE 12
TERMINATION
12.1 Termination. This Agreement may be terminated at any time prior
to the Closing as follows:
(a) by mutual written consent of Buyer, on the one hand, and
the Sellers, on the other hand;
57
<PAGE>
(b) by Buyer, on the one hand, or the Sellers, on the other
hand, if the Closing Date shall not have occurred on or before September 30,
1998 (provided that the right to terminate this Agreement under this Section
12.1(b) shall not be available to any party whose willful or negligent failure
to fulfill any obligation under this Agreement has been the cause of or has
resulted in the failure of the Closing Date to occur on or before such date);
or
(c) by Buyer, on the one hand, or Sellers, on the other
hand, if any court of competent jurisdiction in the United States or other
United States governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
sale of the Seller Shares or the Seller Assets and such order, decree, ruling
or other action shall have become final and nonappealable.
12.2 Effect of Termination. If this Agreement is terminated pursuant
to Section 12.1, all further obligations of the parties under or pursuant to
this Agreement shall terminate without further liability of any party to the
others, other than the provisions of Articles 11 and 13 of this Agreement,
which shall survive any such termination, and any other provision of this
Agreement that specifically sets forth that it is to so survive, and other
than any liabilities arising as a result of a breach by a party of this
Agreement.
12.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
12.4 Extension; Waiver. At any time prior to the Closing, the parties
may (a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein;
provided, however, any party that knowingly waives any representation,
warranty, agreement or condition with respect to another party under
subsection (b) and (c) shall thereafter be barred from seeking indemnification
from such other party for such waived breach of any representation, warranty,
agreement or condition. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 13
DEPOSIT; PAYMENTS ON TERMINATION
13.1 Deposit. On the date of the execution of this Agreement, Buyer
will deposit with the Escrow Agent $1,000,000 to be held in accordance with
the provisions of this Article 13 (the "Deposit") and the Escrow Agreement.
Principal and interest earned on the Deposit shall be disbursed according to
Sections 13.2, 13.3 and 13.4 below.
13.2 Distribution. At the Closing, Buyer and the Sellers shall
instruct the Escrow Agent to distribute, by wire transfer to an account
designated by PNFC $1,000,000 as part of the
58
<PAGE>
cash portion of the Purchase Price as provided in Section 3.1, together with
any interest accrued or income earned on the Deposit during the time it is
held by the Escrow Agent. If the Closing does not occur the Deposit will be
distributed to Buyer or Sellers, as the case may be, as provided in Sections
13.3 and 13.4.
13.3 Payment to Sellers. If all the conditions to Buyer's obligations
under this Agreement set forth in Article 8 have been satisfied on or before
September 30, 1998, or any mutual extension thereof, and Buyer fails
materially to perform its obligations hereunder, or if any of the conditions
to Buyer's obligations under this Agreement set forth in Article 8 have not
been satisfied on or before September 30, 1998, or any mutual extension
thereof, due to Buyer's willful or negligent failure to perform its
obligations hereunder, Sellers may elect to terminate this Agreement pursuant
to Section 12.1(b) and, subject to the provisions of the Escrow Agreement,
upon such termination the Sellers may direct the Escrow Agent to deliver the
Deposit plus all interest and income earned thereon, to the Sellers in
accordance with the written instructions of Sellers. In the event of a
termination of this Agreement by Sellers pursuant to Section 12.1(b),
forfeiture of the Deposit by Buyer shall be Sellers' sole remedy under this
Agreement.
13.4 Payment to Buyer. In the event of any termination of this
Agreement, except as provided in Section 13.3 hereof, the Deposit plus all
interest and income earned thereon shall be paid to Buyer upon such
termination in accordance with the written instructions of Buyer. In the event
of a termination of this Agreement by Buyer pursuant to Section 12.1(b), the
return of the Deposit to Buyer shall be Buyer's sole remedy under this
Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 Entire Agreement. This Agreement and the documents referred to
herein and to be delivered pursuant hereto constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof, extent as specifically set forth
herein or therein.
14.2 Expenses. Except as specifically provided otherwise in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of
their respective counsel, investment bankers, financial advisors, accountants
and other experts and the other expenses incident to the negotiation and
preparation of this Agreement and consummation of the transactions
contemplated hereby.
14.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the State of New York, without regard to the
conflicts of law rules thereof.
59
<PAGE>
14.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other parties, except that Front
Royal may assign to one or more of its Subsidiaries all or part of its rights
hereunder (but not its obligations to Sellers with respect to the Seller
Assumed Liabilities) with respect to the purchase of any or all of the Wycon
Assets, the Americlaim Assets and the Unamark Assets.
14.5 Further Assurances. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. The Sellers and Buyer will execute any
additional instruments necessary to consummate the transactions contemplated
hereby.
14.6 Notices. All communications, notices, consents, waivers and
disclosures required or permitted by this Agreement shall be in writing and
shall be deemed to have been given when delivered personally or by messenger
or by overnight delivery service, or when mailed by registered or certified
United States mail, postage prepaid, return receipt requested, or when
received via telecopy, telex or other electronic transmission, in all cases
addressed to the person for whom it is intended at his address set forth below
or to such other address as a party shall have designated by notice in writing
to the other party in the manner provided by this Section 14.6:
If to Buyer: Front Royal, Inc.
PNIC Holdings, Inc.
2200 Gateway Blvd.
Suite 205
Morrisville, North Carolina 27560
Fax: (919) 481-6914
Attention: J. Adam Abram
Chief Executive Officer
and
Gregg T. Davis
Chief Financial Officer
With a copy to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
Fax: (212) 541-1357
Attention: Kenneth L. Henderson, Esq.
If to the Sellers
or Stephen Weicholz: Preferred National Financial Corp.
Wycon Corporation
United American Financial
60
<PAGE>
Services Corporation
Americlaim Adjustment Corp.
210 University Drive
Suite 900
Coral Springs, Florida 33071
Fax: (954) 346-7731
Attn.: Stephen Weicholz
With a copy to: LeBoeuf, Lamb, Greene & MacRae, LLP
50 N. Laura Street, Suite 2800
Jacksonville, FL 32202
Fax: (904) 353-1673
Attn.: John Byers, Esq.
14.7 Counterparts; Facsimile Signature; Headings. This Agreement may
be executed in several counterparts, each of which shall be deemed an
original, but such counterparts shall together constitute but one and the same
Agreement. In the event that any signature to this Agreement is delivered by
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the
same with the same force and effect as if such facsimile signature were the
original thereof. The Table of Contents and Article and Section headings in
this Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
14.8 Certain Matters Relating to Stephen Weicholz. The parties
confirm and understand that Stephen Weicholz is a party to this Agreement
solely for purposes of joining in the making of the representations and
warranties of the Sellers (other than PNFC) set forth in Article 5 and
providing indemnification of Buyer pursuant to Article 11 with respect to such
representations and warranties, and he shall have no obligations other than in
respect of such provisions of this Agreement.
14.9 Specific Performance. (a) In the event of a breach by a Seller
of any of its obligations under this Agreement, Buyer, in addition to being
entitled to exercise all rights granted by law and under this Agreement,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Sellers and Buyer agree that monetary damages
would not provide adequate compensation for any losses incurred by reason of a
breach by Sellers of any of the provisions of this Agreement and the Sellers
hereby further agree that, in the event of any action for specific performance
in respect of such breach, they shall waive the defense that a remedy at law
would be adequate.
(b) In the event of a breach by Buyer of any of its obligations under
this Agreement, the Sellers, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of their rights under this Agreement.
The Sellers and Buyer agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by Buyer of any of
the provisions of this Agreement and Buyer hereby further agree that, in the
event of any action
61
<PAGE>
for specific performance in respect of such breach, it shall waive the defense
that a remedy at law would be adequate.
14.10 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby.
14.11 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Buyer, Stephen Weicholz and the Sellers assume no liability to any third party
because of any reliance on the representations, warranties and agreements of
Buyer, and the Sellers contained in this Agreement.
[Signatures appear on following page]
62
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
PNIC HOLDINGS, INC.
By:___________________________
Name:
Title:
PREFERRED NATIONAL FINANCIAL
CORP.
By:___________________________
Name:
Title:
WYCON CORPORATION
By:___________________________
Name:
Title:
AMERICLAIM ADJUSTMENT CORP.
By:___________________________
Name:
Title:
63
<PAGE>
UNITED AMERICAN FINANCIAL
SERVICES CORPORATION
By:___________________________
Name:
Title:
------------------------------
Stephen Weicholz
64
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' and to
the use of our reports dated February 20, 1998 with respect to the consolidated
financial statements and schedules of Front Royal, Inc. and Subsidiaries, and
dated September 3, 1997 with respect to the consolidated statements of
operations and cash flows of Rockwood Casualty Insurance Company and
subsidiaries for the year ended December 31, 1996, in the Registration Statement
on Form S-1 dated June 18, 1998 and related Prospectus of Front Royal, Inc. for
the registration of shares of its common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Richmond, Virginia
June 15, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Front Royal, Inc.
on Form S-1 of our report dated September 3, 1997, with respect to the
consolidated financial statements of Rockwood Casualty Insurance Company and
subsidiaries as of and for the years ended December 31, 1995 and 1994, appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading 'Experts' in such
Prospectus.
/s/ Parente, Randolph, Orlando, Carey & Associates
PARENTE, RANDOLPH, ORLANDO, CAREY & ASSOCIATES
Wilkes-Barre, Pennsylvania
June 15, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Front Royal, Inc.
on Form S-1 of our report dated May 22, 1998, on the combined financial
statements of Preferred National Insurance Company and Affiliates as of December
31, 1997 and for the year then ended, appearing in the Prospectus, which is part
of this Registration Statement, and to the references to us under the heading
'Experts' in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
June 17, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<DEBT-HELD-FOR-SALE> 125,375 128,164
<DEBT-CARRYING-VALUE> 122,304 125,098
<DEBT-MARKET-VALUE> 125,375 128,164
<EQUITIES> 18,601 18,775
<DEBT-HELD-TO-MATURITY> 109,537 93,153
[DEBT-CARRYING-VALUE] 109,537 95,012
[DEBT-MARKET-VALUE] 111,403 95,012
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 277,722 277,945
<CASH> 2,907 1,568
<RECOVER-REINSURE> 24,461 25,535
<DEFERRED-ACQUISITION> 8,776 8,666
<TOTAL-ASSETS> 356,315 357,325
<POLICY-LOSSES> 195,331 197,093
<UNEARNED-PREMIUMS> 36,008 35,378
<POLICY-OTHER> 6,054 5,919
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 36,545 35,295
15,500 15,500
0 0
<COMMON> 27,291 27,291
<OTHER-SE> 47,498 45,262
<TOTAL-LIABILITY-AND-EQUITY> 356,315 357,325
108,358 20,167
<INVESTMENT-INCOME> 17,984 4,265
<INVESTMENT-GAINS> 0 0
<OTHER-INCOME> 149 60
<BENEFITS> 56,195 17,950
<UNDERWRITING-AMORTIZATION> 25,829 1,171
<UNDERWRITING-OTHER> 3,471 737
<INCOME-PRETAX> 13,570 3,547
<INCOME-TAX> 2,211 1,133
<INCOME-CONTINUING> 11,359 2,414
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,359 2,414
<EPS-PRIMARY> 1.13 .23
<EPS-DILUTED> .88 .18
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
