<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FINANCIAL PACIFIC INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6331 68-0311660
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3850 ATHERTON ROAD
ROCKLIN, CA 95765
(916) 630-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT C. GOODELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FINANCIAL PACIFIC INSURANCE GROUP, INC.
3850 ATHERTON ROAD
ROCKLIN, CALIFORNIA 95765
(916) 630-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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JANIS B. SALIN, ESQ. MICHAEL J. CONNELL, ESQ.
RIORDAN & MCKINZIE MORRISON & FOERSTER LLP
300 SOUTH GRAND AVENUE, 29TH FLOOR 555 W. FIFTH STREET, SUITE 3500
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90013
(213) 629-4824 (213) 892-5200
</TABLE>
APPROPRIATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: as soon as practicable after Registration Statement becomes effective.
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 the 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
================================================================================
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<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per
share.................................. 2,875,000 $11.00 $31,625,000 $9,330
===========================================================================================================================
</TABLE>
(1) Includes 375,000 shares to cover the Underwriters' over-allotment option, if
any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
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 APRIL , 1998
PROSPECTUS
2,500,000 SHARES
(FINANCIAL PACIFIC LOGO)
COMMON STOCK
Of the shares of Common Stock offered hereby, 2,000,000 shares are being
sold by the Company and 500,000 shares are being sold by the Selling
Stockholders. The Company will not receive any proceeds from the sale of the
shares by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Company's
Common Stock. It is currently estimated that the initial public offering price
will be between $9 and $11 per share. See "Underwriting" for information
relating to the method of determining the initial public offering price. The
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "FPAC".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
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.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
PROCEEDS TO THE
PRICE TO UNDERWRITING PROCEEDS TO THE SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
- --------------------------------------------------------------------------------------------------------------------------
Per Share............. $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total(3).............. $ $ $ $
==========================================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification and other compensation arrangements
with the Underwriters.
(2) Before deducting expenses estimated at $ , which will be paid by
the Company.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an aggregate of 375,000 additional shares to cover over-allotments, if any.
If the option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to the Company will be $ , $ and
$ , respectively.
------------------------
The shares of Common Stock are offered by the several Underwriters subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made at the offices of EVEREN Securities, Inc. or through the facilities
of the Depository Trust Company, New York, New York on or about June , 1998.
------------------------
[EVEREN LOGO]
June , 1998
<PAGE> 3
(MAP OF UNITED STATES SHOWING STATES IN WHICH THE COMPANY IS LICENSED AND HAS
LICENSE APPLICATIONS PENDING GOES HERE)
Although the Company is licensed in all the states indicated, in 1997, 100%
of its direct premiums written were produced in California.
------------------------
The Company intends to distribute to the holders of its shares of Common
Stock annual reports containing consolidated financial statements audited by an
independent certified public accounting firm and quarterly reports containing
unaudited condensed consolidated financial information for the first three
quarters of each year.
------------------------
State insurance holding company statutes applicable to the Company
generally prohibit any person from acquiring control of the Company, and thus,
indirect control of its insurance subsidiary, without the prior approval of the
appropriate insurance regulators. Generally, any person who acquires beneficial
ownership of ten percent (10%) or more of the outstanding voting stock of the
Company would be presumed to have acquired such control unless appropriate
insurance regulators, upon application, determine otherwise.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the consolidated financial statements and notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise indicates,
the "Company" or "Financial Pacific" refers to Financial Pacific Insurance
Group, Inc. (the "Group") and its consolidated subsidiaries including the
Group's wholly owned insurance subsidiary, Financial Pacific Insurance Company
("FPIC"). Unless indicated otherwise, the information contained in this
Prospectus (i) is presented in conformity with generally accepted accounting
principles ("GAAP"); (ii) assumes the Underwriters' over-allotment option is not
exercised; (iii) reflects a 394.375 for 1 stock split effected on April 14,
1998; (iv) assumes the conversion of all the outstanding shares of Series A
Convertible Preferred Stock ("Series A Stock") into an aggregate of 1,735,251
shares of Common Stock of the Company (the "Common Stock"); and (v) assumes the
exercise of all of the outstanding Warrants, except those issued to the
Underwriters, into an aggregate of 747,216 shares of Common Stock. Certain
insurance terms used herein are defined in the "Glossary of Selected Insurance
Terms." This Prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of certain factors including those
set forth under "Risk Factors" and elsewhere in this Prospectus. Prospective
investors should carefully consider the information set forth under the heading
"Risk Factors."
THE COMPANY
Financial Pacific is a regional, custom-underwriting insurance company. The
Company provides superior service to small and medium-sized commercial customers
within specified niche markets which are typically overlooked by large insurance
companies. During 1997, the Company derived direct premiums written from artisan
contractors (40%), commercial property owners (5%), light industrial businesses
(5%), a variety of other businesses (25%) and special programs (25%). The
special programs were designed for refuse haulers, farm labor contractors,
bowling centers and restaurants. For these programs, the Company has developed
underwriting expertise and focused marketing materials and applies rate
deviations or coverage extensions. The Company writes the vast majority of its
business in rural markets in California. FPIC is currently rated A-(excellent)
by A.M. Best Company ("A.M. Best").
Direct premiums written grew at a compound annual rate of 38% from $15.1
million in 1994, to $39.5 million in 1997. Net income increased at a compound
annual rate of 44% from $777,000 in 1994 to $2.3 million in 1997. The Company's
combined ratio, which is a measure of underwriting profitability, was 92% in
1997, well below the industry average of 102%. Much of the Company's growth and
profitability is attributable to its retention of renewal policies. Renewal
retention rates were 81%, 83% and 84% in the three years ended 1995, 1996 and
1997, respectively.
The Company markets insurance through 212 independent insurance agents, as
of March 31, 1998. The Company believes its relationship with its agents allows
it to provide ongoing and attentive service to its targeted customer base. The
Company's strategy is to focus on writing policies that typically generate
between $1,100 to $5,000 in annual premiums. Management believes this market has
been overlooked by many of the larger insurance companies as a result of lower
annual premiums per policy, and in some cases, the remote locations of the
policyholders and the agents.
During 1997, approximately 58% of the Company's direct premiums written was
for Commercial Multi-Peril Liability ("CMP") coverages, 17% was for Commercial
Automobile Liability coverages, 11% was for Commercial Property coverages, 6%
was for Commercial Automobile Physical Damage coverages, and the remainder was
for Inland Marine, Surety and Fidelity. The Company is also engaged, through its
wholly owned insurance agency, Financial Pacific Insurance Agency ("FPIA"), in
the mail order distribution of license and permit surety bonds in 36 states on
behalf of Markel Corporation. These bonds are low limit surety commitments
pledged to a regulatory agency as a condition of obtaining and maintaining a
business license.
The Company has been able to maintain a high level of service and fast
turnaround time by using its proprietary integrated tracking software
("QuoteTracker(TM)") which enables management to track each policy
3
<PAGE> 5
from initial application through renewal, along with tracking the performance of
individual agents and employees. The system provides data on a real-time basis
and allows for greater visibility of processing time and underwriting
performance.
The Company is raising capital through this Offering to allow for continued
growth of its business and to repay its long-term debt. Insurance regulators and
rating services presently recommend that the Company's ratio of annual net
premiums written to surplus as regards policyholders not exceed 3 to 1. The
Company's ratio at December 31, 1997 was 1.89 to 1.
The Company's long term growth strategies, while continuing to emphasize
small to medium-sized businesses as its primary target market, are to:
- RETAIN MORE DIRECT PREMIUMS WRITTEN. Due to its limited capital, the
Company has historically ceded as much as 43% of its annual direct
premiums written to reinsurers. As a result of increased capital from this
Offering, the Company will be able to retain a greater portion of premium
income.
- EXPAND EXISTING BUSINESS. The Company intends to pursue further growth in
California by selectively appointing new agents and by attracting a larger
percentage of business from each of its existing agents through
cross-selling of its existing lines of business.
- DEVELOP NEW PROGRAMS. The Company will continue to focus on developing
new specialty insurance programs for carefully selected market segments in
which the Company has identified niche opportunities. Such programs will
replicate those successfully established in prior periods including those
developed for refuse haulers, restaurants and bowling centers.
- EXPAND SURETY BUSINESS. The Company began writing surety business in 1995
to complement CMP. This line of business provides payment or performance
guarantees for construction contracts or other obligations. The Company
wrote nearly $1.2 million in profitable surety premium with one staff
underwriter in 1997. The Company plans to emphasize surety as a line of
business by increasing its marketing efforts and adding to its staff.
- EXPAND GEOGRAPHICALLY. The Company intends to expand its specialty
insurance business into other states. Beginning with the states adjoining
California, the Company will select and appoint agents in rural areas of
those states to sell its products. Its marketing efforts will focus on the
insurance programs in which the Company has developed an expertise in
underwriting. The Company is licensed currently to do business in Arizona,
California, Idaho, Missouri, Montana, Nebraska, Nevada, North Dakota,
Oregon, South Dakota and Utah and has license applications pending in
eight additional states.
The Company is a Delaware corporation formed in 1993, whose offices are
located at 3850 Atherton Road, Rocklin, California 95765; telephone (916)
630-5000; www.financialpacific.com.
THE OFFERING
Common Stock offered
hereby:
By the Company........... 2,000,000 shares
By the Selling
Stockholders............... 500,000 shares
Common Stock to be
outstanding after the
Offering................. 4,970,422 shares(1)
Use of proceeds............ To contribute additional capital to FPIC which will
allow it to retain a greater portion of direct
premiums written currently being ceded to
reinsurers; to permit greater underwriting volume
of its insurance products; to repay senior debt and
for general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market
Symbol..................... FPAC
4
<PAGE> 6
- ---------------
(1) Excludes 82,819 shares of Common Stock reserved for issuance upon exercise
of options outstanding as of March 31, 1998 pursuant to grants to officers
and employees of the Company. Includes 747,216 shares of Common Stock to be
issued upon exercise of Warrants to purchase Common Stock and 1,735,251
shares of Common Stock to be issued upon the conversion of the Series A
Stock concurrently with the closing of the Offering. See Notes to
Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993(2) 1994 1995 1996 1997
------- ------- -------- -------- ---------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Direct premiums written............... $ 6,094 $15,072 $ 24,695 $ 31,927 $ 39,512
Premiums ceded........................ (2,345) (5,782) (10,653) (13,674) (12,576)
------- ------- -------- -------- ---------
Net premiums written........... 3,749 9,290 14,042 18,253 26,936
------- ------- -------- -------- ---------
Net premiums earned............ 2,380 6,701 12,060 14,987 22,854
Commissions........................... 159 213 105 628 709
Investment income, net of expenses.... 523 750 1,028 1,449 1,720
Net realized gains (losses) on sales
of investments...................... 68 (246) 466 52 (46)
Other income, net..................... (107) 502 578 547 800
------- ------- -------- -------- ---------
Total revenues...................... 3,023 7,920 14,237 17,663 26,037
Expenses:
Losses and loss adjustment expenses... (273) 2,944 6,325 9,750 12,748
Policy acquisition costs.............. 610 1,493 3,957 4,785 7,440
Contingent ceding commission.......... -- (422) (1,246) (3,222) (1,511)
General operating costs............... 731 2,297 1,712 1,929 2,443
Agency expenses....................... 136 253 145 688 721
Interest expense...................... 21 113 128 693 617
------- ------- -------- -------- ---------
Total expenses...................... 1,225 6,678 11,021 14,623 22,458
------- ------- -------- -------- ---------
Income before taxes................... 1,798 1,242 3,216 3,040 3,579
------- ------- -------- -------- ---------
Income tax provision........... 588 465 1,066 1,037 1,237
------- ------- -------- -------- ---------
Net income..................... $ 1,210 $ 777 $ 2,150 $ 2,003 $ 2,342
======= ======= ======== ======== =========
EARNINGS PER SHARE(3):
Basic............................... $ 5.41 $ 1.60 $ 4.42 $ 4.12 $ 4.82
Diluted............................. $ 1.22 $ 0.40 $ 0.94 $ 0.69 $ 0.79
Weighted average diluted shares..... 988 1,956 2,292 2,901 2,962
GAAP RATIOS(4):
Loss ratio.......................... (7.0)% 43.9% 52.4% 65.1% 55.8%
Expense ratio....................... 56.1 52.0 36.6 23.3 36.3
------- ------- -------- -------- ---------
Combined ratio...................... 49.1% 95.9% 89.0% 88.4% 92.1%
======= ======= ======== ======== =========
STATUTORY RATIOS(4):
Combined ratio...................... 35.6% 95.4% 89.4% 90.6% 92.3%
======= ======= ======== ======== =========
Industry combined ratio(5).......... 112.2% 110.1% 110.5% 111.0% 101.8%
OTHER DATA:
Underwriting profit(6).............. $ 1,312 $ 389 $ 1,585 $ 1,745 $ 1,734
Surplus as regards policyholders.... 5,890 5,773 12,387 13,788 14,262
</TABLE>
5
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<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(7)
-------- ---------------
(In thousands, except
per share data and ratios)
<S> <C> <C>
BALANCE SHEET AND OTHER DATA:
Total cash and investments.................................. $30,609 $46,809
Total assets................................................ 65,893 82,093
Unpaid losses and loss adjustment expenses.................. 19,592 19,592
Total debt(8)............................................... 4,985 --
Stockholders' equity........................................ 13,398 35,018
Book value per common share(3).............................. $ 5.74 $ 7.03
Surplus as regards policyholders............................ $14,262 $30,462
Ratio of net premiums written to surplus as regards
policyholders............................................. 1.9x 0.9x
</TABLE>
- ---------------
(1) Other than the statutory combined ratios, surplus as regards policyholders
and ratio of net premiums written to surplus as regards policyholders, which
are presented in accordance with statutory accounting principles ("SAP"),
all data is presented in accordance with GAAP. See "Glossary of Selected
Insurance Terms."
(2) Effective November 12, 1993, the Group completed the acquisition of FPIC and
FPIA pursuant to the Stock Purchase Agreement dated June 2, 1993. Because
management of the Group had effective control of FPIC and FPIA as of May 26,
1993, the acquisition has been accounted for as of that date. Accordingly,
the 1993 consolidated financial statements include results of operations for
the period of May 26, 1993 through December 31, 1993.
(3) All periods adjusted to reflect a 394.375 for 1 stock split effective April
14, 1998.
(4) During 1993, in conjunction with the acquisition, management determined that
the Company's IBNR reserves were redundant and recorded a reserve reduction
of $2.4 million.
(5) Source: "Best's Insurance Reports Property/Casualty United States, 1997
Edition." The 1997 ratio is based on A.M. Best's estimate contained in
January 1998, "Review Preview -- Property/Casualty." A comparison of a
company's combined ratio with the industry combined ratio does not
necessarily indicate that a company has performed well or poorly as compared
with its peers.
(6) Underwriting profit represents the difference between premiums earned and
underwriting expenses.
(7) Gives effect to the sale of 2,000,000 shares in the Offering and the
transactions contemplated under "Use of Proceeds."
(8) Effective December 28, 1995, the Company issued $5 million in Senior Notes
due January 1, 2001 (the "Senior Notes"). The Senior Notes were issued in
conjunction with warrants for the purchase of 593,691 shares of the
Company's Common Stock at the price of $5.61 per share (the "Senior Note
Warrants"). The proceeds from the issuance of the Senior Notes were
contributed to FPIC's capital.
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
information should be considered carefully by potential purchasers in evaluating
the Company, its business and the shares of Common Stock offered hereby. Certain
statements included in this Prospectus, including, without limitation,
statements containing the words "believes", "anticipates", "intends", "expects",
"will" and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the important factors set forth below and
elsewhere in this Prospectus. Given these uncertainties, potential purchasers of
the Common Stock offered hereby are cautioned not to place undue reliance on
such forward-looking statements.
NATURE OF THE COMPANY'S BUSINESS
All of the Company's direct premiums written (which are the Company's
largest source of revenue) are attributable to property/casualty insurance,
which is cyclical in nature and has historically been characterized by periods
of relatively high levels of price competition, less restrictive underwriting
standards and generally low premium rates ("Soft Market"), followed by periods
of capital shortages resulting in a lack of insurance availability, relatively
low levels of competition, more selective underwriting of risks and relatively
high premium rates ("Hard Market"). A Soft Market has existed for several years
with premiums decreasing and competition remaining at high levels. Historically,
the unpredictability and competitive nature of the property/ casualty insurance
industry have contributed to significant quarter-to-quarter and year-to-year
fluctuations in underwriting results and net income. Many of the factors which
have resulted in the current Soft Market in the property/casualty insurance
industry continue and the Company cannot predict if, or when, the market
conditions for the property/casualty insurance industry, including the product
lines sold by the Company will improve. The Company's profitability is affected
by many factors, including not only rate competition, but also severity and
frequency of claims, fluctuations in interest rates that affect investment
returns, regulation, court decisions, natural disasters, the legislative
climate, and general economic conditions and trends, such as inflationary
pressures that may affect the adequacy of reserves, all of which are
substantially beyond the control of the Company.
One of the distinguishing features of the property/casualty industry is
that prices are set before costs are known because premium rates for individual
policies are determined before losses for such policies are reported. Changes in
statutory and case law can dramatically affect the liability associated with
known risks after the insurance contract is in place. The number of competitors
and the similarity of products offered, as well as regulatory constraints, limit
the ability of property/casualty insurers such as the Company to increase prices
in response to declines in profitability. In addition, during periods of high
interest rates, some property/ casualty insurers may be willing to absorb
underwriting losses in order to generate funds for investment, thereby
prolonging low premium rates which are not adequate to cover underwriting losses
and expenses. As a result of these factors, the Company may experience
significantly lower premiums in the future.
Most insurance underwriting decisions are based on assumptions about events
that will occur over a period of future years and are generally based on
actuarial projections and historical data reflecting the collective experience
of large groups of insureds. The actuarial projections may not accurately
predict the aggregate obligations of any given insurer. Because the Company's
experience represents an insignificant portion of the industry's experience,
actuarial assumptions based on aggregate industry data may not be reflective of
actual obligations to be incurred. With respect to underwriting experience
(decisions concerning the issuance of its policies), the Company relies heavily
on its own underwriting experience.
GEOGRAPHIC AND PRODUCT LINE CONCENTRATION
Virtually all of the Company's direct premiums written to date have been
attributed to policies written in California. During the years ended December
31, 1995, 1996 and 1997, 95% to 100% of direct premiums written by the Company
were derived from policies issued to insureds located in northern and central
7
<PAGE> 9
California, where it is estimated that only 30% of California's population
currently resides. The Company's revenues and profitability are therefore
subject to prevailing economic, regulatory, demographic and other conditions in
California. The Company is presently evaluating expansion into other states
where management believes there are favorable insurance climates. The Company is
currently licensed to transact property/ casualty insurance business in
California and ten other states (Arizona, Idaho, Missouri, Montana, Nebraska,
Nevada, North Dakota, Oregon, South Dakota and Utah). The Company has license
applications pending in eight additional states (Arkansas, Colorado, Iowa,
Kansas, Minnesota, New Mexico, Washington and Wisconsin). Management believes it
will likely receive at least three of these state licenses before the end of
1998. The Company may need additional funds to finance any such expansion and
there can be no assurance that such funds will be available. Even if the Company
obtains the funds necessary to expand, there can be no assurance that the
Company will be able to overcome competition and/or regulatory barriers or that
any such expansion, if completed, will be successful. See
"Business -- Competition" and "-- Regulation."
REINSURANCE CONSIDERATIONS
The Company depends upon its ability to reinsure certain risks insured by
the Company. The amount, availability and cost of reinsurance are subject to
prevailing market conditions beyond the control of the Company, and they affect
the Company's ability to write additional premiums and its profitability. If the
Company were unable to secure reinsurance at competitive prices and terms, the
Company's results of operations could be adversely impacted. The maintenance of
reinsurance does not affect the Company's direct liability to its policyholders
on the business it writes. Although the Company's reinsurance is currently
maintained with several reinsurers rated A (excellent) or better by A.M. Best,
one of the Company's reinsurer's insolvency or inability to make payments under
the terms of a reinsurance treaty could have a material adverse effect on the
Company. See "Business -- Reinsurance."
RELIANCE ON INDEPENDENT INSURANCE AGENTS
The failure or inability of independent insurance agents to market the
Company's insurance programs successfully could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company principally markets its insurance programs through 212 independent
insurance agents as of March 31, 1998. The agents are not obligated to promote
the Company's products and many sell or promote competitors' insurance products
in addition to the Company's products. Independent insurance agents produced
100% of the Company's direct premiums written during 1997. In 1997, 81% of the
Company's business was produced by its top 90 agents. No agent accounted for
more than 4% of the Company's direct premiums written in 1997. As a result, the
Company's business depends in part on the marketing efforts of these agents and
on the Company's ability to offer insurance programs and services that meet the
requirements of the agents and customers of these agents. See
"Business -- Marketing."
ADEQUACY OF LOSS RESERVES
The Company is required to maintain adequate reserves to cover its
estimated ultimate liability for losses and loss adjustment expenses ("LAE")
with respect to reported, and to Incurred But Not Reported ("IBNR"), claims as
of the end of each accounting period. These reserves are estimates of what the
Company expects the ultimate settlement and administration of claims will cost,
and are based on facts and circumstances then known, predictions of future
events, estimates of future trends in claims severity and other variable,
subjective factors. There is no method for precisely estimating the ultimate
liability. In recent years, a number of courts have issued decisions expanding
civil liability. Such decisions have resulted in higher damage awards to injured
parties. In many cases, such decisions have also resulted in liability and
increased losses to property/casualty insurers. In addition, the Company relies
on policy language, developed by the Company and by others, to exclude or limit
coverage. If such language is held by a court to be invalid or unenforceable it
could materially adversely affect the Company's financial position. This
possibility of expansion of insurers' liability either through new concepts of
liability or a refusal to accept restrictive policy language has added to the
inherent uncertainty of reserving for losses. Although management believes that
adequate provision has been made for loss reserves, the establishment of
appropriate reserves is an inherently
8
<PAGE> 10
uncertain process, and there can be no assurance that ultimate losses will not
exceed the Company's loss reserves and have a material adverse effect on the
Company's results of operations and financial condition. If the Company's
reserves should be inadequate, the Company will be required to increase reserves
with a corresponding increase in losses and LAE incurred and reduction in the
Company's net income and stockholders' equity in the period in which the
deficiency is identified. See "Business -- Reserves."
RISKS RELATED TO EXPANSION STRATEGY
Since 1993, the Company has experienced significant growth in its revenues,
policyholders and scope of operations. This growth has required and will
continue to require the Company to obtain additional capital, primarily to fund
FPIC. The Company intends to use a significant portion of the net proceeds from
this Offering to increase the surplus as regards policyholders of FPIC. If the
Company is unable to generate sufficient capital, either internally or from
outside sources, it could be required to slow its growth. The Company intends to
pursue further growth opportunities through greater penetration in existing
markets and expansion into new jurisdictions (see "Business -- Growth
Strategy"). As the Company expands, it will be underwriting policies for
insureds in industries and geographic areas less familiar to the Company. In
addition, the Company may rely to a greater extent on third party providers for
assistance in adjusting claims and various administrative matters in its new
markets. The Company's growth has also resulted in, and is expected to continue
to create, new and increased responsibilities for management personnel, as well
as additional demands on the Company's operating and financial systems. The
Company's further growth will depend on the efforts of key management personnel
and on the Company's ability to attract and retain qualified persons, to enhance
managerial systems for its operations, and to integrate successfully new
employees and systems into its existing operations. If the Company is unable to
continue to manage growth effectively, the Company's business, financial
condition and results of operations could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Business Strategy."
COMPETITION
The property/casualty insurance industry is highly competitive. The Company
competes with other property/casualty insurers both in the recruitment and
retention of qualified independent agents to sell its products. Success in
recruiting and retaining independent agents willing to sell the Company's
products or services is dependent upon the commission rates, services, and the
ability of the insurer to provide products that meet the needs of the agent and
the agent's customers.
In selling its insurance products, the Company competes with other insurers
through independent agents (including insurers represented by the independent
agents who represent the Company), with insurers having their own agency
organizations and with direct sellers of insurance products. There are numerous
companies competing for business in the geographic areas in which the Company
operates. No single company dominates the marketplace, but many of the Company's
competitors have more established national reputations and substantially greater
financial resources and market share than the Company.
The Company pays its agents a base commission of 15% with additional
commission for meeting increasing volume levels. Should other insurers begin
paying higher commissions than the Company, this would present a competitive
disadvantage in attracting and retaining high-quality agents. While recognizing
the significance of the rate of commission, the Company believes its efforts to
serve the agents and their customers by providing superior service in
underwriting and claims processing will allow it to continue to compete with
other insurers. See "Business -- Competition."
IMPORTANCE OF AN A.M. BEST RATING
A.M. Best, an independent insurance rating agency, assigned FPIC a B++
(very good) rating in 1994. In 1996, A.M. Best upgraded FPIC's rating to A-
(excellent). An A- rating is assigned to companies which have a balance, in A.M.
Best's opinion, of excellent 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
9
<PAGE> 11
ongoing obligations to policyholders. A- is A.M. Best's fourth highest rating
classification out of 15 ratings. While the Company does not expect any
reduction in its A.M. Best rating, there can be no assurance that the Company
will continue to be rated A-. Any significant decline in the Company's future
ratings could have a material impact on its relationship with clients, and thus,
a material adverse effect on the Company. A.M. Best rates firms both on quality
and on size. The size categories range from I, which represents surplus as
regards policyholders of less than $1 million, to XV, which represents surplus
as regards policyholders of greater than $2 billion. Prior to the Offering, FPIC
was financial size V, representing surplus as regards policyholders between $10
million and $25 million. Following this Offering, it is expected that FPIC will
be category VI, representing surplus as regards policyholders between $25
million and $50 million. When considering whether to accept a Financial Pacific
policy, customers often review both the rating and the financial size category.
While many customers and potential customers view an A- rating as sufficient,
there are others that require financial category sizes of VII and greater. There
can be no assurance that customers will continue to accept FPIC's rating and
financial category regardless of the Offering. See "Business -- Ratings."
LIMITS ON WRITING INSURANCE
The California Department of Insurance ("DOI") and insurance regulators in
all other states in which the Company is licensed, presently recommend that the
Company's annual net premiums written not exceed three times (300%) its surplus
as regards policyholders. As of December 31, 1997, the Company's annual net
premiums written to surplus as regards policyholders was 1.89 to 1. This
limitation could restrict the Company's future growth and profitability unless
the Company is able to increase its surplus as regards policyholders or modify
its reinsurance arrangements to cede more of its premiums. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources,"
"Business -- Regulation -- Limits on Writing Business" and "-- Surplus as
Regards Policyholders."
RELIANCE ON KEY PERSONNEL
The Company depends, and will continue to depend, on the services of Robert
C. Goodell, the Company's Chairman, President and Chief Executive Officer, as
well as the other members of the senior management team. The Company has entered
into an employment agreement with Mr. Goodell for a one-year term. This
agreement will automatically renew at the end of such term and each anniversary
thereof for a successive one-year term unless terminated in accordance with such
agreement. See "Management -- Employment Agreements." The loss of Mr. Goodell or
any of the other senior managers could have a material adverse effect on the
business of the Company. The Company is the sole beneficiary of a key man life
insurance policy in the amount of $3.0 million which it maintains on Mr.
Goodell.
REGULATIONS, PENDING LEGISLATION AND CASE LAW
The Company and FPIC, as a California domiciled insurer, are subject to
extensive regulation by the DOI and the California Commissioner of Insurance
("Commissioner"). The Company is also subject to extensive regulation by the
insurance regulatory agencies of Arizona, Idaho, Missouri, Montana, Nebraska,
Nevada, North Dakota, Oregon, South Dakota and Utah. The Company will also
become subject to regulation in each jurisdiction in which it becomes licensed
to transact business. Such regulation is primarily for the protection of
policyholders rather than stockholders and could limit the Company's ability to
react to changes in its marketplace or take advantage of new opportunities in a
timely manner. Changes in such regulation could materially and adversely affect
the Company's operations and financial condition. The nature and extent of such
regulation varies from jurisdiction to jurisdiction, but typically involves: (i)
standards of solvency and minimum amounts of capital and surplus which must be
maintained; (ii) limits on types and amounts of investments; (iii) restrictions
on the size of risks which may be insured by a single company; (iv) licensing of
insurers and their agents; (v) required deposits of securities for the benefit
of policyholders; (vi) approval of policy forms; (vii) establishment of
statutory reporting practices and the form and content of statutory financial
statements; (viii) establishment of methods for setting statutory loss and
expense reserves;
10
<PAGE> 12
(ix) review, and in some instances, prior approval of premium rates; (x) limits
on transactions among insurers and affiliates; (xi) approval of all proposed
changes of control; (xii) approval of dividends; (xiii) setting and collecting
guarantee fund assessments; and (xiv) required filing of annual and other
reports with respect to the financial condition and operation of insurers. In
addition, state regulatory examiners perform periodic financial and underwriting
examinations of insurers.
In recent years, the insurance regulatory framework has been subject to
increased scrutiny by the National Association of Insurance Commissioners (the
"NAIC"), state legislatures, state insurance regulators and the United States
Congress. The NAIC is a voluntary organization of state regulators. Its
principal mission is to encourage uniformity in state regulation of insurance
through the drafting of model laws and the continuing refinement of insurance
accounting practices and reporting procedures. None of the NAIC's pronouncements
has any legal effect unless enacted by individual states. The NAIC recently
approved codification of statutory accounting practices that change the
definition of what constitutes prescribed statutory accounting practices and
will result in changes to the accounting policies that insurance enterprises use
to prepare their statutory financial statements. The codification becomes
effective in 1999. The Company is unable to predict how codification will affect
FPIC's statutory financial statements or how insurance rating agencies will
interpret or react to any such changes. No assurance can be given that future
legislative or regulatory changes resulting from such activities will not
adversely affect the Company. See "Business -- Regulation."
Currently, approximately 40% of the Company's business is related to
artisan contractors. Accordingly, the law relating to construction defect
liability can substantially affect the Company's business. Any changes in such
laws, rules and regulations, including any attempt to find more fault with a
contractor or subcontractor for problems with a project they worked on, could
materially and adversely affect the operations of the Company. For example, in
July of 1995, the California Supreme Court rendered its opinion on Montrose
Chemical Corporation vs. Admiral Insurance Company (the "Montrose Decision"). In
that decision, the Supreme Court ruled that in the case of a continuous and
progressively deteriorating loss, such as pollution liability (or construction
defect liability), an insurance company has a definitive duty to defend the
policyholder until all uncertainty related to the severity and cause of the loss
is extinguished. Therefore, multiple periods of coverage are triggered and often
with multiple insurance companies. The Montrose Decision was in stark contrast
to prior decisions wherein, only the carrier insuring the business when a loss
first manifested itself was obligated to defend and/or provide indemnity relief.
As a result of the Montrose Decision, the Company experienced a significant
increase in construction defect liability cases, to which it would not have been
subject under the old law. Once the new law was understood, the Company adjusted
its underwriting guidelines to mitigate the risk. Management believes that the
significant improvement in the results for accident years 1995 and following are
attributed to changes in the Company's underwriting guidelines. The Company also
relies on policy language, developed by the Company and by others, to exclude or
limit coverage. If such language is held by a court to be invalid or
unenforceable it could materially adversely affect the Company's financial
position. The Company is unaware of any additional or amended legislation which
is pending or contemplated concerning construction defect liability or other
laws which, if adopted, could materially and adversely impact the Company's
operations. See "Business -- Regulation" and "-- Reserves."
HOLDING COMPANY STRUCTURE AND RESTRICTIONS ON DIVIDENDS
As a holding company with no significant business operations of its own,
the Group relies on dividends from its subsidiaries, which are domiciled in
California, as the principal source of cash to meet its obligations, including
the payment of principal and interest on its debt obligations and the payment of
dividends to stockholders. California law places significant restrictions on the
ability of FPIC to pay dividends to the Group. In particular, all dividends from
FPIC require prior notice to the DOI. All "extraordinary" dividends must be
approved in advance by the DOI. A dividend is deemed "extraordinary" if, when
aggregated with all other dividends paid within the preceding 12 months, the
dividend exceeds the greater of (i) FPIC's statutory net income (excluding
unrealized capital gains) for the preceding calendar year or (ii) 10% of surplus
as regards policyholders as of the preceding December 31st. Additionally, unless
approved in advance by the
11
<PAGE> 13
DOI, no dividend may be paid by FPIC except from unassigned funds or earned
surplus. The DOI may disallow the payment of any dividend if, in the DOI's
opinion, the payment would in any way violate the California Insurance Code (the
"Code") or be hazardous to policyholders, creditors or the public. Based on
these limitations and statutory results, as of December 31, 1997, the maximum
dividend that could be paid by FPIC to the Group in 1998, without obtaining
prior regulatory approval from the DOI, would be $1,426,000. A dividend in the
amount of $300,000 was declared and paid on January 1, 1998 to fund the debt
service on the Group's Senior Notes. There can be no assurance that dividends
will be declared by the Group in the future or that any required approval for
payment of dividends by FPIC will be obtained from the applicable state
insurance departments. See "Dividend Policy," "Business -- Regulation" and
"-- Regulation of Dividends and Other Payments from Insurance Subsidiaries."
Income from FPIA is not subject to dividend restrictions; however, the
income generated by FPIA has been de minimis in the past and is expected to be
de minimis for several years. See "Business -- Financial Pacific Insurance
Agency."
RELIANCE ON TECHNOLOGY
The Company relies heavily on computers in all aspects of its business
including rating, issuing and billing policies. In the event of a disaster which
results in the loss of some or all of the Company's computer hardware and/or
software, the Company would incur significant recovery expense. While the
Company purchases insurance against such an event, there can be no assurance
that the Company would be fully compensated for the costs incurred in recovering
to full operations, and as such, an event of this nature could materially
adversely affect the Company's short-term operating results.
CONTROL OF COMPANY
After the completion of this Offering, Robert C. Goodell and the existing
investors will still own approximately 48% of the Company's outstanding Common
Stock. Mr. Goodell and the existing investors will have power to influence the
Company, to select the Board of Directors and to approve any action requiring
stockholder approval, including adopting amendments to the Company's Certificate
of Incorporation and approving or disapproving mergers or sales of all the
assets of the Company. As long as Mr. Goodell and the other original
stockholders maintain their ownership of the Company's Common Stock, third
parties will have a difficult time obtaining control of the Company through
purchases of the Common Stock in the open market. "See Principal and Selling
Stockholders," "Certain Transactions" and "Description of Capital Stock."
POTENTIAL ANTI-TAKEOVER EFFECT OF REGULATION AND CERTAIN CHARTER PROVISIONS
Under the terms of California law governing insurance holding companies,
any person or entity desiring to acquire 10% or more of the Company's
outstanding voting securities is required to obtain prior approval of the DOI.
In addition, certain other factors may have the effect of deterring, delaying,
or preventing a change in control of the Company without further action by the
stockholders; may discourage bids for the Common Stock at a premium over the
market price of the Common Stock; and may adversely affect the market price of,
and the voting and other rights of the holders of, Common Stock. These factors
include the absence of cumulative voting and the ability of the Company's
directors to issue "blank check" preferred stock and provisions of Delaware law.
See "Business -- Regulation -- Insurance Regulation Concerning Change or
Acquisition of Control" and "Description of Capital Stock."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
continue after this Offering. The initial public offering price has been
determined by negotiations between the Company and the representative of the
Underwriters and may not be indicative of the market price for the Common Stock
after this Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The market price of
the
12
<PAGE> 14
Common Stock could be subject to significant fluctuations in response to
variations in quarterly and yearly operating results, general trends in the
Company's industry, the overall performance of the stock market and other
factors. See "Underwriting."
USE OF PROCEEDS
Of the net proceeds to the Company from this Offering, estimated to be
$17.9 million (or approximately $21.4 million if the Underwriters'
over-allotment option is exercised in full), $16.2 million will be contributed
by the Company to the capital of FPIC, thereby increasing its capacity to write
additional premiums and retain a greater percentage of direct premiums written
which has historically been ceded to reinsurers. Simultaneously with this
Offering, all of the outstanding Senior Note Warrants will be exercised and the
aggregate exercise price of $3.3 million will be offset against the $5 million
outstanding principal balance of the Senior Notes. The balance of the Senior
Notes, $1.7 million, will be paid with a portion of the proceeds from this
Offering. The Senior Notes bear interest at an annual rate of 12% and mature on
January 1, 2001. The remainder of the estimated net proceeds, if any, is
expected to be utilized by the Company for general corporate purposes including
expansion of its business. The portion of the proceeds contributed to FPIC will
initially be invested in short-term, investment grade, interest-bearing
securities pending orderly reinvestment in accordance with the Company's
investment policies. See "Business -- Regulation -- Limits on Writing Business"
and "Business -- Investments."
The Company will not receive any proceeds from the sale of the shares by
the Selling Stockholders.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future, but instead intends to retain its earnings in order
to fund the continued development and growth of the Company's business.
All dividends from FPIC require prior notice to the DOI. All
"extraordinary" dividends must be approved in advance by the DOI. A dividend is
deemed "extraordinary" if, when aggregated with all other dividends paid within
the preceding 12 months, the dividend exceeds the greater of: (i) FPIC's
statutory net income (excluding unrealized capital gains) for the preceding
calendar year or (ii) 10% of surplus as regards policyholders as of the
preceding December 31st. Additionally, unless approved in advance by the DOI, no
dividend may be paid by FPIC except from unassigned funds or earned surplus. The
DOI may disallow the payment of any dividend if, in the DOI's opinion, the
payment would in any way violate the Code or be hazardous to policyholders,
creditors or the public. See "Business -- Regulation of Dividends and Other
Payments from Insurance Subsidiaries."
For further discussion of these restrictions, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Regulation" and Notes to Consolidated Financial
Statements.
13
<PAGE> 15
DILUTION
At December 31, 1997, the outstanding shares of Common Stock had a pro
forma net tangible book value per share of $5.74. Assuming the 2,000,000 shares
of Common Stock offered by the Company hereby had been sold at December 31, 1997
and without reflecting the effect of operations subsequent to that date, the net
tangible book value per share for all outstanding shares of Common Stock (after
deducting estimated offering expenses, including underwriting discount) would
have been $7.03. This represents an immediate increase in net tangible book
value of $1.29 per share to existing stockholders and an immediate dilution of
$2.97 per share to new investors, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Estimated public offering price per share................... $10.00
------
Pro forma net tangible book value per share before
offering............................................... 5.74
Increase per share attributable to new investors.......... 1.29
------
Pro forma net tangible book value per share after
offering.................................................. 7.03
------
Immediate dilution to new investors......................... 2.97
------
</TABLE>
If the Underwriters exercise in full their right to purchase an additional
375,000 shares of Common Stock to cover over-allotments, the net tangible book
value after the Offering would be $7.18 per share of Common Stock, which would
result in a dilution to public investors of $2.82 per share.
The following table sets forth on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share paid by the existing
stockholders and by purchasers of the shares of Common Stock offered hereby
(giving effect to the conversion of Series A Stock outstanding as of December
31, 1997 into 1,735,251 shares of Common Stock, the exercise of Warrants to
purchase 747,216 shares of Common Stock and the sale of 2,000,000 shares by the
Company at an initial public offering price of $10.00 per share, before
deducting the underwriting discount and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........ 2,968,450 59.7% 8,670,451 30.2% $ 2.92
New Public Investors......... 2,000,000 40.3% 20,000,000 69.8% $10.00
--------- ----- ---------- -----
Total.............. 4,968,450 100.0% 28,670,451 100.0%
========= ===== ========== =====
</TABLE>
The information set forth above does not give effect to the potential
exercise of options to purchase an aggregate of 31,550 shares of Common Stock as
of December 31, 1997 at exercise prices ranging from $2.54 to $4.82 per share to
certain of the Company's officers, employees and former employees. Some of these
options can be exercised immediately. Purchasers of shares of Common Stock
offered hereby will incur additional dilution to the extent outstanding stock
options are exercised. See "Management."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company as of December 31, 1997, and as adjusted to
reflect the restatement of the Company's Certificate of Incorporation to
increase the authorized number of shares of Preferred Stock and Common Stock,
effective April 14, 1998, a 394.375 for 1 split of the Common Stock effective on
April 14, 1998, the sale by the Company of 2,000,000 shares of Common Stock to
the public at an assumed initial offering price of $10.00 per share, and the
application of the net proceeds of $17.9 million therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term debt............................................. $ -- $ --
=========== ===========
Long-term debt.............................................. $ 4,984,561 $ --
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, authorized 5,000 shares
(2,000,000 as adjusted); issued and outstanding 4,400
shares (no shares as adjusted)......................... 5 --
Common stock, $.001 par value, authorized 10,000 shares
(7,500,000 as adjusted); issued and outstanding 485,983
shares (4,968,450 shares as adjusted)(1)............... 486 4,968
Additional paid-in capital................................ 4,949,510 26,565,033
Net unrealized loss on available for sale securities, net
of deferred federal income taxes....................... (33,521) (33,521)
Retained earnings......................................... 8,481,658 8,481,658
----------- -----------
Total stockholders' equity........................ 13,398,138 35,018,138
=========== ===========
Total capitalization.............................. $18,382,699 $35,018,138
=========== ===========
</TABLE>
- ---------------
(1) Excludes 31,550 shares of Common Stock reserved for issuance upon exercise
of options outstanding as of December 31, 1997 pursuant to grants to various
officers, employees and former employees of the Company. See
"Management -- 1993 Stock Incentive Plan." The as adjusted amount includes
1,735,251 shares of Common Stock to be issued upon conversion of the Series
A Stock and 747,216 shares of Common Stock to be issued upon exercise of all
outstanding Warrants.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company as of and for each of the years in the five-year period ended December
31, 1997. All information is presented in accordance with GAAP, except for the
statutory property/casualty ratios and surplus as regards policyholders, which
are presented in accordance with SAP. The financial data is derived from the
consolidated financial statements and accounting records of the Company. The
consolidated financial statements as of December 31, 1996 and 1997 and for each
of the years in the three-year period ended December 31, 1997 and the report
thereon are included elsewhere in the Prospectus and have been audited by KPMG
Peat Marwick, LLP, independent certified public accountants. The industry
combined ratio data presented under "Statutory Ratios" is unaudited. The
selected consolidated financial data set forth below is qualified by reference
to, and should be read in conjunction with, the consolidated financial
statements of the Company and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993(1) 1994 1995 1996 1997
------- ------- -------- -------- ---------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Direct premiums written............... 6,094 15,072 $ 24,695 $ 31,927 $ 39,512
Premiums ceded........................ (2,345) (5,782) (10,653) (13,674) (12,576)
------- ------- -------- -------- ---------
Net premiums written........... 3,749 9,290 14,042 18,253 26,936
------- ------- -------- -------- ---------
Net premiums earned............ 2,380 6,701 12,060 14,987 22,854
Commissions........................... 159 213 105 628 709
Investment income, net of expenses.... 523 750 1,028 1,449 1,720
Net realized gains (losses) on sales
of investments...................... 68 (246) 466 52 (46)
Other income, net..................... (107) 502 578 547 800
------- ------- -------- -------- ---------
Total revenues...................... 3,023 7,920 14,237 17,663 26,037
Expenses:
Losses and loss adjustment expenses... (273) 2,944 6,325 9,750 12,748
Policy acquisition costs.............. 610 1,493 3,957 4,785 7,440
Contingent ceding commission.......... -- (422) (1,246) (3,222) (1,511)
General operating costs............... 731 2,297 1,712 1,929 2,443
Agency expenses....................... 136 253 145 688 721
Interest expense...................... 21 113 128 693 617
------- ------- -------- -------- ---------
Total expenses...................... 1,225 6,678 11,021 14,623 22,458
------- ------- -------- -------- ---------
Income before taxes................... 1,798 1,242 3,216 3,040 3,579
------- ------- -------- -------- ---------
Income tax provision........... 588 465 1,066 1,037 1,237
------- ------- -------- -------- ---------
Net income..................... $ 1,210 $ 777 $ 2,150 $ 2,003 $ 2,342
======= ======= ======== ======== =========
EARNINGS PER SHARE(2):
Basic............................... $ 5.41 $ 1.60 $ 4.42 $ 4.12 $ 4.82
Diluted............................. $ 1.22 $ 0.40 $ 0.94 $ 0.69 $ 0.79
Weighted average diluted shares..... 988 1,956 2,292 2,901 2,962
GAAP RATIOS(3):
Loss ratio.......................... (7.0)% 43.9% 52.4% 65.1% 55.8%
Expense ratio....................... 56.1 52.0 36.6 23.3 36.3
------- ------- -------- -------- ---------
Combined ratio...................... 49.1% 95.9% 89.0% 88.4% 92.1%
======= ======= ======== ======== =========
STATUTORY RATIOS(3):
Loss ratio.......................... (7.0)% 43.9% 52.4% 65.1% 55.8%
Expense ratio....................... 42.6 51.5 37.0 25.5 36.5
------- ------- -------- -------- ---------
Combined ratio...................... 35.6% 95.4% 89.4% 90.6% 92.3%
======= ======= ======== ======== =========
Industry combined ratio(4).......... 112.2% 110.1% 110.5% 111.0% 101.8%
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total cash and investments............... $12,245 $12,935 $22,689 $24,046 $29,977
Total assets............................. 24,839 31,308 47,339 54,684 65,893
Unpaid losses and loss adjustment
expenses............................... 7,125 10,141 12,225 13,944 19,592
Total debt(5)............................ 1,633 1,225 5,901 5,479 4,985
Stockholders' equity..................... 5,410 6,908 9,142 10,615 13,398
OTHER DATA:
Book value per common share(2)........... $ 2.79 $ 3.07 $ 4.33 $ 4.82 $ 5.74
Surplus as regards policyholders(5)...... $ 5,890 $ 5,773 $12,387 $13,788 $14,262
Underwriting profit(6)................... 1,312 389 1,585 1,745 1,734
</TABLE>
- ---------------
(1) Effective November 12, 1993, the Group completed the acquisition of FPIC and
FPIA pursuant to the Stock Purchase Agreement dated June 2, 1993. Because
management of the Group had effective control of FPIC and FPIA as of May 26,
1993, the acquisition has been accounted for as of that date. Accordingly,
the 1993 consolidated financial statements include results of operations for
the period of May 26, 1993 through December 31, 1993.
(2) All periods adjusted to reflect a 394.375 for 1 stock split effective April
14, 1998.
(3) During 1993, in conjunction with the acquisition, management determined that
the Company's IBNR reserves were redundant and recorded a reserve reduction
of $2.4 million.
(4) Source: "Best's Insurance Reports Property/Casualty United States, 1997
Edition." The 1997 ratio is based on A.M. Best's estimate contained in the
January 1998, "Review Preview -- Property/Casualty." A comparison of a
company's combined ratio with the industry combined ratio does not
necessarily indicate that a company has performed well or poorly as compared
with its peers.
(5) Effective December 28, 1995, the Company issued $5 million in Senior Notes.
The Senior Notes were issued in conjunction with the Senior Note Warrants.
The proceeds from the issuance of the Senior Notes were contributed to
FPIC's capital.
(6) Underwriting profit represents the difference between premiums earned and
underwriting expenses.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Group is a Delaware holding company formed in 1993 for the purpose of
acquiring 100% of the outstanding shares of M.L. Oates Insurance Company
("Oates"), a Sacramento-based property/casualty insurance company domiciled in
California, and its affiliated agency. The name of the insurance company was
changed to Financial Pacific Insurance Company following the acquisition in
1993. FPIC underwrites primarily CMP policies through its office in Rocklin,
California, which is approximately 20 miles northeast of Sacramento. FPIC also
underwrites commercial automobile insurance as a companion coverage to its CMP
business, and surety bonds. The Group also owns FPIA, an insurance agency
acquired in 1993 and renamed in 1995 that specializes in the direct mail
distribution of license and permit surety bonds in 36 states on behalf of Markel
Corporation.
The Company markets commercial property/casualty insurance through 212
independent insurance agents, as of March 31, 1998, located primarily throughout
northern and central California. The Company believes its relationship with
these agents allows it to provide ongoing and attentive service to its targeted
customer base -- small to medium-sized commercial establishments. Management
believes this market has been overlooked by many of the larger insurance
companies as a result of the lower premiums per policy and, in some cases, the
remote locations of its clients and the agents.
The following table sets forth the Company's direct premiums written, net
premiums earned and losses and LAE ratios by line of business and combined
ratios since 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993(1) 1994 1995 1996 1997
------- ------- ------- ------- -------
($'s in 000's)
<S> <C> <C> <C> <C> <C>
DIRECT PREMIUMS WRITTEN:
CMP-Property............................ $1,190 $ 1,570 $ 2,668 $ 3,728 $ 4,490
CMP-Liability........................... 6,270 9,435 14,167 17,767 22,766
Commercial Auto Liability............... 1,037 2,678 4,982 6,414 6,825
Commercial Auto Physical Damage......... 387 683 1,182 1,748 2,244
Inland Marine........................... 398 645 1,142 1,536 1,884
Surety.................................. 133 47 500 589 1,129
Fidelity................................ 4 14 54 145 174
------ ------- ------- ------- -------
Total........................... $9,419 $15,072 $24,695 $31,927 $39,512
====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993(1) 1994 1995 1996 1997
------- ------ ------- ------- -------
($'s in 000's)
<S> <C> <C> <C> <C> <C>
NET PREMIUMS EARNED:
CMP-Property............................. $ 201 $ 298 $ 548 $ 882 $ 1,134
CMP-Liability............................ 2,444 4,652 7,579 8,862 14,872
Commercial Auto Liability................ 453 1,037 2,973 3,126 4,919
Commercial Auto Physical Damage.......... 233 462 948 892 768
Inland Marine............................ 43 136 275 379 486
Surety................................... 128 108 115 353 517
Fidelity................................. 2 8 21 94 158
------ ------ ------- ------- -------
Total............................ $3,504 $6,701 $12,459 $14,588 $22,854
====== ====== ======= ======= =======
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993(1)(2) 1994 1995 1996 1997
---------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
LOSS AND LAE RATIOS:
CMP-Property..................................... 21.4% 43.0% 70.8% 38.5% 107.1%
CMP-Liability.................................... (10.4) 46.8 45.8 59.1 50.4
Commercial Auto Liability........................ 21.0 43.8 62.1 97.2 66.2
Commercial Auto Physical Damage.................. 18.5 32.3 72.0 82.1 54.7
Inland Marine.................................... 48.8 33.1 50.9 25.1 53.5
Surety........................................... (2.3) (7.4) 2.6 19.5 14.5
Fidelity......................................... --(3) 0.0 0.0 0.0 19.0
----- ---- ---- ---- -----
Total.................................... (7.0%) 43.9% 52.4% 65.1% 55.8%
===== ==== ==== ==== =====
STATUTORY COMBINED RATIOS:
Loss Ratio(4)...................................... (7.0%) 43.9% 52.4% 65.1% 55.8%
Expense Ratio...................................... 42.6 51.5 37.0 25.5 36.5
----- ---- ---- ---- -----
Combined Ratios.......................... 35.6% 95.4% 89.4% 90.6% 92.3%
===== ==== ==== ==== =====
</TABLE>
- ---------------
(1) Although the Group assumed control of FPIC's operations effective May 26,
1993, for comparison purposes the above table reflects underwriting results
for the year ended December 31, 1993.
(2) During 1993, in conjunction with the acquisition, management determined that
the Company's IBNR reserves were redundant and recorded a reserve reduction
of $2.4 million.
(3) Not meaningful based on immateriality of fidelity earned premium of $2,000
in 1993.
(4) The increase in the loss ratio from 52.4% in 1995 to 65.1% in 1996 resulted
primarily from the effects of the Montrose Decision in July 1995. As a
result of the Montrose Decision, the Company retroactively incurred
construction defect claims for which, prior to this decision, there would
have been no liability. The Company has subsequently revised its
underwriting practices in response to the Montrose Decision. See "Risk
Factors -- Regulation, Pending Legislation and Case Law."
Because insurance companies derive revenues (and incur losses) from
investing activities as well as underwriting activities, an underwriting loss in
a period does not necessarily preclude profitability for that period. A combined
ratio of under 100% indicates an underwriting profit. A combined ratio in excess
of 100% indicates an underwriting loss. Persistent underwriting losses reduce
profitability and, when coupled with investment losses in any period, result in
negative earnings which reduce the insurer's capital and therefore its ability
to underwrite further business.
RESULTS OF OPERATIONS
Year ended December 31, 1996 versus December 31, 1997
Direct premiums written. Direct premiums written for the years ended
December 31, 1996 and 1997 were $31.9 million and $39.5 million, respectively,
representing an increase of 24%. Direct premiums written increased by the
attraction of a larger percentage of business from each of the Company's
existing agents, appointment of new agents and continued expansion of specialty
program business (i.e., bowling centers, refuse haulers, farm labor contractors
and restaurants). During 1997, total production from agents appointed as of
December 31, 1996 increased by approximately 20%. The number of appointed
independent agents also increased by approximately 15% from 198 as of December
31, 1996 to 227 as of December 31, 1997. The specialty program business direct
premiums written increased from $6.2 million in 1996 to $8.0 million in 1997.
Premiums ceded. Premiums ceded for the years ended December 31, 1996 and
1997 were $13.7 million and $12.6 million, respectively, representing a decrease
of 8%. Premiums ceded as a percentage of direct premiums written decreased from
42.8% in 1996 to 31.8% in 1997, as FPIC changed its reinsurance structure to
increase its retention. As discussed further in "Business -- Reinsurance,"
effective July 1, 1996, FPIC
19
<PAGE> 21
increased its retention on property lines of business from $300,000 to $600,000
and effective January 1, 1997, FPIC increased its retention on casualty lines of
business from $100,000 to $250,000. FPIC increased its retention in order to
retain more of its underwriting income and reduce the underwriting income ceded
to reinsurers.
Net premiums earned. Net premiums earned for the years ended December 31,
1996 and 1997 were $15.0 million and $22.9 million, respectively, representing
an increase of 52%. The increase in net premiums earned is reflective of the
growth in direct premiums written and reduction in premiums ceded.
Commissions. Commissions earned for the years ended December 31, 1996 and
1997 were $628,000 and $709,000, respectively, representing an increase of 13%.
The increase reflects the continued growth of FPIA premium production.
Investment income. Investment income for the years ended December 31, 1996
and 1997 was $1.4 million and $1.7 million, respectively, representing an
increase of 19%. The increase in investment income is consistent with the 16%
increase in the average invested assets balance from $23.4 million in 1996 to
$27.0 million in 1997. The growth in invested assets reflects the investment of
cash flows generated by operations. The weighted average investment yield also
increased from 6.2% for 1996 to 6.4% for 1997.
Net realized gains (losses) on sales of investments. Net realized gains
(losses) on sales of investments were a $52,000 net realized gain and a
($46,000) net realized loss for the years ended December 31, 1996 and 1997,
respectively.
Other income (expense). Other income (expense) for the years ended
December 31, 1996 and 1997 was $547,000 and $801,000, respectively. Other income
(expense) consists primarily of policyholder service fees related to the direct
bill installment payment plan. The increase in other income (expense) is due
primarily to the increase in direct premiums written as approximately 80% of the
policies issued are on the direct bill installment pay plan. The increase was
also impacted by the $80,000 write-off in 1996 of the note receivable related to
the sale in 1994 of the Company's direct book of business to an existing agent.
The write-off reflected a higher than expected runoff of the sold business.
Losses and loss adjustment expenses. Losses and LAE decreased as a
percentage of net premiums earned from 65.1% in 1996 to 55.8% in 1997. The
decreased loss ratio is due in part to a reduced "Montrose effect" as compared
to 1996. The net impact to the Company was the creation of a retroactive
liability for construction defect claims previously denied. The "Montrose
effect" relates to the Montrose Decision and is discussed in detail at "Risk
Factors -- Regulations, Pending Legislation and Case Law" and "Business --
Reserves." The reduced loss ratio is also attributed in part to the formation in
1997 of in-house legal defense capability and the subsequent assignment of all
new legal defense work, as well as reassignment of open files previously handled
by external attorneys.
Policy acquisition costs. Policy acquisition costs increased as a
percentage of net premiums earned from 31.9% in 1996 to 32.6% in 1997. The
increase is due primarily to the bonus commission earned by agents which
increased from $431,000 in 1996 to $639,000 in 1997. Agents earn a bonus
commission ranging from 1.5% to 4.0% based on their annual production volume.
Contingent ceding commission. Contingent ceding commission decreased from
$3.2 million or 23.6% of premiums ceded in 1996 to $1.5 million or 12.0% of
premiums ceded in 1997. The decline in contingent ceding commission is related
to unfavorable loss development on the swing-rated reinsurance treaties as well
as increases in the provisional ceding commission rates on the property and
casualty reinsurance contracts effective January 1, 1997.
General operating costs. General operating costs decreased as a percentage
of net premiums earned from 12.9% in 1996 to 10.7% in 1997. The decrease is
attributed to the 52% increase in net premiums earned exceeding the 27% increase
in general operating expenses from 1996 to 1997, respectively. During 1997 the
Company incurred approximately $300,000 in non-recurring costs primarily related
to software/system recovery expenses and relocation of the Company headquarters.
20
<PAGE> 22
Agency expenses. Agency expenses for the years ended December 31, 1996 and
1997 were $688,000 and $721,000, respectively, representing a 5% increase. The
increase is consistent with the growth in commissions over the same period.
Interest expense. Interest expense decreased from $692,000 to $617,000 for
the years ended December 31, 1996 and 1997, respectively. The decrease in
interest expense related to reductions in the outstanding debt due to the
prepayment of the original seller financing debt in May 1996 and the payoff of
the $500,000 bank line of credit in April 1997.
Income before federal income taxes. Income before federal income tax
increased by 18% from $3.0 million in 1996 to $3.6 million in 1997.
Net income. Net income increased from $2.0 million, or $0.69 per diluted
share, for the year ended December 31, 1996 to $2.3 million, or $0.79 per
diluted share, for the year ended December 31, 1997, representing an increase of
17%.
Year ended December 31, 1995 versus December 31, 1996
Direct premiums written. Direct premiums written for the years ended
December 31, 1995 and 1996 were $24.7 million and $31.9 million, respectively,
representing a 29% increase. Direct premiums written increased due to the
attraction of a larger percentage of business from each of the Company's agents,
appointment of new agents and expansion of the specialty program business.
During 1996, the total production increased by approximately 25% for agents who
were appointed as of December 31, 1995. The number of appointed agents also
increased by approximately 13% from 176 as of December 31, 1995 to 198 as of
December 31, 1996. Additionally, the Company continued to diversify its
geographic and portfolio risk by expanding its operating territory and adding
specialty program business such as refuse haulers, farm labor contractors,
bowling centers and restaurants. The specialty programs accounted for direct
premiums written of $4.7 million in 1995 and $6.2 million in 1996.
Premiums ceded. Premiums ceded for the years ended December 31, 1995 and
1996 were $10.7 million and $13.7 million, respectively, representing an
increase of 28%. Premiums ceded as a percentage of direct premiums written
decreased from 43.1% in 1995 to 42.8% in 1996 as FPIC changed its reinsurance
structure to increase its retention. As discussed further in
"Business -- Reinsurance," effective July 1, 1996, FPIC increased its retention
on property lines of business from $300,000 to $600,000 to retain more of its
underwriting income and reduce the underwriting income ceded to reinsurers.
Net premiums earned. Net premiums earned for the years ended December 31,
1995 and 1996 were $12.1 million and $15.0 million, respectively, representing
an increase of 24%.
Commissions. Commissions earned for the years ended December 31, 1995 and
1996 were $105,000 and $628,000, respectively. The increase reflects expanded
production of surety premiums by FPIA during 1996. FPIA commenced operations
during 1995.
Investment income. Investment income for the years ended December 31, 1995
and 1996 was $1.0 million and $1.4 million, respectively, representing a 41%
increase. The increase in investment income is due primarily to the investment
of the proceeds from the $5.0 million Senior Notes issuance which occurred on
December 28, 1995. Additionally, invested assets increased from $22.7 million at
December 31, 1995 to $24.0 million at December 31, 1996 due to the investment of
cash flow generated by operations. The average investment yield decreased from
6.6% (adjusted to reflect $5 million in investments purchased on December 29,
1995) in 1995 to 6.2% in 1996 due to declining interest rates.
Net realized gains on sales of investments. Net realized gains on sales of
investments were $466,000 in 1995, as compared to $52,000 in 1996. The increased
realized gains in 1995 resulted from a reclassification of the investment
portfolio from held to maturity to available for sale and the related sale of
certain securities to take advantage of favorable market conditions.
Other income (expense). There was no material change in the amount of
other income from 1995 to 1996.
21
<PAGE> 23
Losses and loss adjustment expenses. Losses and loss adjustment expenses
increased as a percentage of net premiums earned from 52.4% in 1995 to 65.1% in
1996. The increased loss ratio is due to the "Montrose effect". The net impact
to the Company was the creation of a retroactive liability for construction
defect claims previously denied. The "Montrose effect" relates to the Montrose
Decision which is discussed in detail at "Risk Factors -- Regulations, Pending
Legislation and Case Law" and "Business -- Reserves."
Policy acquisition costs. There was no material change in the relationship
of policy acquisition costs to net premiums earned between 1995 and 1996.
Contingent ceding commission. Contingent ceding commission increased from
$1.2 million or 11.7% of premiums ceded in 1995 to $3.2 million or 23.6% of
premiums ceded in 1996. The increase in contingent ceding commission is due to
favorable loss development on the swing-rated reinsurance treaties.
General operating costs. General operating costs decreased as a percentage
of net premiums earned from 14.2% in 1995 to 12.9% in 1996. The decrease is
attributed to the 24% increase in net premiums earned exceeding the 13% increase
in general operating costs and expenses from 1995 to 1996.
Agency expenses. Agency expenses for the years ended December 31, 1995 and
1996 were $145,000 and $688,000, respectively. The increase is consistent with
the growth in commissions over the same period.
Interest expense. Interest expense increased from $128,000 to $692,000 for
the years ended December 31, 1995 and 1996, respectively. The increase in
interest expense is due to the issuance of $5.0 million of Senior Notes
effective December 28, 1995 and is offset in part by the prepayment of the
original seller financing in May 1996.
Income before federal income tax. Income before federal income tax
decreased by 5% from $3.2 million in 1995 to $3.0 million in 1996.
Net income. Net income decreased from $2.1 million, or $0.94 per diluted
share for the year ended December 31, 1995, to $2.0 million, or $0.69 per
diluted share, for the year ended December 31, 1996, representing a decrease of
27%. The Senior Note Warrants issued on December 28, 1995 increased the dilution
of earnings per share in 1996 but had little effect in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Operations
The Company receives substantial cash from premiums, and to a lesser
extent, reinsurance recoverables, investment income and other income. The
principal cash outflows are for the payment of claims, premiums paid to
reinsurers, LAE, policy acquisition costs, operating costs and taxes.
Substantially all of the Company's revenue is received by, and expenses are
incurred on behalf of, FPIC. Net cash provided by operations was $2.5 million
for the year ended December 31, 1996 and $6.6 million for the year ended
December 31, 1997. Amounts due from reinsurers increased 54% from $4.0 million
to $6.2 million as of December 31, 1996 and 1997, respectively. Such increase
was primarily due to the increase in covered losses and LAE. See Notes to
Consolidated Financial Statements.
Because the Company collects cash now for liabilities that may not require
payment for a number of years, an increase in the Company's direct premiums
written will result in an increase in its cash and investment portfolio. Since
acquiring the Company in 1993, the Company's investment portfolio has increased
substantially. The increase was ratable with the increase in the Company's
direct premiums written.
Investing
Net funds used in investing activities of the Company were $2.5 million for
the year ended December 31, 1996 and $6.0 million for the year ended December
31, 1997. The comparative increase from December 31, 1996 to December 31, 1997
was attributable to the investment of cash provided by operating activities.
The Company maintains a sufficient level of cash and liquid short-term
investments to meet anticipated obligations, including claim payments. As of
December 31, 1997, the Company had cash and short-term
22
<PAGE> 24
investments of approximately $0.6 million. The Company's remaining investment
portfolio on such date consisted of $30.0 million of fixed maturity securities,
which could provide additional liquidity and cash for operations. All of the
Company's investments are investment grade, short and intermediate-term fixed
income securities. See "Business -- Investments."
Capital Expenditures
During 1996 and 1997, the Company purchased approximately $400,000 and
$700,000, respectively, in capital equipment. The capital expenditures consisted
primarily of computer and office equipment acquired in conjunction with the
upgrade and standardization of the Company's computer and office equipment and
the move to its new headquarters in Rocklin, California. No significant future
capital expenditures are currently planned.
Financing
Net funds used in financing activities of the Company were $0.4 million for
the year ended December 31, 1996 and $0.5 million for the year ended December
31, 1997.
The Company has a bank line of credit agreement which provides for a
$530,000 credit facility bearing interest (payable monthly) on outstanding
balances at an annual rate of prime plus 1.00%. As of December 31, 1997,
$500,000 of this credit facility was available. The bank line of credit matures
on July 1, 1998 and the Company has not determined whether it will renew this
agreement.
The Company believes its cash resources are adequate to meet its operating
requirements.
Reinsurance
FPIC has quota share reinsurance, excess of loss reinsurance and
semi-automatic facultative reinsurance contracts, under which certain types of
policies are automatically reinsured to a predetermined amount. Due to these
reinsurance agreements, the maximum exposure to the Company is $600,000 on any
one property claim and $250,000 on any one liability claim. The reinsurance
contracts renew annually. FPIC's reinsurers are rated "A-" or better by A.M.
Best. See "Business -- Reinsurance."
Dividend Restrictions
Dividends paid by a California domiciled insurance company are subject to
limitations imposed by the Code. Under the Code, cash dividends may be paid by
an insurance company only from statutory earnings. In addition, a California
domiciled insurer may not pay an "extraordinary" dividend to its stockholders
without prior approval of the DOI.
An extraordinary dividend or distribution is defined as a dividend or
distribution of cash or other property whose fair market value, together with
other dividends and distributions made within the preceding 12 months, exceeds
the greater of 10% of earned surplus as regards policyholders as of December 31
of the preceding year or statutory net income (excluding unrealized capital
gains) for the immediately preceding calendar year. As of January 1, 1998, the
maximum dividend payable by FPIC without approval of the DOI is $1,426,000. A
dividend in the amount of $300,000 was declared and paid on January 1, 1998 to
fund the debt service on the Senior Notes. See
"Business -- Regulation -- Regulation of Dividends and Other Payments From
Insurance Subsidiaries."
Impact of Inflation
The Company's operations, like those of other property/casualty insurers,
are susceptible to the effects of inflation, as premiums are established before
the ultimate amounts of losses and LAE are known. Management considers the
potential effects of inflation when setting premiums. Nonetheless, such premiums
may not fully compensate for the effects of inflation.
23
<PAGE> 25
In addition, inflation may adversely affect the rate of return on the
Company's investment portfolio, as well as its portfolio market value.
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," and Statement of Financial Accounting
Standards No. 131 ("SFAS No. 131"), "Disclosures about Segments of an Enterprise
and Related Information," were issued in June 1997 and are effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income, which includes net income and
changes in equity except those resulting from investments by, or distributions
to, stockholders. SFAS No. 131 establishes standards for disclosures related to
business operating segments. The Company is currently evaluating the impact that
these statements will have on the consolidated financial statements.
PRIMARY DIFFERENCES BETWEEN GAAP AND SAP
The financial statements contained herein have been prepared in conformity
with GAAP, as opposed to SAP, which is prescribed for insurance companies by
insurance regulatory authorities. SAP differs from GAAP principally in the
following respects: (a) premium income is taken into operations over the periods
covered by the policies, whereas the related acquisition and commission costs
are expensed when incurred; (b) deferred income taxes are not recognized; (c)
certain assets such as agents' balances over 90 days due and prepared expenses
are nonadmitted assets; (d) policyholder dividends are accrued when declared;
(e) the cash flow statement is not consistent with classifications and the
presentation under GAAP; (f) bonds are recorded at amortized cost, regardless of
trading activities; and (g) loss and loss adjustment expense reserves and
unearned premium reserves are stated net of reinsurance.
YEAR 2000 COMPLIANCE
The Company's systems are compliant with Year 2000 requirements with the
exception of the claims accounting system, which the Company plans to replace
before the end of 1999.
24
<PAGE> 26
BUSINESS
GENERAL
The Company is a regional, custom-underwriting insurance company. The
Company provides superior service to small and medium-sized commercial customers
within specified niche markets which are typically overlooked by large insurance
companies. During 1997, the Company derived direct premiums written from artisan
contractors (40%), commercial property owners (5%), light industrial businesses
(5%), a variety of other businesses (25%) and special programs (25%). The
special programs were designed for refuse haulers, farm labor contractors,
bowling centers and restaurants. For these programs, the Company has developed
underwriting expertise and focused marketing materials and applies rate
deviations or coverage extensions. The Company writes the vast majority of its
business in rural markets in California. FPIC is currently rated A-(excellent)
by A.M. Best.
Direct premiums written grew at a compound annual rate of 38% from $15.1
million in 1994, to $39.5 million in 1997. Net income increased at a compound
annual rate of 44% from $777,000 in 1994 to $2.3 million in 1997. The Company's
combined ratio, which is a measure of underwriting profitability, was 92% in
1997, well below the industry average of 102%. Much of the Company's growth and
profitability is attributable to its retention of renewal policies. Renewal
retention rates were 81%, 83% and 84% in the three years ended 1995, 1996 and
1997, respectively.
The Company markets insurance through 212 independent insurance agents, as
of March 31, 1998. The Company believes its relationship with its agents allows
it to provide ongoing and attentive service to its targeted customer base. The
Company's strategy is to focus on writing policies that typically generate
between $1,100 to $5,000 in annual premiums. Management believes this market has
been overlooked by many of the larger insurance companies as a result of lower
annual premiums per policy, and in some cases, the remote locations of the
policyholders and the agents.
During 1997, approximately 58% of the Company's direct premiums written was
for CMP-Liability coverages, 17% was for Commercial Automobile Liability
coverages, 11% was for Commercial Property coverages, 6% was for Commercial
Automobile Physical Damage coverages, and the remainder was for Inland Marine,
Surety and Fidelity. The Company is also engaged, through its wholly owned
insurance agency, FPIA, in the mail order distribution of license and permit
surety bonds in 36 states on behalf of Markel Corporation. These bonds are low
limit surety commitments pledged to a regulatory agency as a condition of
obtaining and maintaining a business license.
There are two general categories of commercial property/casualty insurance:
custom underwritten policies and business owner policies ("BOPs"). The Company
focuses exclusively on custom underwritten accounts, typically with an annual
premium less than $25,000 (the Company's average premium per account is $4,500).
While price is an important part in the purchase of any insurance policy, it is
not necessarily the basis of competition for custom underwritten policies. The
Company believes that by carefully underwriting individual risks, it is able to
select the best risks. Most national insurance companies focus on larger custom
underwritten property/casualty policies or BOPs. As a result, the Company does
not directly compete with most national insurers. A BOP is a low price business
insurance policy that provides broad coverages. BOPs are marketed to businesses
with little differentiation from location to location, such as mini-marts and
dry cleaners. BOPs' key point of differentiation is price. Management believes
it obtains better risk selection and pricing by avoiding BOPs and focusing on
custom underwritten property/casualty policies.
The Company operates primarily in the agrarian valleys and coastal regions
of California which tend to be less litigious than Southern California and the
San Francisco Bay area. The Company will continue to focus on the rural regions
of California, and other states, as it expands. In line with this small town
strategy, the Company appoints small to mid-sized agents. The Company carefully
selects its agents and closely monitors their flow of business and profitability
primarily through the use of its proprietary QuoteTracker(TM) software. The
Company believes that, as a specialty regional company, it provides more value
to small to mid-sized insurance agents than it provides to large agents or
national brokerages. Consequently, the Company believes
25
<PAGE> 27
it has an important role in most of its agents' offices. The value of its agency
relations is a key advantage for the Company.
The Company strives to provide competitive base pay and attractive bonus
opportunities. More than two-thirds of the Company's employees participate in
objectively measured bonus plans that provide bonus opportunities of up to 50%
of their annual salary. This and other employee-focused benefits make for
extremely low employee turnover. Low turnover is a significant advantage both in
terms of cost savings and in providing consistent relationships with the
independent agents.
BUSINESS STRATEGY
Management attributes its success to date to the following business
philosophies/strategies: (i) concentrating in its niche market segments,
developing specialty insurance programs, carefully selecting its geography and
avoiding market segments which the Company believes would be unprofitable; (ii)
maintaining strong relationships with independent insurance agents by providing
prompt underwriting decisions, competitive rates and coverages and competitive
commissions; (iii) controlling losses by vigorously defending claims which the
Company believes to be fraudulent, overstated or without merit; (iv) maintaining
control of, and emphasizing the importance, of underwriting every risk; and (v)
attracting and retaining a highly talented management team and staff.
GROWTH STRATEGY
The Company's long term growth strategies, while continuing to emphasize
small to medium-sized businesses as its primary target markets, are to:
Retain More Direct Premiums Written. The Company has historically ceded a
large portion of its direct premiums written to reinsurers. This was necessary
due to the relatively small surplus as regards policyholders the Company had
maintained. The capital infusion provided by this Offering will allow the
Company to retain more of its direct premiums written. As an example,
immediately following this Offering, the Company plans to convert its expensive
property quota share reinsurance contract into a less costly excess of loss
reinsurance program. See "-- Reinsurance."
Expand Existing Business. According to A.M. Best, the Company's market
share in California for CMP insurance has increased each of the last five years.
Management attributes the Company's growth to its strong relations with its
independent agents, its ability to identify and launch insurance programs for
specialty niches of the commercial market and its underwriting expertise. The
Company intends to pursue further growth in California by selectively appointing
new agents and by attracting a larger percentage of business from each of its
existing agents.
Develop New Programs. The Company will continue to research and develop
new specialty insurance programs for small to mid-sized businesses. The Company
attempts to identify business segments that are not being adequately served by
the insurance market. By focusing on businesses that are not directly targeted
by existing insurance programs, the Company is able to avoid competing solely on
price. The Company is also negotiating with other insurers to offer products
they developed through the Company's agents. This will enable the Company to
enhance further its value to the agency force and earn a return on the products
while avoiding the cost of developing the programs.
Expand Surety Business. The Company began writing surety in 1995 to
complement CMP. This business provides payment or performance guarantees on
construction contracts or other obligations. In 1997, the Company wrote nearly
$1.2 million in profitable surety premium using one staff underwriter. The
Company plans to emphasize surety as a line of business by increasing its
marketing efforts and adding to its staff. Though the market is highly
competitive, the Company believes it can attract profitable surety business by
focusing on providing a high level of service.
Expand Geographically. The Company intends to expand its specialty
insurance business into other states. Beginning with the states adjoining
California, the Company will select and appoint agents in rural areas of those
states to sell its products. The Company does not intend to open branch offices.
Its marketing
26
<PAGE> 28
efforts will focus on the insurance programs in which the Company has developed
an expertise in underwriting. The Company is licensed currently to do business
in Arizona, California, Idaho, Missouri, Montana, Nebraska, Nevada, North
Dakota, Oregon, South Dakota and Utah and has license applications pending in
eight additional states.
INDUSTRY OVERVIEW
According to A.M. Best, in 1996, the property/casualty insurance industry
wrote over $270 billion of insurance premiums. The industry remains fragmented
with approximately 3,000 insurance companies and 400 insurance groups licensed
to transact property/casualty insurance business in the U.S. Last year, the ten
largest companies accounted for less than a 43% national market share.
California is the largest individual state market for insurance in the U.S., and
its market characteristics are similar to the national market. California
insurance premiums totaled $32.8 billion in 1996, and the ten largest companies
captured only a 45% market share.
MARKETING
One of the Company's key competitive advantages is its excellent agency
relations. The Company targets independent agents in small, rural central and
northern California towns with existing books of commercial property casualty
business. These agents are generally ignored by the larger companies because
they cannot meet stiff production goals (usually $500,000 or more per year) or
rigid account minimums (typically $25,000). The Company believes that smaller
agents tend to be more loyal to an insurance company and their customers tend to
be more loyal to their insurance agent. While the Company is most heavily
represented in Fresno, Sacramento, Bakersfield and Santa Barbara, it is
represented in approximately 100 communities across the state by 212 agents, as
of March 31, 1998.
The Company's four field marketing representatives visit each of the
Company's agents at least once per month. The purpose of these visits is to
communicate to the agents the Company's preference for specific classes of
business, to identify and resolve problems and to maintain awareness of the
Company's activities. The marketing representatives also review pending quotes
with the agents and, on occasion, conduct brief inspections of risks submitted
to the Company. The field marketing representatives do not have underwriting
authority.
The Company actively manages its agency force by closely monitoring the
quality of submissions, hit/decline ratios, renewal retention and profitability.
Semi-annually, the Company reviews its agents for application count, win ratio,
average premiums per account, production and subjective factors primarily
through the use of its proprietary QuoteTracker(TM) software. Over the past
three years, this review has resulted in the termination of approximately 5% of
the agents and placement of another 10% on rehabilitation. Over time, the
Company believes that this process allows it to retain the best agents.
The Company provides its agents with limited binding authority. Binding
authority is extended to its agents for a few artisan contractors classes for
general liability only. The Company believes that underwriting is the
responsibility of the Company, and it tightly controls risk selection and
pricing. Most agents want binding authority, primarily because it takes
companies so long to quote a risk. The Company believes its exceptional service
overcomes this concern, and consequently most agents readily accept their
limited binding authority.
The Company pays a 15% commission on new business and 15% on renewal
business. From time to time, the Company may offer a higher commission on
special programs or accounts above a certain size. These promotions usually
involve paying the agent an additional 5% commission for a limited period of
time. During 1997, commission payments under these promotions totaled $250,000
or 4% of commission expense. The Company also pays additional commissions to its
agents based on volume. To qualify for additional commission an agent must
produce at least $250,000 of written premium during the preceding year. In 1997,
additional commissions based on volume totaled $639,000 or 9.0% of commission
expense. In 1997, the Company implemented an incentive program to reward agents
for retaining their business with the Company.
27
<PAGE> 29
At the end of each year, agents who maintain better than 90% of their renewals
will receive an additional 2% commission. The Company believes its commission
schedules are competitive.
By providing a market for difficult risks, by rewarding agent loyalty
through incentive commissions and by maintaining consistency in the marketplace,
the Company's agents place a significant value on an FPIC appointment. The
Company believes that these efforts lead to high renewal retention ratios and
more profitable renewal business.
CUSTOMERS
The Company's ultimate customers are small to mid-sized businesses. The
Company reaches these customers through 212 independent insurance agents, as of
March 31, 1998, who are appointed to represent the Company. The average customer
pays approximately $4,500 per year for its insurance policy. During 1997, the
Company derived direct premiums written from artisan contractors (40%),
commercial property owners (5%), light industrial businesses (5%), a variety of
other businesses (25%) and special programs (25%). The special programs were
designed for refuse haulers, farm labor contractors, bowling centers and
restaurants. For these programs, the Company has developed underwriting
expertise and focused marketing materials and applies rate deviations or
coverage extensions. The Company is currently developing other specialty niche
programs. Most customers choose to pay for their policies over nine months
following a 25% down payment. The Company developed a payment plan to respond to
the cash flow needs of small businesses and to respond to competitive pressures.
LINES OF BUSINESS
The Company writes an insurance policy which always, except for surety
bonds, includes Commercial Multiple Peril-Liability ("CMP-Liability") and
generally one or more additional lines of business. The lines of business are
described below:
CMP-Liability -- Insures businesses against third party bodily injury and
property damage claims caused by or allegedly caused by acts or omissions of the
insured. This coverage part also includes a duty to defend the insured against
lawsuits filed alleging bodily injury, property damage or advertising injury
caused by acts or omissions of the insured.
CMP-Property -- First party insurance coverage for businesses for real and
personal property, as well as ancillary coverages such as loss of income and
loss of use. The insurance protects insureds against economic loss for damage or
loss of use of their property as a result of a specified cause of loss.
Commercial Auto Liability -- Similar to a personal auto insurance policy,
this third party coverage protects businesses against third party bodily injury
and property damage claims caused by or allegedly caused by drivers operating an
insured's vehicle.
Commercial Auto Physical Damage -- First party insurance coverage for
businesses against loss or damage to one of its vehicles. The coverage pays to
fix or replace damaged vehicles.
Inland Marine -- First party business coverage for personal property and
equipment which is generally mobile in nature. The coverage pays to fix or
replace the mobile property.
Surety -- The Company guarantees that one party, the principal, will
perform pursuant to a contract for a second party, the obligee. If the principal
fails to perform, the Company is obligated to complete the contract.
Fidelity -- First party coverage for businesses against loss of money,
securities and property due to burglary, theft, robbery and employee dishonesty.
FINANCIAL PACIFIC INSURANCE AGENCY
Prior to the acquisition of FPIC, FPIA employed agents who served as the
direct sales force for Oates and also placed workers' compensation policies with
other insurance companies. Immediately following the
28
<PAGE> 30
acquisition, the direct sales strategy was abandoned due to the Company's
expansion of independent agency appointments.
In 1995, FPIA became a general agent for Markel American Insurance Company
and Markel Insurance Company (unaffiliated members of Markel Corporation, a Glen
Allen, Virginia-based specialty property/casualty insurance group). As such,
FPIA produces license and permit surety bonds in 36 states. A license bond is a
low limit (typically $10,000 to $15,000) surety commitment pledged to an obligee
(regulatory agency) as a condition of obtaining and maintaining a business
license. According to the Surety Association of America, the nationwide market
for license bonds is $300 million with a loss ratio of 15%. There are more than
1,000 different types of license bonds throughout the United States. The typical
license bond is underwritten with an application, financial statement and credit
report. In 1997, FPIA generated $1,256,000 in direct premiums written, of which
$716,000 was commission income to the Company. FPIA's net income for the year
ended December 31, 1997 was $5,000.
The Company solicits customers for license and permit surety bonds through
the mail. The Company believes its direct mail distribution strategy will begin
to reap substantial returns as its renewal business grows and when FPIC becomes
the issuing insurance company for the license and permit bonds. Once FPIC
becomes licensed in all of the states in which FPIA operates, FPIC can become
the issuing insurance company for FPIA.
UNDERWRITING
The Company places a high degree of emphasis on underwriting and pricing
discipline. More than 50% of the Company's employees work in underwriting roles,
and the average underwriter has 16.6 years of experience. The underwriting
department has 13 underwriters, along with support staff.
The Company uses Insurance Services Offices ("ISO") underwriting rates,
rules and guidelines. However, most of the Company's current rates are
determined utilizing 1988 ISO loss costs, which are 35% higher, on average, than
loss cost assumptions utilized in current ISO rates for the classes and
territories that the Company writes. While the rates have remained the same
since the Company's inception, the pricing strategy has become more
conservative. The use of schedule rating credits, which are used to reduce the
price of insurance for individual policies, has been substantially restricted.
The limits of liability for each of the types of policies written by the
Company are tailored to the needs of the insured. Approximately 90% of the CMP
liability policies sold by the Company are for limits of $1,000,000. Limits are
available under existing treaties with reinsurance companies up to $11,000,000.
Subject to the judgment of the underwriting department, property insurance is
also available under certain existing treaties with reinsurance companies up to
a limit of $10,000,000. Additional insurance is available for each line of
insurance provided that a facultative arrangement is obtained from an
appropriate reinsurer. See "-- Reinsurance."
Since price is a competitive factor in the sale of property/casualty
insurance, the underwriting department attempts to ensure that prices quoted by
the Company are competitive or that its product is sufficiently differentiated
from less expensive alternatives.
Each full-time employee of the underwriting department has the opportunity
to earn an incentive bonus for meeting objective standards for service,
production and quality. Management believes this plan makes the Company's
underwriters and underwriting technicians the highest paid in the area. Because
an underwriting job with the Company is highly desirable, turnover in the
underwriting department is extremely low.
The Company also writes surety bonds through its agents. In 1996, its first
full year of operations, the surety department wrote $589,000 of nearly
loss-free surety business. In 1997, the Company wrote $1,129,000 in surety
premium. The Company's surety customers are primarily small contractors with
infrequent bond needs. These accounts require a high level of attention that
many other sureties are not willing to provide.
29
<PAGE> 31
For a five-year comparison of the Company's combined ratio and the average
for the property/casualty industry, see "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
REINSURANCE
Due to capital constraints, the Company has historically ceded large
amounts of its premium to reinsurers. In 1996 and 1997, on a direct basis, the
Company earned $3.9 million and $3.4 million, respectively, of underwriting
income. After ceding the reinsurer's portion of the premium and losses, the net
underwriting income for the Company was approximately $1.7 in each of 1996 and
1997. The reinsurers received $2.2 million and $1.6 million of the Company's
underwriting income in 1996 and 1997, respectively. The results from the last
two years are not necessarily indicative of results in the future and the
ultimate development of business ceded to the reinsurers could deviate, perhaps
substantially, from such results. However, the Company believes that as a result
of this Offering, it will decrease amounts ceded to reinsurers and retain a
greater share of the corresponding risks. As a consequence, the Company believes
it will also retain some portion of the underwriting profit, if any, related to
the premiums that are no longer ceded. See "Use of Proceeds."
The Company maintains reinsurance on its property, casualty, and surety
businesses. On its property business, the Company has a 30% quota share on the
first $2 million of any risk with a syndicate of reinsurers, resulting in a
maximum company exposure of $600,000 related to any one occurrence. In excess of
$2 million, the Company has an $8 million per risk semi-automatic facultative
reinsurance arrangement with General Reinsurance Corporation. On the casualty
business, the Company maintains a $750,000 excess of $250,000 treaty with a
syndicate of reinsurers led by Gerling Global Reinsurance Company. The Company's
maximum exposure on any one casualty risk is $250,000. In excess of $1 million,
the Company has a semi-automatic facultative agreement with American Reinsurance
Company which provides $10 million of coverage in excess of $1 million. For the
Company's surety bond product line, the Company maintains a variable quota share
reinsurance arrangement with General Reinsurance Company which provides various
levels of participation depending on the size of a bond. The Company's current
reinsurance structure has been in place since January 1, 1997 with the exception
of the surety reinsurance contract which incepted in July 1995 and the $10
million excess $1 million casualty semi-automatic facultative agreement which
incepted on January 1, 1998.
Prior to January 1, 1997, the Company maintained a $400,000 excess $100,000
and $500,000 excess $500,000 casualty treaties and a $4 million excess $1
million casualty semi-automatic facultative agreement.
The Company purchases Extra Contractual Obligations and Excess Policy
Limits ("ECO/XPO") coverage through the London market. This coverage reinsures
the Company's exposure for any punitive, exemplary, compensatory, or
consequential damages in excess of policy limits because of alleged or actual
bad faith or negligence on the Company's part in rejecting a settlement within
policy limits, discharging its duty to defend or prepare the defense in the
trial of an action against a policyholder of the Company, or in discharging its
duty to prepare or prosecute an appeal consequent upon such an action, or
otherwise handling a claim under a policy subject to this reinsurance. Prior to
July 1, 1996, $1 million of this coverage was included in the Company's $1
million excess of $1 million reinsurance treaty. However, when the Company
restructured its reinsurance treaty effective July 1, 1996, it began purchasing
this coverage separately in the London markets, as it was more cost effective to
do so. The Company currently purchases $2 million of ECO/XPO coverage through
this facility.
The reinsurance programs renew on an annual basis. Reinsurance coverages
are placed both directly by the Company and through professional intermediaries.
The Company's 1997 reinsurance costs for liability coverage were reduced from
1996 levels due to favorable results achieved and the retention by the Company
of larger portions of the risk.
Although reinsurance does not discharge the original insurer from its
primary liability to its policyholders, under SAP, it is the practice of
insurers to treat reinsured risks as risks of the reinsurer since the primary
insurer is indemnified by the reinsurers for ceded losses and LAE unless the
reinsurer is unable to meet the
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<PAGE> 32
obligations it assumed under the reinsurance agreements. The collectability of
reinsurance is subject to the solvency of the reinsurers.
All of the Company's reinsurance is currently placed with A- or better
rated reinsurers. See "-- Ratings." In accordance with customary industry
practice, the Company maintains no reserves for reinsured liabilities. In 1997,
FPIC ceded $12.6 million in written premium to 17 reinsurers and reinsurer
syndicates. Premiums ceded to the five largest reinsurers were: $2.9 million,
Gerling Global Reinsurance; $1.7 million, Sorema North America Reinsurance; $1.3
million, St. Paul Re, Inc.; $1.3 million, Constitution Reinsurance; and $1.2
million, Winterthur Reinsurance Corporation of America.
The Company reviews information concerning the Company's reinsurers,
including ratings published by A.M. Best and other similar organizations. The
Company is not aware of any financial difficulties being experienced by any of
its reinsurers.
The Company is selective in its choice of reinsurers and considers numerous
factors, the most important of which is the financial stability of the
reinsurer. At January 1, 1998, reinsurance arrangements were in place with one
foreign and 11 domestic reinsurers.
Following this Offering, the Company may convert its costly property quota
share reinsurance contract to an excess of loss contract. It may also convert
its surety quota share contract to an excess of loss contract. See "Use of
Proceeds."
CLAIMS
The claims department pays claims and establishes losses and LAE reserves.
In connection therewith, it resolves questions concerning policy coverage and
manages reinsurance recoveries with the accounting department. Claims in
litigation are defended by a staff of attorneys employed by the Company under
the direction of its Vice President and General Counsel. In order to reduce the
cost of defending its policyholders, the Company began hiring attorneys in late
1996 to build in-house defense capabilities. The Company has hired five
experienced insurance defense attorneys, all of whom have at least seven years
of experience. As of March 31, 1998, 82% of the Company's insurance defense
files were being adjusted by staff attorneys. By managing the majority of the
cases with staff attorneys, the Company believes it will save a substantial
amount of LAE.
The Company's claims department is staffed by five claims examiners with an
average of 18 years of claim adjustment experience. The claims examiners'
caseloads average approximately 125 claims per examiner. Due to the combination
of experience and manageable caseloads, the Company's claims personnel are
effective in managing claims through frequent contact with claimants.
The Company believes that a distinguishing factor between its claims
department and other insurance companies' claims departments is that its claims
examiners are incentivized to close claim files, all of the adjusters and
attorneys are seasoned professionals and they are closely supervised by the Vice
President of Claims and the Vice President and General Counsel. Senior
management reviews and approves all reserves in excess of $30,000. The Company
recently established a special investigation unit which is used to investigate
cases which are suspected to be fraudulent.
RESERVES
Loss reserves are estimates at a given point in time, based on facts and
circumstances then known, of the amount the insurer anticipates it will have to
pay claimants plus investigation and litigation costs. The ultimate liability in
each case may differ from such estimates. During the loss settlement period,
additional facts regarding individual claims may become known and, consequently,
it frequently becomes necessary to refine and adjust the estimates of liability.
The Company's reserving process, following industry practices, is based on
the assumption that past experiences, adjusted for the effect of current
developments and likely trends, is appropriate for predicting future events. The
process also assumes that the legal climate regarding the claims process and
legal liability
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<PAGE> 33
theories remain constant. Any other assumptions employed by the Company or its
actuaries are not readily quantifiable and are subject to revision as
circumstances change.
Reserves are initially set to take into account both a possible payment for
the loss involved and the anticipated LAE. Adjustments to initial reserves are
made periodically pursuant to the continuing investigation and evaluation by the
claims department. Reserves for other claims, such as property damage by fire or
other causes, are established and revised on a case-by-case basis pursuant to
which a reserve amount is assigned to each claim when reported, based primarily
upon an investigation of the circumstances surrounding each claim, consideration
of the liability and the damages, and the insurance policy provisions relating
to the claim.
The Company also establishes IBNR reserves utilizing its historical
experience. The IBNR reserve is established to provide for future case reserves
and loss payments on claims which have been incurred but not yet reported to the
Company. A significant portion of the Company's total loss reserve is the IBNR
reserve. However, IBNR reserves, by definition, are not established for specific
cases. In calculating IBNR reserves, the Company estimates the ultimate
liability for losses and LAE by using both individual estimates for reported
claims and generally accepted actuarial reserving techniques. IBNR reserve
adjustments also are made to take into account changes in the volume of business
written, claims frequency and severity, the mix of business, claims processing
and other items that can be expected to affect the Company's liability for
losses over time. IBNR reserves are periodically adjusted to correct historical
deficiencies or redundancies in the reserves on a case-by-case basis. On a
quarterly basis, the Company's independent actuary reviews the Company's loss
data and recommends IBNR reserves.
Inflation is implicitly provided for in the reserving function through
analysis of cost trends and reviews of historical results. Reserves are closely
monitored and are recomputed periodically using new information on reported
claims and a variety of statistical techniques. The Company does not discount
loss reserves.
The following table sets forth a reconciliation of beginning and ending
losses and LAE reserves for each of the periods shown.
Activity in the liability for unpaid losses and LAE is summarized as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance of unpaid losses and loss adjustment
expense reserves, beginning of year......... $10,140,556 $12,224,880 $13,944,397
Less reinsurance recoverables............... 4,902,732 4,560,681 4,007,047
----------- ----------- -----------
Net balance at beginning of year.............. 5,237,824 7,664,199 9,937,350
----------- ----------- -----------
Incurred losses and loss adjustment expenses:
Provision for insured events of the current
year..................................... 6,490,825 7,394,848 10,991,179
Increase (decrease) in provision for insured
events of prior years.................... (165,766) 2,355,565 1,756,992
----------- ----------- -----------
Total incurred losses and loss adjustment
expenses.................................... 6,325,059 9,750,413 12,748,171
----------- ----------- -----------
Payments:
Losses and loss adjustment expenses
attributable to insured events of the
current year............................. 1,975,694 2,413,980 3,370,671
Losses and loss adjustment expenses
attributable to insured events of prior
years.................................... 1,922,990 5,063,282 5,907,717
----------- ----------- -----------
Total payments................................ 3,898,684 7,477,262 9,278,388
----------- ----------- -----------
Net balance at December 31.................... 7,664,199 9,937,350 13,407,133
Plus reinsurance recoverables............... 4,560,681 4,007,047 6,184,927
----------- ----------- -----------
Balance of unpaid losses and loss
adjustment expense reserves, at
December 31............................ $12,224,880 $13,944,397 $19,592,060
=========== =========== ===========
</TABLE>
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<PAGE> 34
The following table sets forth the development of net reserves for unpaid
losses and LAE from 1989 (the first full year of operations) through 1997. In
evaluating the following information, it should be noted that each amount
includes the effects of all changes in amounts for prior years. For example, the
amount of redundancy related to losses settled in 1997 but incurred in 1989 is
included in the cumulative redundance amount of each of the years for 1989 to
1996. The table does not present injury or policy-year development data.
Conditions and trends that have affected development of the reserves in the past
may not necessarily occur in the future. Accordingly, the data in the table may
not be indicative of future redundancies or deficiencies.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------- ------- ------- ------- ------- -------
($'s in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for losses and
LAE(1).................. $1,243 $3,119 $7,189 $ 6,964 $ 4,533 $ 5,238 $ 7,665 $ 9,938 $13,407
Paid (cumulative) as
of:(2)
One year later.......... 391 1,148 1,550 1,676 1,503 1,923 5,063 5,908 --
Two years later......... 967 2,307 3,038 2,883 2,537 4,574 8,903
Three years later....... 1,351 2,728 3,734 3,366 3,243 6,648
Four years later........ 1,594 3,012 4,074 3,601 3,897
Five years later........ 1,845 3,096 4,322 3,829
Six years later......... 1,883 3,308 4,512
Seven years later....... 1,976 3,487
Eight years later....... 2,002
Liability re-estimated as
of:(3)
One year later.......... 1,217 3,696 4,098 2,606 2,279 3,150 5,169 5,786 --
Two years later......... 1,141 1,731 1,717 1,059 1,011 2,409 2,927
Three years later....... 774 832 723 527 795 1,747
Four years later........ 398 445 347 397 738
Five years later........ 291 280 302 738
Six years later......... 169 224 336
Seven years later....... 22 251
Eight years later....... 42
REDUNDANCY
(DEFICIENCY):........... $ (801) $ (619) $2,341 $ 2,397 $ (102) $(3,157) $(4,165) $(1,756) --
Redundancy (deficiency) as
% of initial
reserve(4),(5),(6)...... (64.4)% (19.8)% 32.6% 34.4% (2.3)% (60.3)% (50.2)% (17.7)% --
Gross liability for losses
and loss adjustment
expenses................ 10,060 7,125 10,141 12,225 13,945 19,592
Ceded liability for losses
and loss adjustment
expenses................ (3,096) (2,592) (4,903) (4,560) (4,007) (6,185)
------ ------ ------ ------- ------- ------- ------- ------- -------
Net liability for losses
and loss adjustment
expenses................ 6,964 4,533 5,238 7,665 9,938 13,407
Gross liability
re-estimated............ 1,066 1,160 3,382 4,543 8,119
Ceded liability
re-estimated............ (328) (422) (1,635) (1,616) (2,333)
------ ------ ------ ------- ------- ------- ------- -------
Net liability
re-estimated............ 738 738 1,747 2,927 5,786
Gross reserve
redundancy.............. 8,994 5,965 6,759 7,682 5,826
</TABLE>
- ---------------
(1) Sets forth the estimated liability for unpaid losses and LAE recorded at the
balance sheet date for each of the indicated years; represents the estimated
amount of losses and LAE for claims arising in the current and all prior
years that are unpaid at the balance sheet date, including IBNR.
(2) Cumulative losses and LAE payments made in succeeding years for losses
incurred prior to the balance sheet date.
(3) Re-estimated amount of the previously recorded liability based on experience
for each succeeding year, increased or decreased as payments are made and
more information becomes known about the severity of remaining unpaid
claims.
(4) Shows the cumulative redundancy or deficiency at December 31, 1997 of the
reserve estimate shown on the top line of the corresponding column. A
redundancy in reserves means that reserves established in
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<PAGE> 35
prior years exceeded actual losses and LAE or were reevaluated at less than
the originally reserved amount. A deficiency in reserves means that the
reserves established in prior years were less than actual losses and LAE or
were reevaluated at more than the originally reserved amount.
(5) Prior to 1994, fluctuation in the net reserve redundancy was attributable to
a $2.4 million reserve reduction in 1993 and a $2.4 million reserve increase
in 1991. In 1991, the Company posted an IBNR reserve of approximately $2.4
million. The result was a net incurred losses and LAE ratio of 165%. During
1993, in conjunction with the acquisition, management determined that the
Company's IBNR reserves were redundant and recorded a reserve reduction of
$2.4 million. As a result, the redundancy trend in 1992 and 1993 ended.
(6) The reserve deficiency noted in 1994 to 1996 resulted primarily from the
effects of the Montrose Decision in July 1995. The impact to the Company was
the creation of retroactive liability for construction defect claims
previously denied. The Company has subsequently revised its underwriting
practices in response to the Montrose Decision. See "Risk
Factors -- Regulations, Pending Legislation and Case Law."
Reserve variances have been affected by continued growth in premium volume
and increases in IBNR, particularly in the CMP liability line between 1993 and
1994. The reserves for IBNR losses and the LAE anticipated changes in costs
related to each prior year's claims. At the same time, the insurance industry
was experiencing inflation in the ultimate resolution values of personal injury
claims. The inflation of personal injury claim values has been principally
attributed to rapidly increasing medical treatment costs, increasing jury awards
for pain and suffering and increased loss adjustment and related litigation
costs. In addition to the adjusted IBNR, specific measures undertaken include
monitoring the actual paid medical, vigorous defense of claims deemed to be
nuisance suits, and ongoing monitoring of pain and suffering awards and related
LAE and litigation expenses. Adjustments are made in IBNR reserves on a periodic
basis to account for documented cost increases, and similar adjustments are made
to case reserves based on individual claim reviews and audits. Actual reserve
development due to IBNR claims and underreported claims is continually monitored
and adjustments to reserves are made consistent with this actual experience.
During the loss adjustment period, additional facts regarding individual
claims may become known. As the Company becomes aware of additional facts, it
may become necessary to refine and adjust liability estimates. Accordingly, the
ultimate liability may be less than or greater than the revised estimates.
INVESTMENTS
Substantially all investments are held by FPIC and are subject to
regulation by the DOI. Investments are made under the direction of the Company's
Chief Executive Officer and Chief Financial Officer pursuant to written
guidelines approved by the Board of Directors. The written guidelines establish
specific criteria for quality, marketability, holding size and maturity for each
type of investment. Furthermore, the criteria are set to meet the Company's
anticipated liquidity needs and tax positions.
The Company's investment portfolio is managed with the intent to provide
growth and safety of surplus as regards policyholders in order to facilitate
increased premium writings over the long-term while maintaining the ability to
service current insurance operations.
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<PAGE> 36
The following table shows the composition of the Company's investment
portfolio by type of security as of December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
($'s in 000's)
<S> <C> <C> <C> <C> <C> <C>
BY TYPE OF SECURITY:
United States government and
agencies......................... $ 6,449 28.4% $ 9,870 41.1% $15,628 52.1%
States, municipalities and
political subdivisions........... 1,289 5.7% 268 1.1% 71 0.2%
Corporate.......................... 14,951 65.9% 13,708 57.0% 14,065 46.9%
Certificates of deposit............ -- 0.0% 200 0.8% 213 0.8%
------- ----- ------- ----- ------- -----
Total investments........ $22,689 100.0% $24,046 100.0% $29,977 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Fixed maturity investments are valued in the above table at market value.
The amortized cost of fixed maturities was $22,604,000, $24,764,000 and
$30,028,000 at December 31, 1995, 1996 and 1997, respectively.
Fixed maturity investments held by the Company generally have an investment
quality rating of "A" or better by independent rating agencies. The following
table shows the composition of the Company's fixed maturity investments (at
amortized cost), by rating as of December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
($'s in 000's)
<S> <C> <C> <C> <C> <C> <C>
BY RATING(1):
U.S. Treasury and U.S. Agency
Bonds............................ $ 6,449 28.4% $ 9,870 41.0% $15,628 52.1%
AAA to A........................... 15,023 66.2% 12,259 51.0% 11,515 38.4%
BBB................................ 1,217 5.4% 1,717 7.2% 2,621 8.8%
Certificates of Deposit............ -- 0.0% 200 0.8% 213 0.7%
------- ----- ------- ----- ------- -----
Total Investments........ $22,689 100.0% $24,046 100.0% $29,977 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) Represents the lower of the ratings assigned by Moody's Investor's Services,
Inc. or Standard and Poor's Corporation.
The amortized cost of fixed maturity investments exceeded the market value
by approximately $51,000 at December 31, 1997. At the same date, the Company
held callable fixed maturities with an aggregate market value of $13.2 million.
The amortized cost of fixed maturities as of December 31, 1995, 1996 and
1997 is shown by contractual maturity below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Management projects
the anticipated weighted average maturity of the fixed maturities to be 6.7
years. Management attempts to generally match its property/casualty assets and
liabilities. The maturity of claim and benefit liabilities of property/casualty
insurance companies can only be estimated by using actuarial methods. Although a
single figure for weighted average maturity of liabilities is not available, the
Company's actuaries continually review historical data on claims maturation. In
light of the review, management structures its fixed income portfolio
35
<PAGE> 37
accordingly. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
($'s in 000's)
<S> <C> <C> <C> <C> <C> <C>
BY MATURITY:
One year and under................. $ 77 0.3% $ 1,830 7.6% $ 1,152 3.8%
Over one year through five years... 6,364 28.1% 8,287 34.5% 9,954 33.2%
Over five years through ten
years............................ 9,330 41.1% 8,662 36.0% 14,681 49.0%
Over ten years..................... 6,918 30.5% 5,267 21.9% 4,190 14.0%
------- ----- ------- ----- ------- -----
Total Investments........ $22,689 100.0% $24,046 100.0% $29,977 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
Investment results of the Company for the periods indicated are shown in
the following table.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
($'s in 000's)
<S> <C> <C> <C>
Invested assets(1).................................... $17,812 $23,368 $27,012
Investment income(2).................................. $ 1,029 $ 1,449 $ 1,720
Average yield(3)...................................... 5.8% 6.2% 6.4%
Net realized gain (losses)............................ $ 466 $ 52 $ (46)
</TABLE>
- ---------------
(1) Average of the aggregate invested amounts at the beginning and end of the
period.
(2) Investment income is net of investment expenses and does not include
realized or unrealized investment gains or losses or provision for income
taxes.
(3) The 1995 average yield was impacted by the $5 million capital infusion from
the sale of the Senior Notes which funded the purchase of $5 million in
investments on December 28, 1995.
COMPETITION
The property/casualty insurance industry is highly competitive. The Company
competes with other property/casualty insurers both in the recruitment and
retention of qualified independent agents to sell its products. Success in
recruiting and retaining independent agents willing to sell the Company's
products or services is dependent upon the commission rates, services and the
ability of the insurer to provide products that meet the needs of the agent and
the agent's customers.
In selling its insurance products, the Company competes with other insurers
through independent agents (including insurers represented by the independent
agents who represent the Company), with insurers having their own agency
organizations and with direct sellers of insurance products. There are numerous
companies competing for business in the geographic areas in which the Company
operates. No single company dominates the marketplace, but many of the Company's
competitors have more established national reputations and substantially greater
financial resources and market share than the Company.
The Company pays its agents a base commission of 15% with additional
commission for meeting increasing volume levels. Should other insurers begin
paying higher commissions than the Company, this would present a competitive
disadvantage in attracting and retaining high-quality agents. While recognizing
the significance of the rate of commission, the Company believes its efforts to
serve the agents and their customers by providing superior service in
underwriting and claims processing will allow it to continue to compete with
other insurers.
Twice per year, the Company surveys its agents to understand the nature of
the competitive environment. The agents indicate that the Company competes with
many companies, but few consistently. According to its agents, FPIC's most
consistent competitor is Allied Group. Agents were asked which companies they
viewed as FPIC's main competitors.
36
<PAGE> 38
The following table summarizes the results of the last agent survey,
conducted in August 1997:
<TABLE>
<CAPTION>
COMPETITORS % of Agents(1)
- ----------- --------------
<S> <C>
Allied Group................................................ 17%
Golden Eagle Insurance Company.............................. 10%
Maryland Casualty Insurance Company......................... 10%
Valley Insurance Company.................................... 7%
CNA......................................................... 5%
Fireman's Fund Insurance Company............................ 5%
10 Other Companies.......................................... 27%
</TABLE>
- ---------------
(1) Represents the percentage of survey respondents indicating that these
companies compete with FPIC.
RATINGS
The oldest and most widely quoted insurance financial rating firm is Best's
Insurance Reports, published by the firm of A.M. Best.
Based on 1993 and prior results, FPIC was assigned an initial rating in
April 1994 of B++ (Very Good) by A.M. Best. An A.M. Best rating is assigned
after an extensive quantitative and qualitative evaluation of a company's
financial condition and operating performance. An A.M. Best rating represents
the current and independent opinion of a company's financial strength and
ability to meet obligations to policyholders. Such ratings do not relate to the
protection of investors or indicate expected investment results, and therefore
do not address the quality of the insurer's securities or the advisability of an
investment in such securities. In March 1996, A.M. Best upgraded FPIC's rating
to A- (excellent) and in 1997 the A- rating was re-affirmed.
A.M. Best rates firms both on quality and on size. The size categories
range from I, which represents surplus as regards policyholders of less than $1
million, to XV, which represents surplus as regards policyholders of greater
than $2 billion. Prior to the Offering, FPIC was financial size V, representing
surplus as regards policyholders between $10 million and $25 million. Following
this Offering, it is expected that FPIC will be category VI, representing
surplus as regards policyholders between $25 million and $50 million. When
considering whether to accept an FPIC policy, customers often review both the
rating and the financial category size. While many customers view an A rating as
sufficient, there are others that require financial category sizes of VII and
greater. There can be no assurance that customers will continue to accept FPIC's
rating and financial category size regardless of the Offering.
A.M. Best provides ratings based on an insurer's annual financial reports
and survey information for several years of operations. A.M. Best rates over
2,300 property/casualty insurers each year. For years prior to the 1994, FPIC
was not assigned a letter rating by A.M. Best due to what A.M. Best described as
"insufficient experience," A.M. Best requires five full years of operating
activity before assigning a rating. Ratings above B+ are B++ (Very Good), A- and
A (excellent), A+ and A++ (Superior). Ratings below B+ are B, B-, C++, C+, C,
C-, D, E, F and NA (not issued).
REGULATION
National Association of Insurance Commissioners
In order to enhance the regulation of insurer solvency, the NAIC adopted a
formula and model law to implement risk-based capital ("RBC") requirements for
property/casualty insurance companies designed to assess the minimum capital
requirements for the protection of policyholder obligations. The RBC model law
provides for four levels of regulatory action. The extent of regulatory
intervention and action increases as a level of surplus to RBC falls. The first
level, the Company Action Level (as defined by the NAIC), requires an insurer to
submit a plan of corrective actions to the regulator if surplus falls below 200%
of the RBC amount. The Regulatory Action Level (as defined by the NAIC) requires
an insurer to submit a plan containing corrective actions and requires the
relevant insurance commissioner to perform an examination or other analysis and
issue a corrective order if surplus falls below 150% of the RBC amount. The
Authorized
37
<PAGE> 39
Control Level (as defined by the NAIC) gives the relevant insurance commissioner
the option either to take the aforementioned actions or to rehabilitate or
liquidate the insurer if surplus falls below 100% of the RBC amount. The fourth
action level is the Mandatory Control Level (as defined by the NAIC) which
requires the relevant insurance commissioner to rehabilitate or liquidate the
insurer if surplus falls below 70% of the RBC amount. Based on the foregoing
formulae, as of December 31, 1997, FPIC's ratio of total adjusted surplus to
Authorized Control Level RBC was 340%.
The NAIC's Insurance Regulatory Information System ("IRIS") was developed
by a committee of state insurance regulators and is primarily intended to assist
state insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies 12 industry ratios and specifies "usual values" for each ratio.
Departure from the usual values on more than four of the ratios may lead to
increased regulatory oversight. Based on its 1997 statutory financial statement,
FPIC was within the usual range for eight of the 12 IRIS tests.
FPIC was not within the usual range of ratios for Change in Net Writings
and Surplus Aid to Surplus due to growth in net written premium and contingent
ceding commission related to favorable loss experience on the swing-rated
reinsurance treaties. A swing-rated reinsurance treaty allows the ceding company
to share in the profitability of its reinsurance program by receiving a portion
of a reinsurance contract's profits. During 1997, net written premium increased
by 48% which exceeded the upper limit of the NAIC usual range of 33%.
Additionally during 1997 FPIC recorded $1.5 million in contingent ceding
commission related to the swing-rated reinsurance treaties.
Unusual values were also noted for IRIS ratios for the Two-Year Reserve
Development to Surplus and Estimated Current Reserve Deficiency to Surplus.
These ratios were both impacted by the results of the Montrose Decision and the
resultant retroactive liability. See "Risk Factors -- Regulations, Pending
Legislation and Case Law" and "-- Reserves."
General
The Company is principally regulated by the DOI and the Commissioner.
California and various other states have established supervisory agencies with
broad authority to regulate, among other things, licenses to transact business,
premium rates for certain coverages, trade practices, agent licensing, policy
forms, underwriting and claims practices, reserve adequacy and insurer solvency.
California, like many jurisdictions, also regulates investment activities on the
basis of quality, distribution and other quantitative criteria. The Company's
insurance operations and accounts are subject to examination upon request by
California insurance regulators. The Company is also subject to examination by
all other states in which it is licensed to do business. California has also
enacted legislation which regulates insurance holding company systems, including
acquisitions, dividends, the use of surplus, the terms of affiliate transactions
and other related matters. The last DOI examination of the Company was for the
three years ended December 31, 1994.
The California insurance holding company law also requires the Group to
register with the DOI and file certain reports containing information concerning
its capital structure, ownership, financial conditions and general business
operations.
Recently, the insurance industry has been subject to increased scrutiny. A
number of state legislatures have considered or enacted legislative proposals
that alter and, in many cases, increase the authority of state agencies to
regulate insurance companies and holding company systems. In addition,
legislation has been introduced in several of the past sessions of Congress
which, if enacted, could result in the federal government assuming some role in
the regulation of the insurance industry. Several committees of Congress have
made inquiries and conducted hearings as part of a broad study of the regulation
of United States insurance companies.
In partial response to Congress' initiatives, the NAIC and insurance
regulators are re-examining existing laws and regulations and their application
to insurance companies. In particular, this re-examination has focused on
insurance company investment and solvency issues and, in some instances, has
resulted in new guidelines. The NAIC has formed groups to study and formulate
regulatory proposals on such diverse issues as
38
<PAGE> 40
the use of surplus debentures, accounting for reinsurance transactions and the
adoption of RBC rules. In addition, in connection with its accreditation of
states and as part of its program to monitor the solvency of insurance
companies, the NAIC requires states to adopt model NAIC laws and regulations on
specific topics, such as holding company regulations and the definition of
extraordinary dividends. California is accredited by the NAIC. Accordingly,
California has followed regulatory rule-making that makes the form of its
insurance regulation generally consistent with the model NAIC laws.
It is not possible to predict the future impact of changing state and
federal regulations on the Company's operations.
California and most other states have insurance laws requiring that
property/casualty rate schedules, policy or coverage forms, and other
information be filed with the states' regulatory authority. In many cases, such
rates and/or policy forms must be approved prior to use. There can be no
assurance that state or federal regulatory requirements will not become more
stringent in the future and have an adverse effect on the operations of the
Company's insurance subsidiary or on stockholder values.
Insurance companies are required to file detailed annual reports with the
state insurance regulator in each of the states in which they do business and
their business and accounts are subject to examination by such agencies at any
time. The Company files these reports with the DOI, the NAIC and in all other
states in which it is licensed to do business. In addition, insurance regulators
occasionally examine the insurer's financial condition, adherence to statutory
accounting principles, and compliance with insurance department rules and
regulations.
In the event of a default on FPIC's liabilities or the insolvency,
liquidation or other reorganization of FPIC, the rights of the creditors and
stockholders of FPIC to proceed against the assets of FPIC, would be governed by
state insurance laws relating to liquidation and rehabilitation. Therefore, if
FPIC were to be liquidated or the subject of rehabilitation proceedings, such
liquidation or rehabilitation proceedings would be conducted by the Commissioner
as the receiver with respect to all FPIC's assets and business. Under the Code,
all creditors of FPIC, including policyholders, would be entitled to payment in
full from such assets before the Group, as a stockholder, would be entitled to
receive any distribution thereof.
Insurance Regulation Concerning Change or Acquisition of Control
The Code contains provisions to the effect that the acquisition or change
of "control" of a domestic insurer or of any person (e.g. parent or holding
company) that controls a domestic insurer cannot be consummated without the
prior approval of the Commissioner. In general, a presumption of "control"
arises from the ownership, control, possession with the power to vote or
possession of proxies with respect to 10% or more of the voting securities of a
domestic insurer or of a person that controls a domestic insurer. A person
seeking to acquire control, directly or indirectly, of a domestic insurance
company or of any person controlling a domestic insurance company must generally
file with the Commissioner a statement relating to the acquisition of control
containing certain information required by statute and published regulations and
provide a copy of such statement to the domestic insurer.
In addition, certain state insurance laws contain provisions that require
pre-acquisition notification to state agencies of a change in control of a
non-domestic insurance company admitted in the state. While such pre-acquisition
notification statutes do not authorize the state agency to disapprove the change
of control, such statutes do authorize certain remedies, including the issuance
of a cease and desist order with respect to the non-domestic admitted insurer if
certain conditions exist such as undue market concentration.
Any future transactions involving the acquisition of 10% or more of the
Company's Common Stock by any one person or affiliated group would also
currently require approval by the Commissioner and, should the Company expand
its operations to other states, would require the pre-acquisition notification
in those states which have adopted pre-acquisition notification provisions. Such
requirements may deter, delay or prevent certain transactions affecting the
ownership of the Company's Common Stock.
39
<PAGE> 41
Limits on Writing Business
The Commissioner has extremely broad power to evaluate insurance companies
on a case-by-case basis, without specific regard to published rules or
standards. That is, if the Commissioner deems an insurer to be in a potentially
hazardous condition detrimental to the interests of the public, the Commissioner
has the authority to issue orders to a particular company, restrict a company's
writings, or place it under supervision or into receivership. Management of the
Company is aware that the Commissioner is always concerned with companies being
overly leveraged by writing large volumes of premium even though they may
possess limited surplus as regards policyholders.
Regulation of Dividends and Other Payments from Insurance Subsidiaries
The Company is a legal entity separate and distinct from its subsidiaries.
As a holding company with no other significant business operations, its primary
sources of cash to meet its obligations, including principal and interest
payments with respect to indebtedness, or to be able to make stockholder
distributions, are dividends and other statutory permitted payments from FPIC.
The payment of dividends to the Company by FPIC is subject to limitations
imposed by the Code which provides that cash dividends may be paid by FPIC only
from retained earnings and surplus as regards policyholders. In addition, an
insurer subject to the insurance holding company law may not pay an
"extraordinary" dividend to its stockholders without the prior approval of the
Commissioner of Insurance.
An extraordinary dividend or distribution includes any dividend or
distribution of cash or other property, the fair market value of which, together
with that of other dividends or distributions made within the preceding 12
months, exceeds the greater of (i) 10% of such insurer's surplus as regards
policyholders as of the preceding December 31, or (ii) 100% of the insurer's
statutory net income (excluding unrealized capital gains) for the preceding
year.
FPIC presently pays the Company to service the interest payments on the
Company's $5 million Senior Notes. For the 12 months ended December 31, 1997,
these interest payments totaled $600,000.
The authority of the Commissioner and government regulators in a number of
other states is such that, if insurance regulators determine that payment of a
dividend or any other payments to an affiliate would, because of the financial
condition of the paying insurance company or otherwise, be hazardous to such
insurance company's policyholders or creditors, the regulators may disapprove,
prohibit, or mandate return of such payments that would otherwise be permitted
without prior approval.
If the ability of FPIC to pay dividends or make other payments to the
Company is materially restricted by regulatory requirements, it could affect the
Company's ability to pay dividends to stockholders and/or service debt. No
assurance can be given that California (or other states in which the Company is
licensed or may someday be licensed) will not adopt statutory provisions more
restrictive than those currently applicable. The Company presently has no plans
to pay dividends to its stockholders. See "Dividend Policy."
Surplus as Regards Policyholders
As a California admitted insurer, FPIC is subject to the primary
jurisdiction of the insurance regulations of California. As the Company expands
its operations, it will also be subject to the regulators of each state in which
it does business. Such regulators have the authority, in connection with
continued licensing (or where not yet doing business, in the granting of
licensing), to limit or prohibit writing new business within their jurisdiction
when, in the state's judgment, the insurance subsidiary is not maintaining
adequate capital and surplus as regards policyholders. Surplus as regards
policyholders is the excess of all assets over all liabilities under SAP. This
amount is regarded as a measure of financial protection to policyholders in the
event an insurance company suffers unexpected or catastrophic losses. At
December 31, 1997, the Company's surplus as regards policyholders under SAP was
$14,262,000. See "Risk Factors -- Regulations, Pending Legislation and Case
Law."
40
<PAGE> 42
Investment Regulations
The Company is subject to state laws and regulations that require
diversification of its investment portfolio. Such regulations could cause
non-conforming investments to be treated as non-admitted assets for purposes of
measuring surplus as regards policyholders and, in some instances, could require
divestiture. As of December 31, 1997, the Company's investments complied with
such laws and regulations in all material respects. The NAIC has proposed the
development of a model investment code ("Model Code") which would provide
uniform regulation of insurance company investments in those states that adopt
the Model Code. Although insurance industry and regulatory groups have been
working on the development of the Model Code for several years, it is unclear at
this time what the final provisions will be. The Company believes that FPIC
could comply with the existing proposals without adverse consequences.
Membership in Solvency Funds and Associations
FPIC, like other insurers, is required to participate in insolvency funds
and associations in each state in which FPIC is licensed, and may be subject to
assessments from time to time to cover unpaid policyholder claims of insolvent
insurers participating in the same lines of business as the Company. The maximum
assessment authorized by law in California in any one year has varied between 1%
and 2% of annual premiums written in California. Most of these payments are
recoverable through future policy surcharges and premium tax reductions. No
material assessments have been made on FPIC.
Shared Markets
As a condition of receiving a license to do business in California and most
other states, a property-casualty insurance company is required to participate
in mandatory property-casualty shared market mechanisms or pooling arrangements
which provide various insurance coverages to individuals and other entities that
otherwise are unable to purchase such coverage voluntarily through private
insurers. These shared market mechanisms are structured differently depending on
the state in which they are established and the particular type of insurance
provided through the mechanism. Included within the shared market mechanisms are
structures generally referred to as assigned risk plans, reinsurance facilities,
limited liability pools and property shared markets or "fair plans." The
Company's participation in such shared market mechanisms is generally in amounts
related to the amount of the Company's direct premiums written for the types of
coverage. The cost of mandatory participation in such shared market mechanisms
has not had a materially adverse effect on the Company's operations, liquidity
and capital resources in the past. For the past three years, the Company
incurred no costs to participate in these mechanism. The amount of future losses
or assessments from the commercial lines shared market mechanisms and pooling
arrangements cannot be predicted with certainty.
Federal Legislative Proposals
For the past several years, Congress and certain federal agencies have been
investigating the current condition of the insurance industry (encompassing both
life and property-casualty insurance) in the United States to determine whether
such form of federal role in the regulation of insurance companies would be
appropriate. Congress has conducted several hearings and issued reports relating
in general to the solvency of insurers as well as the effectiveness of state
regulation. Over the past several years Congress has investigated whether it
should establish an independent federal agency to regulate the financial
condition of federally-certified life and property-casualty insurers and
reinsurers in the United States. Among several proposals considered in Congress,
which may be introduced in the future, was a bill which would allow insurers and
reinsurers to elect voluntarily to obtain a certificate of solvency from this
federal agency or to conduct regulation. Additionally, such insurers and
reinsurers would also remain subject to state regulation. At least one
congressional initiative has been introduced in Congress to modify or repeal the
McCarran-Ferguson Act (which provides a limited exemption to the "business of
insurance" from federal antitrust laws, to the extent it is subject to state
regulation). Additionally, judicial decisions narrowing the definition of
"business of insurance" for McCarran-Ferguson Act purposes may limit the ability
of insurance companies in general to share information with respect to rate
setting, underwriting and claims management practices in general. It is
41
<PAGE> 43
not possible to predict whether or in what form this proposed legislation will
be enacted or the potential effects thereof on the Company and its competitors.
It is not possible to predict the outcome of any of the foregoing legislative,
administrative or congressional activities nor the potential effects thereof on
the Company.
EMPLOYEES
As of December 31, 1997, the Company had 92 full-time and 23 part-time
employees. The Company is not a party to any collective bargaining agreement.
The Company believes relations with its employees are good.
PROPERTIES
The Company leases a 25,000 square foot office building as its headquarters
in Rocklin, California. Currently all but three employees work at the Rocklin
location. It is anticipated that the existing premises will be suitable for at
least several years. The Company owns a vacant 2.91 acre lot adjacent to the
Company's headquarters for future expansion.
LEGAL PROCEEDINGS
Except for ordinary, routine litigation incidental to the Company's
business, there are no pending legal proceedings to which the Company is a
party. The nature of the Company's business subjects it to claims or litigation
relating to policies of insurance it has issued. Management believes that the
Company is not a party to any pending legal proceedings which are likely to have
a material adverse effect on its business, financial conditions or results of
operations.
42
<PAGE> 44
MANAGEMENT
The following table provides information regarding the executive officers
and directors of the Company. Biographical information for each of the
individuals set forth in the table is presented below:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Robert C. Goodell..... 43 Chairman of the Board, President, Chief Executive Officer,
Director
Robert T. Kingsley.... 32 Executive Vice President, Chief Operating Officer,
Treasurer, Secretary
Artur A. Terner....... 31 Vice President and Chief Financial Officer
Timothy N. Blaede..... 37 Vice President of Information Services
John R.
Hollingshead........ 45 Vice President and General Counsel
Edward J. Paoletti.... 52 Vice President of Underwriting
Wallace G. Rascher.... 67 Vice President of Sales and Marketing
Charles E. Wardlaw.... 56 Vice President of Claims
Stephen E. Adamson.... 41 Director
Patrick C. Haden...... 45 Director
Michael J.
Morrissey........... 50 Director
Richard G. Pfeiffer... 53 Director
</TABLE>
Mr. Goodell has served as President and Chief Executive Officer and a
Director of the Company since June 1993 when he and the current stockholders
acquired the Company. From 1992 to 1993, Mr. Goodell provided management
consulting services at CAST Management Consultants, Inc. From 1984 to 1992, Mr.
Goodell served as Executive Vice President and Chief Financial Officer of Amwest
Insurance Group, Inc. From 1983 to 1984, he served as Vice President Financial
Systems at California Federal Savings and Loan. From 1980 to 1983, he served as
a Manager-Management Consulting for Peat, Marwick, Mitchell & Co. Between 1977
and 1980, Mr. Goodell held positions as Controller/Treasurer of Insurance
Subsidiaries of Teledyne, Inc.
Mr. Kingsley, Executive Vice President and Chief Operating Officer, joined
the Company in August 1993, prior to the acquisition of the Company. Mr.
Kingsley worked for Xerox Corporation as a Financial Analyst from 1992 to 1993
following the completion of his MBA. From 1987 to 1991, Mr. Kingsley was
Assistant Treasurer for Amwest Surety Insurance Company. From 1985 to 1987, Mr.
Kingsley served as Senior Insurance Analyst with the Surety Bond Branch of the
U.S. Treasury Department.
Mr. Terner joined the Company in 1994 as Controller, succeeding to his
current position of Vice President and Chief Financial Officer in 1997. Mr.
Terner was employed from 1989 to 1994 in various positions of increasing
responsibility culminating in the position of Supervising Senior Accountant at
KPMG Peat Marwick concentrating primarily in the financial institution practice.
Mr. Blaede joined the Company as Vice President of Information Services in
January 1997. Prior to joining the Company, he was Manager of Special Projects
at ISI Systems, Inc. From 1995 to 1996, he worked as Senior Project Manager for
Innovative Computer Systems. During the period from 1983 to 1995, Mr. Blaede
served in positions of increasing responsibility at ISI Systems, Inc.
culminating in the post of Manager, Custom Development.
Mr. Hollingshead joined the Company in November 1996 as its senior in-house
defense counsel and was promoted to Vice President and General Council in 1997.
From 1995 to 1996, he was Managing Attorney for Marlin & Saltzman, a San
Francisco Bay Area insurance defense firm which provided litigation services
exclusively for Atlantic Mutual Insurance Co. From 1982 to 1995, Mr.
Hollingshead was an attorney with Capps, Staples et al, in Walnut Creek,
California.
Mr. Paoletti became Vice President of Underwriting in 1996. From 1982 to
1996 he was Vice President/ Branch Manager in the Sacramento office for CIGNA
Corporation. From 1978 to 1982, Mr. Paoletti was employed by CG/Aetna Insurance
as Casualty Supervisor in Orange County, California and Underwriting Manager in
Portland, Oregon. Previously, he was Personal and Commercial Lines Underwriter
at Ohio
43
<PAGE> 45
Casualty Insurance from 1976 to 1978 and Casualty Underwriter for Safeco
Insurance based in Fountain Valley, California from 1974 to 1976.
Mr. Rascher joined Financial Pacific in 1992 as Vice President of Sales and
Marketing. From 1991 to 1992, he was Field Auditor at DJ Insurance Services,
where he provided workers' compensation and general liability audits to
insurance company clients. From 1989 to 1991, Mr. Rascher was Branch
Manager/Regional Business Manager in Fresno, California for Sequoia Insurance
Company. From 1970 to 1989, Mr. Rascher served in positions of increasing
responsibility with California Insurance Group, including Manager of the
Sacramento Branch Office, Vice President of Marketing and Sales, and various
underwriting positions.
Mr. Wardlaw joined the Company in November 1997 as its Vice President of
Claims. From 1985 to 1997, Mr. Wardlaw was the owner of an independent
property/casualty claims adjusting firm in Sacramento, California. From 1972 to
1985, Mr. Wardlaw held various claims positions with United Pacific/Reliance
Insurance Company including manager of the Sacramento service center branch. In
1971, Mr. Wardlaw began his career with Safeco Insurance Company.
Mr. Adamson became a member of the Board in 1993. Mr. Adamson is a managing
member of Celerity Partners, a private equity firm specializing in leveraged
buyouts. Prior to forming Celerity Partners in 1995, Mr. Adamson was a managing
director of W.E. Myers & Co., a merchant banking firm. Mr. Adamson serves as
Chairman of the Board of Dynamic Circuits, Inc. and is a director of several
private companies.
Mr. Haden became a member of the Board in 1993. Since 1987, Mr. Haden has
been a general partner of Riordan, Lewis & Haden ("RLH"), a Los Angeles based
partnership which invests in management buy-out and venture capital
transactions. Mr. Haden also serves as a director of Tetra Tech, Inc., Data
Processing Resources Corporation, PIA Merchandising Services, Inc. and several
private companies.
Mr. Morrissey became a member of the Board in 1993. Since 1983, Mr.
Morrissey has been the Chairman and Chief Executive Officer of Firemark Group, a
merchant banking firm specializing in insurance related investments. Mr.
Morrissey also serves as a director of Pembridge, Inc. and New Cap Re Holdings,
Limited.
Mr. Pfeiffer became a member of the Board in 1995. Mr. Pfeiffer has worked
for St. Paul Fire and Marine Insurance Company in various capacities since 1971.
He is currently a Vice President working on St. Paul's worldwide insurance
operations.
The directors were each elected in accordance with the Stockholders
Agreement dated September 7, 1993, as amended (the "Stockholders Agreement"),
which requires that each stockholder will vote for the election of directors,
such that the following persons are elected to the Board: (i) one nominee
designated by FinPac Partners ("FinPac"), (ii) one nominee designated by St.
Paul Fire and Marine Insurance Company ("St. Paul"), (iii) one nominee
designated by Firemark Global Insurance Fund, L.P. ("Firemark"), (iv) the Chief
Executive Officer; and (v) one nominee designated by the above four nominees.
The Stockholders Agreement will terminate upon the conclusion of this Offering.
See "Principal and Selling Stockholders" and "Certain Transactions."
The Audit Committee of the Board of Directors consists of Messrs. Adamson,
Haden, Morrissey and Pfeiffer. The Audit Committee meets privately once per year
with the Company's independent auditor and actuary.
Directors of the Company who are not employed by the Company or any
subsidiary receive a fee of $5,000 per quarter. Directors are also entitled to
reimbursement for reasonable out-of-pocket expenses related to travel for Board
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has formed a Compensation Committee of its Board of Directors
which consists of Messrs. Haden and Adamson. Mr. Haden is the nominee of RLH,
the general partner of FinPac, to the Board, and Mr. Adamson is the nominee of
FinPac, St. Paul, Firemark and the Chief Executive Officer to the Board.
44
<PAGE> 46
See "Certain Transactions" for information regarding the interests of RLH in
certain transactions and arrangements involving the Company.
The Compensation Committee evaluates executive performance in relationship
to individual efforts and contributions to corporate earnings and makes
recommendations for raises and merit bonuses. The Compensation Committee is also
responsible for administration of the Company's 1993 Stock Incentive Plan.
Neither Mr. Haden nor Mr. Adamson was at any time during the year ended
December 31, 1997, or at any other time, an officer or employee of the Company.
No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of the Company's Board or Compensation Committee.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by (i) the Company's Chief Executive Officer; (ii) the other four most highly
compensated executive officers at the end of 1997; and (iii) a former executive
officer who would have been one of the other four most highly compensated
executive officers if he remained employed with the Company (the "Named
Executive Officers") for services rendered in all capacities to the Company for
each of the fiscal years in the three year period ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
SECURITIES ALL
NAME AND FISCAL UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert C. Goodell.................. 1997 $244,043 $ 76,795 -- $ 2,684
President, Chief Executive
Officer 1996 $219,734 $ 25,000 -- $ 2,079
and Chairman of the Board 1995 $175,676 $118,148 -- $ 1,402
Robert T. Kingsley................. 1997 $135,580 $ 38,475 -- $ 2,642
Executive Vice President and 1996 $117,517 $ 39,250 15,776 $ 2,152
Chief Operating Officer 1995 $ 89,464 $ 50,000 1,972 $ 1,580
Wallace G. Rascher................. 1997 $103,778 $ 34,200 -- $ 3,379
Vice President -- Sales and
Marketing 1996 $ 91,508 $ 25,000 5,916 $ 2,745
1995 $ 84,488 $ 45,000 1,972 $ 2,203
Edward J. Paoletti................. 1997 $108,516 $ 38,475 -- $ 2,288
Vice President -- Underwriting 1996 $ 78,366 $ 55,000 9,860 $ 216
1995 -- -- -- --
Timothy N. Blaede.................. 1997 $ 87,461 $ 51,813 9,859 $ 94
Vice President -- 1996 -- -- -- --
Information Services 1995 -- -- -- --
John R. Aye........................ 1997 $112,228 $ -- -- $55,788
Vice President -- Claims(2) 1996 $100,260 $ 25,000 5,913 $ 1,788
1995 $ 87,162 $ 50,000 1,972 $ 1,122
</TABLE>
- ---------------
(1) Consists of excess premiums paid by the Company for group term life
insurance, contributions by the Company to the executive's 401(k) benefit
plan and, when applicable, value of personal use of automobiles and
severance benefits.
(2) Effective December 15, 1997, Mr. Aye no longer served as an officer of the
Company. He received $53,500 in severance benefits in 1997.
45
<PAGE> 47
The following table sets forth information concerning options granted to
the Named Executive Officers of the Company during the 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES PERCENT OF PRICE APPRECIATION
UNDERLYING TOTAL OPTIONS FOR OPTION TERMS
OPTIONS GRANTED TO EXERCISE ($)(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#)(1) FISCAL YEAR (%) ($/SHARE) DATE 5% 10%
---- ------------- --------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timothy N. Blaede....... 9,860 100% $4.82 2/12/07 $77,401 $123,250
</TABLE>
- ---------------
(1) Option vests ratably over the succeeding five anniversary dates.
(2) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the option immediately prior to its
expiration, assuming the Common Stock appreciates at the compounded annual
rates specified over the term of the option. These numbers do not take into
account provisions of the option providing termination of the option
following termination of employment or nontransferability of the option and
do not make any provision for tax associated with exercise. Because actual
gains will depend upon, among other things, future performance of the Common
Stock, there can be no assurance that the amounts reflected in this table
will be achieved.
The following table sets forth information concerning the number of options
owned by the Named Executive Officers and the value of any in-the-money
unexercised stock options as of December 31, 1997. No options were exercised by
the Named Executive Officers during fiscal 1997.
AGGREGATE OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, DECEMBER 31,
1997(#) 1997($)(1)(2)
------------------- ---------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ------------------- ---------------
<S> <C> <C> <C> <C>
Robert C. Goodell............. -- -- 0/0 $0/$0
Robert T. Kingsley............ -- -- 11,832/7,888 $23,309/$12,148
Wallace G. Rascher............ -- -- 5,916/3,944 $14,198/$6,074
Edward J. Paoletti............ -- -- 1,972/7,888 $2,781/$11,122
Timothy N. Blaede............. -- -- 0/9,860 $0/$9,071
John R. Aye................... -- -- 5,916/3,944 $14,198/$6,074
</TABLE>
- ---------------
(1) Because there is no established public trading market for Common Stock, the
Board of Directors of the Company must, under certain circumstances,
determine the fair market value of the Common Stock. The Company believes
that the fair market value of the Common Stock was $5.74 per share as of
December 31, 1997.
(2) Values for "in-the-money" outstanding options represent the positive spread
between the respective exercise prices of the outstanding options and the
fair market value of the underlying Common Stock of $5.74 per share as
described in Note 1.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Robert C. Goodell, pursuant to
which Mr. Goodell holds the position of Chief Executive Officer and Director,
for a one-year term. This agreement will renew automatically at the end of such
term and each anniversary thereafter for another one-year term unless
46
<PAGE> 48
terminated in accordance with such agreement. Mr. Goodell is paid a salary of
$250,000 per annum subject to increase as agreed to by Mr. Goodell and the
Board. He is also eligible to receive a bonus of up to 50% of his annual base
salary, as determined by the Board of Directors. The agreement also provides for
an automobile allowance not to exceed $900 per month and standard benefits under
any Company employee benefits plan and any additional benefits that are approved
by the Board. Upon termination of employment due to disability or by the Company
(with or without cause), Mr. Goodell will receive a severance payment equal to
the monthly portion of his annual base salary for the first 12 months after
termination of employment regardless of any amounts earned by him from other
employment during such period. During this 12 month period, Mr. Goodell will be
entitled to all standard employee benefits. Also, upon such termination or upon
termination due to death, Mr. Goodell will receive the unpaid portion of his
annual base salary and the prorated portion of his bonus. If Mr. Goodell
voluntarily terminates his employment, he is entitled only to the unpaid portion
of his annual base salary.
During his employment and at all times thereafter, Mr. Goodell will be
subject to disclosure restrictions regarding confidential information of the
Company. For 36 months after his termination, Mr. Goodell also may not solicit
any employees of the Company to become employed by Mr. Goodell or his subsequent
employer.
In February 1997, the Company entered into an employment agreement with
Robert T. Kingsley pursuant to which Mr. Kingsley became Executive Vice
President and Chief Operating Officer of the Company. The agreement provides for
an unspecified annual salary. Upon termination of his employment by the Company
or by mutual agreement with the Company, Mr. Kingsley will receive a severance
of six months his annual base salary. This severance payment will not be offset
by any amounts earned by him from any other employment during such six month
period. Mr. Kingsley will not receive a severance payment upon termination as a
result of his death or resignation.
The Company entered into employment agreements with Messrs. Rascher,
Blaede, Terner, Wardlaw and Hollingshead with terms identical to those of Mr.
Kingsley's contract. All of these contracts, including Mr. Kingsley's, are
terminable upon 30 days written notice by the Company.
In February 1996, the Company entered into an employment agreement with
Edward J. Paoletti, pursuant to which Mr. Paoletti became Vice President of
Underwriting. The agreement calls for an annual salary of $100,000 and a bonus
equal to 50% of his base salary based on achievement targets regarding
production, quality and service goals for the underwriting department. If the
Company terminates Mr. Paoletti's employment for any reason, it will pay
severance equal to 36 weeks of his annual salary. He will receive no other
benefits other than those provided by COBRA during such severance period.
RESTRICTED STOCK AGREEMENT
The Company entered into a Restricted Stock Agreement dated September 7,
1993 with Mr. Goodell in which the Company has the right to repurchase for
cancellation up to 268,819 shares of Common Stock (the "Initial Shares") held by
Mr. Goodell upon the occurrence of certain events at a purchase price of
$0.00394 per share. On such date, Mr. Goodell must pay the Company $2.54 per
Initial Share which has become an Exempt Share (as defined below) or sell to the
Company a portion of his Initial Shares at fair market value equal to $682,284.
These events include: Mr. Goodell's termination, a change in control of the
Company and December 31, 1998. A "change in control" includes a merger or
consolidation of the Company into another company, the sale of all or
substantially all of the assets of the Company or a sale of all or substantially
all of the capital stock of the Company.
From 1994 to 1998, a portion of the Initial Shares become exempt from
repurchase (the "Exempt Shares") upon the Company meeting certain net income
thresholds. These net income targets will be adjusted if the Company consummates
a public offering in which the Series A Stock is converted into Common Stock.
Further, upon a "change in control" of the Company, all Initial Shares will
become Exempt Shares. As of December 31, 1997, 209,021 Initial Shares had become
Exempt Shares.
47
<PAGE> 49
In addition, if Mr. Goodell terminates his employment for any reason on or
before December 31, 1998, the Company may repurchase all shares of Common Stock
(including Exempt Shares) held by Mr. Goodell (including shares held by trusts
established for the benefit of Mr. Goodell or his spouse) except for Initial
Shares, at a price equal to "book value" per share. The "book value" per share
will be the initial price paid for such shares plus the net income of the
Company determined in accordance with GAAP, calculated from the date of the
agreement to the end of the fiscal quarter immediately preceding the fiscal
quarter in which Mr. Goodell is terminated. The Company may purchase Initial
Shares at $0.00394 per share. If the Company fails to repurchase all of Mr.
Goodell's shares upon such termination, the other stockholders of the Company
may repurchase his shares at the same price offered to the Company.
In the event of the death of Mr. Goodell, his estate has the right to cause
the Company to repurchase any shares not repurchased in the manner described
above at the price the shares were first offered to the Company, provided that,
the estate may not the cause a repurchase to exceed the amount of proceeds from
any key man life insurance covering Mr. Goodell.
1993 STOCK INCENTIVE PLAN
The Company's 1993 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors on September 7, 1993. The Company has reserved 109,242
shares for issuance under the Incentive Plan. As of March 31, 1998, 1,972 shares
had been issued upon exercise of options granted under the Incentive Plan,
options for 82,819 shares were outstanding and 24,629 shares remained available
for future grant. Shares of Common Stock subject to outstanding options, which
expire or terminate prior to exercise, will be available for future issuance
under the Incentive Plan.
Under the Incentive Plan, employees and consultants may be awarded any form
of Company securities (an "Award"), including without limitation, options to
purchase shares of Common Stock, shares of Common Stock, warrants, phantom
stock, stock appreciation rights, restricted shares, stock units or a
combination thereof. These individuals may also receive cash bonuses under the
Incentive Plan. Options may be incentive stock options designed to satisfy
Section 422 of the Internal Revenue Code or nonstatutory stock options not
designed to meet such requirements.
The Incentive Plan is administered by the Compensation Committee. The
Compensation Committee has the complete discretion to determine which eligible
individuals are to receive Awards; determine the Award type; determine the
number of shares subject to an Award, vesting requirements and other features
and conditions of such Awards; interpret the Incentive Plan; and make all other
decisions relating to the operation of the Incentive Plan.
Upon a change in control, the Compensation Committee may accelerate the
receipt of benefits pursuant to an Award. A change in control includes a merger
or consolidation of the Company, the dissolution or liquidation of the Company,
a sale of all or substantially all of the assets of the Company and acquisition
of a specified percentage of the combined voting power of the Company's
outstanding stock.
The Board may amend or terminate the Incentive Plan at any time. Amendments
may be subject to stockholder approval to the extent required by applicable
laws. In any event, the Incentive Plan will terminate on September 7, 2003,
unless sooner terminated by the Board.
401(K) PLAN
The Company sponsors a contributory 401(k) Plan. All full-time employees of
the Company 21 years of age or older who have completed one year of service are
eligible for participation in the Plan. Currently, the Company matches 100% of
the employee's pre-tax contribution up to $2,000 and matched 100% of each
employee's contribution up to $1,000 and $1,500 in 1995 and 1996, respectively,
to the Plan. The total amount matched for 1995, 1996 and 1997 was $20,565,
$61,435, and $87,980, respectively.
48
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 1, 1998 and as
adjusted to reflect the sale of Common Stock offered hereby, by: (i) each person
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock; (ii) each of the Company's directors; (iii) each of the Named
Executive Officers; (iv) each Selling Stockholder; and (v) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
BENEFICIAL SHARES
OWNERSHIP NUMBER OF BENEFICIALLY
PRIOR TO SHARES TO OWNED AFTER
OFFERING BE SOLD OFFERING(1)
---------------------- IN THE ----------------------
SHARES PERCENTAGE OFFERING SHARES PERCENTAGE
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert C. Goodell(2)................... 381,265 12.7% 381,265 7.7%
Robert T. Kingsley(3).................. 15,776 * 15,776 *
Wallace G. Rascher(4).................. 7,888 * 7,888 *
Edward J. Paoletti(5).................. 3,944 * 3,944 *
Timothy N. Blaede(6)................... 1,972 * 1,972 *
Riordan, Lewis & Haden(7).............. 771,712 25.7% 166,667 605,045 12.2%
Patrick C. Haden(7).................... 771,712 25.7% 605,045 12.2%
Firemark Advisors, Inc.(8)............. 771,712 25.7% 166,667 605,045 12.2%
Michael J. Morrissey(8)................ 771,712 25.7% 605,045 12.2%
St. Paul Fire & Marine Insurance
Company(9)........................... 771,712 25.7% 166,666 605,046 12.2%
Richard G. Pfeiffer(9)................. -- -- -- --
Celerity Partners, L.P.(10)............ 59,367 2.0% 59,367 1.2%
Stephen E. Adamson(11)................. 110,542 1.7% 51,175 1.0%
Robert S. Goodell...................... 39,438 1.3% 39,438 *
W.E. Myers(12)......................... 40,940 1.4% 40,940 *
Brian Sanderson(13).................... 10,235 * 10,235 *
David Rogers(14)....................... 70,894 2.4% 70,894 1.4%
All Directors and Executive Officers as
a Group (12 persons)................. 2,074,669 68.9% 1,741,335 35.0%
</TABLE>
- ---------------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Includes 321,211 shares held jointly by Robert C. and Suzanne M. Goodell as
of April 1, 1998. The address of such persons is c/o Financial Pacific
Insurance Group, Inc., 3850 Atherton Road, Rocklin, California 95765.
(3) Consists of 15,776 shares issuable upon exercise of options which are
exercisable as of, or will be exercisable within 60 days of, April 1, 1998.
(4) Consists of 7,888 shares issuable upon exercise of options which are
exercisable as of, or will be exercisable within 60 days of, April 1, 1998.
(5) Consists of 3,944 shares issuable upon exercise of options which are
exercisable as of, or will be exercisable within 60 days of, April 1, 1998.
(6) Consists of 1,972 shares issuable upon exercise of options which are
exercisable as of, or will be exercisable within 60 days of, April 1, 1998.
(7) Shares are owned by FinPac Partners, L.P., the general partner of which is
RLH. Mr. Haden, a Director of the Company, may be deemed to share voting
and investment power with respect to all such shares as
49
<PAGE> 51
a general partner of RLH. Mr. Haden does not own any shares directly. The
address of such persons is 300 S. Grand Avenue, 29th Floor , Los Angeles,
California 90071
(8) Shares are owned by Firemark. Mr. Morrissey, a Director of the Company, may
be deemed to have voting and investment power with respect to all such
shares as the Chairman and Chief Executive Officer of Firemark. Mr.
Morrissey does not own any shares directly. The address of such persons is
67 Park Place, Morristown, New Jersey 07960.
(9) The address of such persons is 385 Washington Street, MC 516A, St. Paul,
Minnesota 55102. Mr. Pfeiffer has disclaimed beneficial ownership of the
shares owned by St. Paul.
(10) Consists of 59,367 shares issuable upon exercise of warrants which are
exercisable as of April 1, 1998.
(11) Consists of 59,367 shares held by Celerity Partners, L.P. Mr. Adamson, a
Director of the Company, may be deemed to have voting and investment power
with respect to all such shares as the managing member of Celerity
Partners. Mr. Adamson also owns 51,175 shares directly, that are issuable
upon exercise of warrants which are exercisable as of April 1, 1998.
(12) Consists of 40,940 shares issuable upon exercise of warrants which are
exercisable as of April 1, 1998.
(13) Consists of 10,235 shares issuable upon exercise of warrants which are
exercisable as of April 1, 1998.
(14) Consists of 51,175 shares issuable upon exercise of warrants which are
exercisable as of April 1, 1998.
CERTAIN TRANSACTIONS
On December 28, 1995, the Company entered into a Note and Warrant Purchase
Agreement (the "Agreement") with Firemark, FinPac, St. Paul, and Celerity
FinPac, LLC ("Celerity"). Pursuant to the Agreement, the Company issued and
sold: (i) $5,000,000 aggregate principal amount of its 12% Senior Notes due
January 1, 2001 (the "Senior Notes") and (ii) Common Stock Purchase Warrants for
the purchase of up to 593,691 shares of the Company's Common Stock (the "Senior
Note Warrants"), as follows: Firemark, FinPac and St. Paul each acquired a
Senior Note in the principal amount of $1,500,000 and Senior Note Warrants to
acquire 178,108 shares of Common Stock, and Celerity acquired a Senior Note in
the principal amount of $500,000 and Senior Note Warrants to acquire 59,367
shares of Common Stock.
In accordance with the terms of the Senior Notes, the Company has paid
interest at the rate of 12% per annum thereon on July 1, 1996, January 1 and
July 1, 1997, and January 1, 1998 to Firemark, FinPac, St. Paul and Celerity.
The Company intends to prepay the Senior Notes with a portion of the proceeds
from this Offering. See "Use of Proceeds." The Senior Note Warrants may be
exercised at any time prior to January 1, 2004, and have an exercise price of
$5.61 per share. However, such Senior Note Warrants must be exercised in
connection with an underwritten public offering of the Company's Common Stock in
which the gross proceeds to be received by the Company equal or exceed
$10,000,000 and the public offering price of the Common Stock is not less than
$12.69 per share (as adjusted for stock splits, dividends or other
recapitalization transactions). Holders of the Senior Note Warrants are entitled
to certain registration rights. See "Description of Capital
Stock -- Registration Rights."
Patrick C. Haden, a Director of the Company, is a general partner of RLH,
the general partner of FinPac. Mr. Haden is also of counsel to Riordan &
McKinzie, the Company's legal counsel.
Michael J. Morrissey, a Director of the Company, is the Chairman and Chief
Executive Officer of Firemark Advisors, Inc. ("Advisors"), the general partner
of Firemark. In June 1997, the Company contracted with Advisors to render
financial advisory services. Advisors was paid a fee of $50,000 plus expenses of
$13,099 for its services.
Since 1995, St. Paul, through its reinsurance affiliate, St. Paul Re Inc.,
has participated on the Company's property quota share and casualty excess of
loss reinsurance treaties. St. Paul has a 7.5% participation on the property
quota share reinsurance treaty and a 15% participation on the casualty excess of
loss reinsurance treaty. St. Paul is subject to the same terms and conditions as
all other reinsurance treaty participants. During 1997, the Company ceded
$1,269,000 of written premium to St. Paul. At December 31, 1997, the Company had
a reinsurance recoverable under its reinsurance treaties of $1,336,000 due from
St.
50
<PAGE> 52
Paul which consists of paid and unpaid losses and loss adjustment expenses and
unearned premiums, net of amounts payable by the Company to St. Paul.
During 1997, Mr. Goodell sold 15,187 shares of Common Stock to each of
FinPac, St. Paul and Firemark at a price of $9.88 per share. The total proceeds
to Mr. Goodell were $450,000.
The Company has entered into indemnification agreements with its directors
and executive officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law. The Company also intends to
execute such agreements with its future directors and executive officers.
The Company believes that the foregoing transactions were in its best
interest and were made on terms no less favorable to the Company than could have
been obtained for unaffiliated third parties. All future transactions between
the Company and any of its officers, directors or principal stockholders will be
approved by a majority of the independent and disinterested members of the Board
of Directors, will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties and will be in connection with bona
fide business purposes of the Company.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 7,500,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock. The following is a
description of the authorized capital stock of the Company as of April 15, 1998.
At such date, there were seven holders of record of the Common Stock and three
holders of record of the Series A Stock.
COMMON STOCK
As of April 15, 1998, there were 487,955 shares of Common Stock and 4,400
shares of Series A Stock outstanding. There will be 4,970,422 shares of Common
Stock outstanding (assuming conversion of all shares of Series A Stock into
1,735,521 shares of Common Stock, the full exercise of all outstanding Warrants
into 747,216 shares of Common Stock and no exercise after April 1, 1998, of
outstanding options) after giving effect to the sale of shares of Common Stock
to the public offered hereby.
Holders of Common Stock are entitled to one vote per share and have no
cumulative voting rights. In general, action to be taken by a vote of the
stockholders of the Company requires the affirmative vote of at least a majority
of the votes cast by the holders of Common Stock entitled to vote, except that
the election of directors requires a plurality of the votes cast at an election.
Consequently, the holder or holders of record of more than 50% of the
outstanding shares of Common Stock can elect all of the Company's directors.
Subject to any preferences that may be applicable to subsequently issued
shares of Preferred Stock, if and when issued, the holders of Common Stock are
entitled to receive such dividends as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefor, and
upon liquidation, winding up and/or dissolution of the Company are entitled,
after payment of liabilities and preferences of outstanding Preferred Stock, if
any stock, to share ratably in assets available for distribution.
The holders of Common Stock have no preemptive rights, cumulative voting
rights, or rights to convert shares of Common Stock into any other securities
and are not subject to future calls or assessments by the Company. All
outstanding shares of Common Stock of the Company are fully paid and
nonassessable.
Prior to the date of this Registration Statement, there has been no
established public trading market for the Common Stock. The Company has applied
for listing of the Common Stock on the Nasdaq National Market. See "Risk
Factors -- Lack of Prior Public Market for Common Stock."
PREFERRED STOCK
Upon the consummation of the Offering, the Company will have no outstanding
preferred stock, but the Board of Directors, without further action by the
holders of the Common Stock, is authorized to fix the dividend rights and terms,
conversion or exchange rights, voting rights, redemption rights and terms,
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<PAGE> 53
liquidation preferences, sinking fund and any other designations, powers,
rights, preferences, privileges, qualifications, limitations and restrictions
applicable to each series of preferred stock. The issuance of preferred stock
could adversely affect the voting power and other rights of the holders of
Common Stock.
The authority possessed by the Board of Directors to issue preferred stock
could potentially be used to discourage attempts by others to obtain control of
the Company through a merger, tender offer, proxy contest or otherwise by making
such attempts more difficult or more costly to successfully complete. The Board
of Directors may issue preferred stock with voting, dividend or liquidation and
conversion right that could adversely affect the rights of the holders of Common
Stock. There are no agreements or understandings for the issuance of preferred
stock, and the Board of Directors has no present intention to issue any
preferred stock.
As of April 15, 1998, the Board of Directors has designated one series of
preferred stock, Series A Stock, comprised of 5,000 shares of the Preferred
Stock, 4,400 of which were outstanding. Each share of Series A Stock has a
stated value of $1,000. Upon the consummation of the Offering, each share of
Series A Stock will, pursuant to the terms of the Company's Restated Certificate
of Incorporation, convert into 394.375 shares of Common Stock.
WARRANTS
As of April 1, 1998, the Company has outstanding Warrants providing for the
purchase of an aggregate of 747,216 shares of Common Stock (the "Warrants"). The
exercise price of the Warrants range from $2.54 to $5.61 per share, and the
Warrants expire on dates ranging from September 7, 2003 to January 1, 2004.
Warrants to purchase shares of Common Stock will be exercised in
connection with this Offering. Under the Warrants, the holder may elect to
exercise its Warrant by payment of the exercise price or on a cashless basis.
The holders of the Senior Note Warrants will exercise their Warrants by
canceling indebtedness under the Senior Notes in the amount of the exercise
price.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
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<PAGE> 54
REGISTRATION RIGHTS
At April 15, 1998, assuming conversion of all shares of Series A Stock into
1,725,251 shares of Common Stock and the full exercise of the Warrants into
747,216 shares of Common Stock, holders of approximately 2,970,422 shares of
Common Stock are entitled to certain rights with respect to the registration of
such shares under the Securities Act. Under the terms of the Stockholders
Agreement, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, such holders are entitled to notice of
such registration and are entitled to include shares of such Common Stock
therein. All of these registration rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration. These rights to cause the
Company to register such shares shall terminate once such shares may be sold in
accordance with Rule 144(k) under the Securities Act.
TRANSFER AGENT AND REGISTRAR
will be the transfer agent and registrar for the shares
of Common Stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its Certificate of Incorporation limiting or eliminating the
personal liability of its directors to the corporation and its stockholders for
monetary damages for breach of the directors' fiduciary duty of care. The duty
of care requires that, when acting on behalf of the corporation, directors
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by such
provision, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Although Section 102 of the DGCL does not change a
director's duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Company's Certificate
of Incorporation and Bylaws include provisions which limit or eliminate the
personal liability of its directors to the fullest extent permitted by Section
102 of the DGCL. Consequently, a director of officer will not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for (i) any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) acts or omissions not in
good faith or which involved intentional misconduct or a knowing violation of
law; (iii) unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions; and (iv) any transaction from which the
director derived an improper personal benefit.
The Company Certificate of Incorporation and Bylaws also provide, in
effect, that, to the fullest extent and under the circumstances permitted by
Section 145 of the DGCL, the Company will indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is a director or officer of
the Company, or is or was serving at the request of the Company as a director or
officer of another corporation or enterprise. The inclusion of these
indemnification provisions in the Company's Certificate of Incorporation and
Bylaws is intended to enable the Company to attract qualified persons to serve
as directors and officers who might otherwise be reluctant to do so. The Company
may, in its discretion, similarly indemnify its employees and agents.
Depending upon the character of the proceeding, the Company may indemnify
its directors and officers against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no cause to believe his or her conduct was
unlawful. To the extent that a director or officer of the Company has been
successful in the defense of any action, suit or proceeding referred to above,
under the DGCL, the Company would have the obligation to indemnify him or her
against expenses (including attorneys' fees) actually and reasonably incurred in
connection therewith.
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<PAGE> 55
In addition, the limited liability provisions in the Certificate of
Incorporation and the indemnification provisions in the Certificate of
Incorporation and Bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty (including breaches
resulting from grossly negligent conduct) and may have the effect of reducing
the likelihood of derivative litigation against directors and officers, even
through such an action, if successful, might otherwise have benefited the
Company and its stockholders. Furthermore, a stockholder's investment in the
Company may be adversely affected to the extent the Company pays the costs of
settlement and damage awards against directors and officers of the Company
pursuant to the indemnification provisions in the Company's Bylaws. The limited
liability provisions in the Certificate of Incorporation will not limit the
liability of directors under federal securities laws.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 4,970,422 shares of
Common Stock outstanding (assuming conversion of all shares of Series A Stock
into 1,735,221 shares of Common Stock, the full exercise of all outstanding
Warrants into 747,216 shares of Common Stock and no exercise after April 1, 1998
of outstanding options). All 2,500,000 shares sold pursuant to this Offering
will be freely tradable without restriction or further registration under the
Securities Act, unless held by an "affiliate" of the Company (as that terms is
defined below). Any such affiliate would be subject to the resale limitation of
Rule 144 adopted under the Securities Act.
The remaining shares of outstanding Common Stock are "restricted
securities" (the "Restricted Shares") within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of a registration under the
Securities Act unless an exemption from registration is available, including an
exemption contained in Rule 144. In general, under Rule 144 as currently in
effect, any person (or person who shares are aggregate for purpose for Rule 144)
who has beneficially owned restricted securities, as that term is defined in
Rule 144, for at least one year (including, in the case of a nonaffiliated
holder, any period of ownership of preceding nonaffiliate holders) is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock of the
Company, or (ii) the average weekly trading volume in Common Stock during the
four calendar weeks preceding such sale, provided that certain public
information about the Company, as required by Rule 144, is then available and
the seller complies with the manner of sale and notification requirements of the
rule. A person who is not an affiliate and has not been an affiliate within
three months prior to the sale and has, together with any previous owners who
were not affiliates, beneficially owned restricted securities for at least two
years is entitled to sell such shares under Rule 144 (k) without regard to any
of the volume limitations described above. Certain of the Restricted Shares are
presently eligible for sale under Rule 144 (k). The holders of the Restricted
Shares have agreed not to sell, or otherwise dispose of, any shares of Common
Stock or other equity securities of the Company for a period of 180 days after
the date of this Prospectus (other than shares sold pursuant to this Prospectus)
without the prior written consent of the Representative.
No predictions can be made of the effect, if any, that future sales of
shares of Common Stock, and grants of options to acquire shares of Common Stock,
or the availability of shares for future sale, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the prevailing market prices of the Common Stock.
See "Principal and Selling Stockholders," "Description of Capital Stock" and
"Underwriting."
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<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom EVEREN Securities, Inc.
is acting as representative (the "Representative"), have severally agreed to
purchase from the Company and the Selling Stockholders, and the Company and the
Selling Stockholders have agreed to sell to the Underwriters, the respective
number of shares of Common Stock set forth opposite each Underwriter's name
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
EVEREN Securities, Inc......................................
Total............................................. 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain securities dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such selected dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After this Offering, the price to the
public, concession, allowance and reallowance may be changed by the
representatives of the Underwriters.
The Company has granted the Underwriters an option, exercisable during the
45-day period after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share as the initial 2,500,000 purchased by the Underwriters of the
Company. To the extent that the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares of Common Stock in approximately the same proportions as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this Offering.
At the close of this Offering, the Company has agreed to pay the
Representative a non-accountable expense allowance of one percent of the total
offering proceeds, which will include proceeds from the Underwriters' exercise
of the over-allotment option to the extent exercised. The Representative's
expenses in excess of the non-accountable expense allowance will be borne by the
Underwriters.
The Company has agreed to issue to the Representative warrants (the
"Representative's Warrants") to purchase up to 143,750 shares of Common Stock,
at an exercise price per share equal to 110% of the initial public offering
price per share. The Representative's Warrants are exercisable for a period of
four years, commencing one year from the effective date (the "Effective Date")
of the Registration Statement of which this Prospectus is a part and expire five
years from the Effective Date. The Representative's Warrants are not
transferable prior to the expiration of one year from the Effective Date other
than to officers or partners of the Underwriters and members of the selling
group and their officers and partners. The holders of the Representative's
Warrants will have no voting, dividend or other shareholders' rights until the
Warrants are
55
<PAGE> 57
exercised. The Company has granted the Representative certain demand and
piggy-back registration rights related to the Representative's Warrants, which
are applicable during the period that the Representative's Warrants are
exercisable and expire five years from the Effective Date.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company has agreed not to issue, and all the Company's officers and
directors, the Selling Stockholders, and all of the other stockholders, who in
the aggregate hold 100% of the shares of the Common Stock of the Company
outstanding immediately prior to the completion of this Offering, have agreed
not to sell, or otherwise dispose of, any shares of Common Stock or other equity
securities of the Company for a period of 180 days after the date of this
Prospectus (other than shares sold pursuant to this Prospectus) without the
prior written consent of the Representative.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Prior to this Offering, there has been no trading market for the Common
Stock. Consequently, the initial public offering price was negotiated among the
Company, the Selling Stockholders and the Representative. Among the factors
considered in such negotiations were the history of and the prospects for the
Company and the industry in which it competes; an assessment of the Company's
management; the past earnings of the Company and the trend and future prospects
of such earnings; the present state of the Company's development; the general
conditions of the securities markets at the time of the Offering; and the market
prices of publicly traded common stocks of comparable companies in recent
periods. There can be no assurance that an active trading market will develop
for the Common Stock or that the Common Stock will trade in the public market
subsequent to this Offering at or above the initial public offering price.
The initial public offering price set forth on the cover page of this
Prospectus should not be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors. No assurances can be given that Common Stock can be resold at
or above the initial public offering price.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Riordan & McKinzie, a Professional Corporation, Los Angeles,
California and for the Underwriters by Morrison & Foerster LLP, Los Angeles,
California. Certain principals and employees of Riordan & McKinzie are limited
partners of a partnership which is a limited partner of FinPac Partners, a
California limited partnership and one of the Company's principal stockholders.
Certain insurance regulatory matters will be passed upon by LeBoeuf, Lamb,
Greene & MacRae L.L.P., San Francisco, California. See "Principal and Selling
Stockholders" and "Certain Transactions."
EXPERTS
The financial statements and schedules of Financial Pacific Insurance
Group, Inc. as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
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<PAGE> 58
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, to which Registration Statement reference is hereby made. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other document referred to are complete in all material respects. However, with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C., at the Commission's regional offices located at Seven World Trade Center,
13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may also
be obtained from the Public Reference Section of the Commission, Washington,
D.C. 20549, at prescribed rates. The Commission maintains a website that
contains reports, proxy and information statements and other information
regarding issuers who file electronically with the Commission. The Commission's
address on the worldwide web is: http://www.sec.gov.
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<PAGE> 59
GLOSSARY OF SELECTED INSURANCE TERMS
Cede....................... To transfer to another insurer by way of
reinsurance all or a part of the liability or
expenses of insurance written by an insurer.
CMP -- Liability
Insurance.................. Insurance for business operations that provides
protection for a business against liability for
bodily injury or property damage of a third party.
CMP -- Property
Insurance.................. Insurance that indemnifies a person with an
insurable interest in tangible property for his/her
loss related to damage to or loss of use of his/her
subject property. This is intended as indemnity for
the insured-owner as compared to CMP -- liability
insurance which is intended to provide the insured
with coverage for bodily injury and property damage
to others.
Combined ratio............. The sum of the expense ratio and the loss ratio,
determined in accordance with SAP. A combined ratio
under 100% indicates an underwriting profit and a
combined ratio over 100% indicates an underwriting
loss. The extent by which the combined ratio
deviates from 100% indicates the relative
underwriting profit or loss from the business
operation of issuing policies of insurance. The
combined ratio does not reflect investment income,
federal income taxes or other non-underwriting
income or expense, all of which are included in
determining net income.
Commercial lines........... Insurance policies written by the Company for
business operations, as opposed to personal
coverages, that provide commercial general
liability insurance (protection for a business
operation against general liability for bodily
injury and/or property damage), CMP or property
insurance (protection against business property
damage from fire, lightning, windstorm and certain
other perils), and crime insurance (protection
purchased by businesses to insure against losses
caused by crimes).
Direct premiums written.... Total premiums for insurance sold to insureds, as
opposed to, and not including, premiums received
for reinsuring risks written by other insurance
companies.
Excess of loss
reinsurance................ Reinsurance which indemnifies the reinsured against
all or a specified portion of losses on reinsured
policies in excess of a specified dollar amount or
"retention."
Expense ratio.............. Under SAP, the ratio (expressed as a percentage) of
underwriting expenses to net premiums written.
Under GAAP, the ratio (expressed as a percentage)
of underwriting expenses to premiums earned.
Facultative reinsurance.... Individual risks offered by an insurer for
acceptance or rejection by a reinsurer. Both
parties are free to act in their own best
interests. The reinsurer is liable only for losses
which exceed the insurer's retention level.
Premiums vary with loss expectation.
General agent.............. Agents granted broad authority by an insurance
company it represents to underwrite, bind, cancel,
and collect money on the company's behalf.
Gross premiums written..... Total premiums written by an insurer during a
specified period of time, before ceding any portion
of such insurance risks to reinsurers.
Hard Market................ An insurance market in which the demand for
insurance exceeds the readily available supply and
premiums are relatively high.
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<PAGE> 60
Incurred but Not Reported
("IBNR") Reserves...... Reserves for estimated losses which have been
incurred by insureds 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.
Industry combined ratio.... An average combined ratio for the property/casualty
insurance industry as compiled by the A.M. Best
which is a broad measure of the property/casualty
insurance industry's performance for a particular
period. The industry combined ratio measures the
overall performance of all property/casualty
insurance companies and for all lines of business.
The industry combined ratio is useful only in
assessing general trends within the industry and
should not be used to evaluate the performance of
the Company relative to other companies
underwriting similar lines of business.
Loss adjustment expenses
("LAE")................ The insurer's cost of investigating and settling
claims, including legal fees, other fees and
related expenses of administering the claims
adjustment process.
Loss ratio................. Under both SAP and GAAP, the ratio (expressed as a
percentage) of incurred losses and LAE to premiums
earned.
Loss reserves.............. Liabilities established by insurers to reflect the
estimated cost of claim payments that the insurer
will ultimately be required to pay on all reported
and unreported losses which are unpaid at the end
of a fiscal period on an undiscounted basis with
respect to insurance it has written. Reserves are
established for losses and LAE.
Net premiums earned........ The amount of net premiums written recognized as
income during a given period.
Net premiums written....... The amount of direct (gross) premiums written of an
insurer plus assumed reinsurance premiums, less
ceded reinsurance premiums.
Policy acquisition costs... The direct expenses associated with the production
of business including agents' or brokers'
commissions, premium taxes, marketing and certain
underwriting expenses.
Premiums earned............ The portion of premiums written that is recognized
for accounting purposes (GAAP and SAP) as income
during a period. Also known as earned premiums.
Quota share reinsurance.... Reinsurance in which the reinsured shares a
proportion of the original premiums and losses
under the reinsurance policy. Also known as pro
rata reinsurance.
Reinsurance................ The acceptance by one or more insurers, called
reinsurers, of all or a portion of the risk
underwritten by another insurer which has usually
directly written the coverage. However, the legal
rights of the insured generally are not affected by
the reinsurance transaction and the insurance
company issuing the insurance policy remains liable
to the insured for payment of full policy benefits.
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<PAGE> 61
Semi-automatic facultative
reinsurance.............. Individuals risks written within the guidelines of
a reinsurance treaty are automatically ceded to and
accepted by the reinsurer. The reinsurer may reject
any reinsurance bound by notifying the Company
within a specified notice period. The liability of
the reinsurer with respect to any rejected
submission shall continue until the Company is able
to cancel the policy.
Soft Market................ An insurance market in which the supply of
insurance exceeds the current demand and premiums
are relatively low.
Statutory accounting
principles (SAP)........... Recording transactions and preparing financial
statements in accordance with the rules and
procedures prescribed or permitted by insurance
related statutes or regulatory authorities,
generally reflecting a liquidating, rather than a
going concern, concept of accounting. The principal
differences between SAP and GAAP, are: (a) under
SAP, certain assets are eliminated from the balance
sheet; (b) under SAP, policy acquisition costs are
expensed as incurred, while under GAAP, they are
deferred and amortized over the term 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. All financial data set forth in this
Prospectus is presented in accordance with GAAP
unless specifically otherwise stated.
Surplus as regards
policyholders............ The excess of all assets over all liabilities under
SAP.
Underwriting............... The process whereby an insurer reviews applications
submitted for insurance coverage and determines
whether it will issue all or part of the coverage
being requested and what the applicable premiums
will be. Underwriting also includes an ongoing
review of existing policies and their pricing.
Underwriting expenses...... The aggregate of losses, loss adjustment expenses,
policy acquisition costs, contingent ceding
commissions and general operating costs.
Underwriting profit
(loss)..................... The difference between net premiums earned and
underwriting expenses.
Unearned premiums.......... The pro rata portion of a premium representing the
unexpired term of policies in force as of a certain
date.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS -- FINANCIAL PACIFIC
INSURANCE GROUP, INC. (AUDITED)
Independent Auditors' Report -- KPMG Peat Marwick LLP..... 62
Consolidated Balance Sheets of Financial Pacific Insurance
Group, Inc. and Subsidiaries -- December 31, 1996 and
1997................................................... 63
Consolidated Statements of Operations of Financial Pacific
Insurance Group, Inc. and Subsidiaries -- Years Ended
December 31, 1995, 1996 and 1997....................... 64
Consolidated Statements of Stockholders' Equity of
Financial Pacific Insurance Group, Inc. and
Subsidiaries -- Years Ended December 31, 1995, 1996 and
1997................................................... 65
Consolidated Statements of Cash Flows of Financial Pacific
Insurance Group, Inc. and Subsidiaries -- Years Ended
December 31, 1995, 1996 and 1997....................... 66
Notes to Consolidated Financial Statements of Financial
Pacific Insurance Group, Inc. and Subsidiaries......... 67
</TABLE>
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<PAGE> 63
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Financial Pacific Insurance Group, Inc.:
We have audited the accompanying consolidated balance sheets of Financial
Pacific Insurance Group, Inc. and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Financial
Pacific Insurance Group, Inc. and subsidiaries as of December 31, 1996 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Also, in our opinion, the information set forth under the captions "Income
Statement Data" and "Balance Sheet Data" in the selected consolidated financial
data as of December 31, 1996 and 1997 and for each of the years in the
three-year period ended December 31, 1997, appearing on pages 16 and 17, is
fairly stated, in all material respects, in relation to the consolidated
financial statements from which it has been derived.
KPMG Peat Marwick LLP
Sacramento, California
January 30, 1998, except as to
Note 16, which is as of
April 14, 1998
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FINANCIAL PACIFIC INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Fixed maturities available for sale, at market value (cost
$24,764,235 in 1996 and $30,027,603 in 1997).............. $24,045,597 $29,976,813
Cash and cash equivalents................................... 497,388 632,495
Accrued investment income................................... 304,605 426,013
Receivables:
Premiums receivable, net of allowance for doubtful
accounts of
$40,000 in 1996 and 1997............................... 13,016,982 14,631,026
Income taxes receivable................................... 210,099 7,933
Notes receivable.......................................... 47,859 6,691
----------- -----------
Total receivables................................. 13,274,940 14,645,650
Prepaid reinsurance premiums................................ 7,922,096 6,828,703
Reinsurance recoverable on unpaid losses and loss adjustment
expenses.................................................. 4,007,047 6,184,927
Deferred policy acquisition costs........................... 3,778,170 5,356,697
Fixed assets, net........................................... 525,208 885,841
Other assets................................................ 329,440 956,004
----------- -----------
Total assets...................................... $54,684,491 $65,893,143
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses................ $13,944,397 $19,592,060
Unearned premiums......................................... 18,979,533 21,967,648
Deferred income taxes..................................... 1,431,342 1,619,483
Reinsurance payable, net.................................. 1,914,378 1,472,807
Notes payable, net........................................ 5,479,414 4,984,561
Other liabilities......................................... 2,320,072 2,858,446
----------- -----------
Total liabilities................................. $44,069,136 $52,495,005
----------- -----------
Stockholders' equity:
Series A convertible preferred stock, $.001 par value;
2,000,000 shares authorized; 4,400 shares, issued and
outstanding at 1996 and 1997, respectively............. 5 5
Common stock, $.001 par value; 7,500,000 shares
authorized; 485,983 shares issued and outstanding...... 486 486
Additional paid-in capital................................ 4,949,510 4,949,510
Retained earnings......................................... 6,139,655 8,481,658
Net unrealized loss on available for sale securities, net
of deferred income tax benefit of $244,337 in 1996 and
$17,269 in 1997........................................ (474,301) (33,521)
----------- -----------
Total stockholders' equity........................ 10,615,355 13,398,138
----------- -----------
Total liabilities and stockholders' equity........ $54,684,491 $65,893,143
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
63
<PAGE> 65
FINANCIAL PACIFIC INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Direct premiums written........................ $ 24,694,947 $ 31,926,872 $ 39,511,737
Premiums ceded................................. (10,653,344) (13,673,996) (12,576,059)
------------ ------------ ------------
Net premiums written...................... 14,041,603 18,252,876 26,935,678
Increase in unearned premiums.................... (1,981,731) (3,265,911) (4,081,508)
------------ ------------ ------------
Net premiums earned....................... 12,059,872 14,986,965 22,854,170
Commissions...................................... 104,985 627,690 709,057
Investment income, net of expenses............... 1,028,524 1,449,406 1,719,877
Net realized gains (losses) on sales of
investments.................................... 465,695 52,171 (46,194)
Other income, net................................ 578,292 547,117 800,697
------------ ------------ ------------
Total revenues................................. 14,237,368 17,663,349 26,037,607
Expenses:
Losses and loss adjustment expenses.............. 6,325,059 9,750,413 12,748,171
Policy acquisition costs......................... 3,956,595 4,785,460 7,439,612
Contingent ceding commission..................... (1,245,755) (3,222,420) (1,511,253)
General operating costs.......................... 1,711,641 1,929,348 2,443,576
Agency Expenses.................................. 145,720 688,188 721,187
Interest expense................................. 128,603 691,957 617,042
------------ ------------ ------------
Total expenses................................. 11,021,863 14,622,946 22,458,335
------------ ------------ ------------
Income before taxes.............................. 3,215,505 3,040,403 3,579,272
Income tax provision:
Current........................................ 428,908 22,051 1,276,196
Deferred....................................... 637,093 1,015,066 (38,927)
------------ ------------ ------------
Total income tax provision................ 1,066,001 1,037,117 1,237,269
------------ ------------ ------------
Net income................................ $ 2,149,504 $ 2,003,286 $ 2,342,003
============ ============ ============
Earnings per share:
Basic.......................................... $ 4.42 $ 4.12 $ 4.82
============ ============ ============
Diluted........................................ $ 0.94 $ 0.69 $ 0.79
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
64
<PAGE> 66
FINANCIAL PACIFIC INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
NUMBER ON
OF NUMBER OF ADDITIONAL AVAILABLE
PREFERRED PREFERRED COMMON COMMON PAID-IN RETAINED FOR SALE
SHARES STOCK SHARES STOCK CAPITAL EARNINGS SECURITIES TOTAL
--------- --------- --------- ------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1994........................... 4,400 $5 485,983 $486 $4,949,510 $1,986,865 $ (28,532) $ 6,908,334
Net income..................... -- -- -- -- -- 2,149,504 -- 2,149,504
Change in unrealized gain
(loss) on available for sale
securities, net of deferred
income taxes of $43,552...... -- -- -- -- -- -- 84,540 84,540
----- -- ------- ---- ---------- ---------- --------- -----------
Balances at December 31,
1995......................... 4,400 $5 485,983 $486 $4,949,510 $4,136,369 $ 56,008 $ 9,142,378
Net income..................... -- -- -- -- -- 2,003,286 -- 2,003,286
Change in unrealized gain
(loss) on available for sale
securities, net of deferred
income taxes of $273,191..... -- -- -- -- -- -- (530,309) (530,309)
----- -- ------- ---- ---------- ---------- --------- -----------
Balances at December 31,
1996......................... 4,400 $5 485,983 $486 $4,949,510 $6,139,655 $(474,301) $10,615,355
Net income..................... -- -- -- -- -- 2,342,003 -- 2,342,003
Change in unrealized gain
(loss) on available for sale
securities, net of deferred
income taxes of $227,067..... -- -- -- -- -- -- 440,780 440,780
----- -- ------- ---- ---------- ---------- --------- -----------
Balances at December 31,
1997......................... 4,400 $5 485,983 $486 $4,949,510 $8,481,658 $ (33,521) $13,398,138
===== == ======= ==== ========== ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
65
<PAGE> 67
FINANCIAL PACIFIC INSURANCE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,149,504 $ 2,003,286 $ 2,342,003
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 104,480 260,138 319,029
Net realized (gains) losses on sales of investments.... (465,695) (52,171) 46,194
Net realized losses on sales of fixed assets........... 2,285 6,141 15,574
Write-off of note receivable........................... -- 80,000 33,252
Deferred income taxes.................................. 637,093 1,015,066 (38,927)
Increase in premiums receivable, net................... (3,045,663) (3,390,280) (1,614,044)
Increase in accrued investment income.................. (38,205) (40,987) (121,408)
(Increase) decrease in income taxes receivable......... (84,160) (228,136) 202,166
(Increase) decrease in prepaid reinsurance premiums.... (2,579,263) (1,655,441) 1,093,393
(Increase) decrease in reinsurance recoverable on
unpaid losses and loss adjustment expenses........... 553,614 342,071 (2,177,880)
Increase in deferred policy acquisition costs.......... (801,026) (1,147,059) (1,578,527)
Decrease (increase) in other assets.................... 24,476 (81,437) (621,417)
Increase in unpaid losses and loss adjustment
expenses............................................. 1,872,761 1,931,080 5,647,663
Increase in unearned premiums.......................... 4,560,994 4,921,352 2,988,115
Increase (decrease) in reinsurance payable, net........ 1,458,042 (2,032,914) (441,571)
Increase in other liabilities.......................... 769,277 614,541 538,378
------------ ----------- ------------
Net cash provided by operating activities......... 5,118,514 2,545,250 6,631,993
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed maturities available for sale........... (34,281,021) (7,595,264) (15,090,116)
Proceeds from sales of fixed maturities available for
sale................................................... 25,055,423 4,868,420 5,870,015
Proceeds from maturities of fixed maturities available for
sale................................................... 7,408 572,817 3,896,031
Purchase of equity securities available for sale.......... -- -- (118,832)
Proceeds from sales of equity securities available for
sale................................................... 47,177 -- 56,365
Proceeds from sales of short-term investments............. 935 -- --
Proceeds from principal repayment on note receivable...... 27,662 3,952 7,916
Purchase of fixed assets, net............................. (337,492) (372,178) (618,265)
------------ ----------- ------------
Net cash used in investing activities............. (9,479,908) (2,522,253) (5,996,886)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable................... 5,000,000 500,000 --
Principal repayment on notes payable...................... (315,000) (945,000) (500,000)
------------ ----------- ------------
Net cash provided by (used in) financing
activities...................................... 4,685,000 (445,000) (500,000)
------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 323,606 (422,003) 135,107
Cash and cash equivalents, beginning of year................ 595,785 919,391 497,388
------------ ----------- ------------
Cash and cash equivalents, end of year...................... $ 919,391 $ 497,388 $ 632,495
============ =========== ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes during the year.................. $ 513,067 $ 250,187 $ 1,074,030
============ =========== ============
Cash paid for interest expense during the year.............. $ 116,351 $ 381,922 $ 611,583
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
66
<PAGE> 68
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Financial Pacific Insurance Group, Inc. (the "Group") was formed on May 26,
1993 to acquire all of the common stock of Financial Pacific Insurance Company
("FPIC") and Financial Pacific Insurance Agency ("FPIA"). The Group, FPIC and
FPIA are collectively referred to as "the Company".
The Group is primarily owned by Robert C. Goodell, the current President
and Chief Executive Officer, and three other investor groups.
The Company deals principally in commercial property, casualty and surety
lines of insurance. The majority of the Company's business is written for small
to medium sized businesses in California's Central Valley. The Company's
business is primarily written with artisan contractors, commercial property
owners, light industrial risks, and several special programs by a network of
independent agents.
Basis of Presentation
The consolidated financial statements include the accounts of the Group,
FPIC, and the FPIA. All significant intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents
Cash includes currency on hand with financial institutions. Cash
equivalents represent short-term, highly-liquid investments, readily convertible
to known amounts of cash and near maturity such that there is insignificant risk
of changes in value because of changes in interest rates. Cash equivalents are
carried at cost, which approximates market.
Investments
The Company accounts for investments in accordance with the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115"). Under FAS 115, the
Company classifies its fixed maturity securities as available for sale.
Unrealized holding gains and losses, net of deferred income taxes, on available
for sale securities are reported as a net amount in a separate component of
stockholders' equity until realized. Realized investment gains and losses are
reported based upon specific identification of the investments sold.
Equity securities are classified as available for sale and carried at
market value. Unrealized investment gains and losses, resulting from carrying
equity securities at market value, are recorded net of applicable deferred
income taxes directly in stockholders' equity.
Declines in the value of investments, which are determined to be other than
temporary, are charged to realized losses. Securities are reported at market
values based principally on prices obtained from security exchanges.
Deferred Policy Acquisition Costs
Acquisition costs, consisting of commissions, premium taxes and certain
marketing, policy issuance and underwriting costs, related to the production of
new and renewal business, are deferred and amortized ratably over the terms of
the policies. The method followed in computing deferred acquisition costs limits
the amount of such deferred costs to their estimated realizable value. The
determination of estimated realizable value, gives effect to the premium to be
earned, losses and loss adjustment expenses, investment income to be earned, and
certain other costs expected to be incurred as the premium is earned.
Amortization of deferred policy acquisition costs amounted to $3,683,926,
$4,785,460 and $7,439,613 in 1995, 1996 and 1997, respectively.
67
<PAGE> 69
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Federal Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities. The impact on
deferred taxes of changes in tax rates and laws, if any, are applied to the
years during which temporary differences are expected to be settled, and
reflected in the consolidated financial statements in the period of enactment.
Reinsurance
Reinsurance recoverables (including amounts related to losses incurred but
not reported) and prepaid reinsurance premiums are reported as assets. Estimated
reinsurance recoverables are recognized in a manner consistent with the
liabilities relating to the underlying reinsured contracts. Reinsurance premiums
and commissions are recorded based on management's best estimate of the ultimate
amounts to be incurred.
Losses and Loss Adjustment Expenses
The liability for unpaid losses and loss adjustment expenses is based upon
the accumulation of individual case estimates for losses reported prior to the
close of the accounting period plus estimates, based on experience and industry
data, for unreported losses and loss adjustment expenses.
There is a high level of uncertainty inherent in the evaluation of the
required loss and loss adjustment expense reserves for the Company. The
long-tailed nature of liability claims exacerbates that uncertainty. Management
has selected target losses and loss adjustment expense ratios that it believes
are reasonable and reflective of anticipated ultimate experience. The ultimate
costs of claims are dependent upon future events, the outcomes of which are
affected by many factors. Company claim reserving procedures and settlement
philosophy, current and perceived social conditions, economic inflation, current
and future court rulings and jury attitudes, improvements in medical technology,
and many other economic, scientific, legal, political, and social factors all
can have significant effects on the ultimate costs of claims. Changes in Company
operations and management philosophy also may cause actual developments to vary
from the past. In addition, the Company relies on policy language, developed by
the Company and by others, to exclude or limit coverage. If such language is
held by a court to be invalid or unenforceable, it could materially adversely
affect the Company's financial position. This possibility of expansion of
insurers' liability either through new concepts of liability or a refusal to
accept restrictive policy language has added to the inherent uncertainty of
reserving for losses. Since the emergence and disposition of claims are subject
to uncertainties, the net amounts that will ultimately be paid to settle the
liability may vary significantly from the estimated amounts provided for in the
accompanying consolidated financial statements. Any adjustments to reserves are
reflected in the operating results of the periods in which they are made.
Stock-Based Employee Compensation
Effective December 31, 1996, the Company adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"). Management has elected to continue
use of the accounting methods prescribed by Accounting Principles Board Opinion
No. 25 and to expand its disclosure of stock-based compensation as permitted by
FAS 123. Accordingly, no related compensation cost has been recognized.
Revenue Recognition
Insurance premiums are earned ratably over the terms of the policies.
Unearned premiums are computed on a daily pro-rata basis. Agency commission and
related fees for the direct mail surety program are recognized based on the
policy issue date. Revenue related to service fees is earned as billed.
68
<PAGE> 70
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
disclosure 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 those estimates.
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("FAS No. 130"),
"Reporting Comprehensive Income," and Statement of Financial Accounting
Standards No. 131 ("FAS No. 131"), "Disclosures about Segments of an Enterprise
and Related Information," were issued in June 1997 and are effective for fiscal
years beginning after December 15, 1997. FAS No. 130 establishes standards for
the reporting and display of comprehensive income, which includes net income and
changes in equity except those resulting from investments by, or distributions
to, stockholders. FAS No. 131 establishes standards for disclosures related to
business operating segments. The Company is currently evaluating the impact that
these statements will have on the consolidated financial statements.
Earnings per Share
Effective December 31, 1997, the Company adopted SFAS No. 128 "Earnings per
Share."
NOTE 2 INVESTMENTS
The amortized cost and estimated market values of fixed maturities
available for sale at December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
1996:
U.S. government and agencies............... $ 9,976,614 $ 6,173 $113,239 $ 9,869,548
Obligations of states and political
subdivision.............................. 262,587 5,906 -- 268,493
Corporate securities....................... 14,325,034 -- 617,478 13,707,556
Certificates of deposit.................... 200,000 -- -- 200,000
----------- ------- -------- -----------
Total fixed maturities........... $24,764,235 $12,079 $730,717 $24,045,597
=========== ======= ======== ===========
1997:
U.S. government and agencies............... $15,619,552 $31,245 $ 22,234 $15,628,563
Obligations of states and political
subdivisions............................. 65,524 5,093 -- 70,617
Corporate securities....................... 14,129,816 37,415 102,309 14,064,922
Certificates of deposit.................... 212,711 -- -- 212,711
----------- ------- -------- -----------
Total fixed maturities........... $30,027,603 $73,753 $124,543 $29,976,813
=========== ======= ======== ===========
</TABLE>
The amortized cost and estimated market value of fixed maturities 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.
69
<PAGE> 71
NOTE 2 INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
----------- ------------
<S> <C> <C>
Maturity distribution of fixed maturities available for
sale:
Due in one year or less..................................... $ 1,151,399 $ 1,151,609
Due after one year through five years....................... 9,976,255 9,953,837
Due after five years through ten years...................... 14,723,380 14,681,344
Due after ten years......................................... 4,176,569 4,190,023
----------- -----------
Total fixed maturities............................ $30,027,603 $29,976,813
=========== ===========
</TABLE>
Proceeds from the sale of investments in fixed maturities available for
sale were $25,055,423, $4,868,420 and $5,870,015 for the years ended December
31, 1995, 1996 and 1997, respectively.
Summary of investment income, net of expenses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Investment income, net of expenses of $6,604,
$13,481 and $14,944 in 1995, 1996 and 1997,
respectively
Fixed maturities............................. $1,000,235 $1,421,463 $1,681,025
Equity securities............................ 460 -- 42
Other investments............................ 27,829 27,943 38,810
---------- ---------- ----------
Investment income, net of expenses........ $1,028,524 $1,449,406 $1,719,877
========== ========== ==========
Realized gains (losses) on sales of
investments:
Fixed maturities available for sale:
Gains..................................... 592,097 $ 63,114 $ 22,222
Losses.................................... (125,204) (10,943) (5,949)
---------- ---------- ----------
Total................................ 466,893 52,171 16,273
---------- ---------- ----------
Equity securities available for sale:
Gains..................................... -- -- 3,684
Losses.................................... (2,133) -- (66,151)
---------- ---------- ----------
Total................................ (2,133) -- (62,467)
---------- ---------- ----------
Other investments:
Gains..................................... 935 -- --
Losses.................................... -- -- --
---------- ---------- ----------
Total..................................... 935 -- --
---------- ---------- ----------
Net realized gains (losses) on sales
of investments..................... $ 465,695 $ 52,171 ($ 46,194)
========== ========== ==========
</TABLE>
Investments with the following issuers exceeded 10% of total stockholders
equity at December 31, 1997:
<TABLE>
<CAPTION>
ISSUER ESTIMATED MARKET VALUE
------ ----------------------
<S> <C>
Federal Home Loan Mortgage Corporation...................... $3,507,500
==========
Federal National Mortgage Association....................... $7,494,531
==========
</TABLE>
The Company has securities on deposit with state regulatory agencies of
approximately $1,761,000 as of December 31, 1997 and 1996. The deposits
approximate market value.
70
<PAGE> 72
NOTE 3 INCOME TAXES
The income tax expense reflected in the accompanying consolidated
statements of operations varied from amounts computed at the statutory rate of
35% in 1995, 1996 and 1997 on income before income taxes for the following
reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense at statutory rate...... $1,125,427 $1,064,141 $1,252,745
Adjust graduated tax rate.............................. (32,155) (30,404) (35,792)
Increase (decrease) in income taxes resulting from:
Tax-exempt interest income........................... (31,860) (13,635) 2,442
Other, net........................................... 4,589 17,015 17,874
---------- ---------- ----------
Total income tax provision................... $1,066,001 $1,037,117 $1,237,269
========== ========== ==========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1996 and 1997, respectively, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Loss and loss adjustment expense reserves................... $ 551,955 $ 709,150
Unearned premiums........................................... 548,343 769,025
Unrealized loss on securities available for sale............ 244,337 17,269
Allowance for doubtful accounts............................. 13,600 13,600
----------- -----------
Total gross deferred tax assets................... $ 1,358,235 $ 1,509,044
=========== ===========
Deferred Tax Liabilities:
Policy acquisition costs.................................... ($1,284,578) ($1,821,277)
Contingent ceding commission................................ (1,409,488) (1,178,787)
Other....................................................... (95,511) (128,463)
----------- -----------
Total gross deferred tax liabilities.............. (2,789,577) (3,128,527)
----------- -----------
Net deferred tax liabilities...................... ($1,431,342) ($1,619,483)
=========== ===========
</TABLE>
Management believes it is more likely than not the deferred tax assets will
reverse during periods in which the Company generates net taxable income or may
recover taxes paid in prior years. Accordingly, a valuation allowance has not
been recorded.
NOTE 4 REINSURANCE
The Company cedes insurance to reinsurers under various contracts that
cover individual risks or entire classes of business. Although the ceding of
insurance does not discharge the Company from its primary liability, the
insurance company that assumes the coverage assumes the related risk, and it is
the practice of insurers to treat reinsured risks, to the extent of the
reinsurance ceded, as though they were risks for which the original insurer is
not liable.
At December 31, 1996 and 1997, all property and casualty policies written
by the Company are reinsured with reinsurers rated as A or A minus by A.M. Best.
The Company has both a quota share agreement and a semi-automatic facultative
excess of loss agreement on property and two excess of loss agreements for
casualty. On its property business, the Company has a 30% quota share on the
first $2 million of any risk, resulting in a maximum company exposure of
$600,000 related to any one occurrence. Excess of $2 million, the Company has a
semi-automatic-facultative agreement which provides $8 million of coverage
excess of $2 million. On the casualty business, the Company presently maintains
a $750,000 excess of $250,000 treaty with a syndicate of reinsurers. Prior to
January 1, 1997, the Company maintained $400,000 excess of $100,000
71
<PAGE> 73
NOTE 4 REINSURANCE (CONTINUED)
and $500,000 excess of $500,000 casualty treaties. Excess of $1 million, the
Company has a semi-automatic-facultative agreement which provides $10 million of
coverage excess of $1 million. For the Company's surety line of business, the
Company maintains a variable quota share reinsurance arrangement which provides
various levels of participation depending on the size of the bond. The Company
also maintains Extra Contractual Obligation/Loss in Excess of Policy Limits
(ECO/XPO) coverage through the London markets. The Company currently purchases
$2 million worth of ECO/XPO coverage through this facility.
The property quota share and casualty excess of loss reinsurance treaties
include commission adjustment provisions. The Company records such adjustments
based upon estimates of cumulative experience under the contracts at each
reporting period.
Reinsurance activity as reported in the accompanying consolidated financial
statements is as follows:
<TABLE>
<CAPTION>
DIRECT REINSURANCE NET ACTIVITY
BUSINESS CEDED OR BALANCE
----------- ----------- ------------
<S> <C> <C> <C>
1995:
Premiums written.................................... $24,694,947 $10,653,344 $14,041,603
Premiums earned..................................... 20,533,128 8,473,256 12,059,872
Losses and loss adjustment expenses incurred........ 7,977,514 1,652,455 6,325,059
=========== =========== ===========
Unpaid losses and loss adjustment expenses.......... $12,224,880 $ 4,560,681 $ 7,664,199
=========== =========== ===========
Unearned premiums................................... $13,659,006 $ 5,867,480 $ 7,791,526
=========== =========== ===========
1996:
Premiums written.................................... $31,926,872 $13,673,996 $18,252,876
Premiums earned..................................... 26,606,345 11,619,380 14,986,965
Losses and loss adjustment expenses incurred........ 11,131,863 1,381,450 9,750,413
=========== =========== ===========
Unpaid losses and loss adjustment expenses.......... $13,944,397 $ 4,007,047 $ 9,937,350
=========== =========== ===========
Unearned premiums................................... $18,979,533 $ 7,922,096 $11,057,437
=========== =========== ===========
1997:
Premiums written.................................... $39,511,737 $12,576,059 $26,935,678
Premiums earned..................................... 36,523,622 13,669,452 22,854,170
Losses and loss adjustment expenses incurred........ 17,844,735 5,096,564 12,748,171
=========== =========== ===========
Unpaid losses and loss adjustment expenses.......... $19,592,060 $ 6,184,927 $13,407,133
=========== =========== ===========
Unearned premiums................................... $21,967,648 $ 6,828,703 $15,138,945
=========== =========== ===========
</TABLE>
72
<PAGE> 74
NOTE 5 LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.............. $10,140,556 $12,224,880 $13,944,397
Less reinsurance recoverables............. 4,902,732 4,560,681 4,007,047
----------- ----------- -----------
Net balance at beginning of period.......... 5,237,824 7,664,199 9,937,350
----------- ----------- -----------
Incurred related to:
Current year.............................. 6,490,825 7,394,848 10,991,179
Prior years............................... (165,766) 2,355,565 1,756,992
----------- ----------- -----------
Total incurred.............................. 6,325,059 9,750,413 12,748,171
----------- ----------- -----------
Paid related to:
Current year.............................. 1,975,694 2,413,980 3,370,671
Prior years............................... 1,922,990 5,063,282 5,907,717
----------- ----------- -----------
Total paid.................................. 3,898,684 7,477,262 9,278,388
----------- ----------- -----------
Net balance at December 31.................. 7,664,199 9,937,350 13,407,133
Plus reinsurance recoverables............. 4,560,681 4,007,047 6,184,927
----------- ----------- -----------
Balance at December 31................. $12,224,880 $13,944,397 $19,592,060
=========== =========== ===========
</TABLE>
During 1996 and 1997, the provision for losses and loss adjustment expenses
increased due to unfavorable reserve development primarily in the liability
lines of business. The unfavorable development is attributed in part to the
changes in the legal interpretation of manifestation of loss. Currently,
approximately 40% of the Company's business is related to artisan contractors.
Accordingly, the law relating to construction defect liability can substantially
affect the Company's business. In July of 1995, the California Supreme Court
rendered its opinion on Admiral Insurance Company vs. Montrose Chemical
Corporation (the "Montrose Decision"). In that decision, the Supreme Court ruled
that in the case of a continuous and progressively deteriorating loss, such as
pollution liability (or construction defect liability), an insurance company has
a definitive duty to defend the policyholder until all uncertainty related to
the severity and cause of the loss is extinguished. As a result of the Montrose
Decision, the Company experienced a significant increase in construction defect
liability cases, to which it would not have been subject under the old law.
The liability for unpaid losses and loss adjustment expenses is stated net
of anticipated salvage and subrogation recoverable of $746,000 and $913,000 at
December 31, 1996 and 1997, respectively.
NOTE 6 NOTES PAYABLE, NET
At December 31, 1996 and 1997, the Group owed $5,000,000 under unsecured
Senior Notes payable to certain stockholders of the Company. The Notes accrue
12% interest compounded annually. Interest payments are due semi-annually and
the Notes are due on January 1, 2001. The Notes were issued with Common Stock
Purchase Warrants which entitle the holders to purchase up to 593,691 shares of
the Group's Common Stock. The Common Stock Warrants are discussed further at
Note 8. The Group is subject to certain restrictions described in the note
agreement.
The Group had outstanding borrowings of $500,000 and $0 under a $530,000
bank line of credit at December 31, 1996 and 1997, respectively. The line is
unsecured, matures July 1, 1998, and bears interest (payable monthly) at an
annual rate of 1 percent over the bank's base rate. The effective annual
interest rate was 9.25% and 8.5% during the years ended December 31, 1996 and
1997, respectively.
The notes payable are presented net of deferred debt issue costs. Deferred
debt issue costs are amortized over the term of the note. Unamortized debt issue
costs totaled $20,586 and $15,439 at December 31, 1996 and 1997, respectively.
73
<PAGE> 75
NOTE 7 SERIES A CONVERTIBLE PREFERRED STOCK
The Group issued Series A convertible preferred stock ("Series A Stock")
pursuant to a Convertible Preferred Stock Purchase Agreement, dated September 7,
1993 (the "Series A Stock Agreement").
Each share of Series A Stock is convertible, at the option of the holder
thereof, into 394.375 shares of Common Stock, subject to certain adjustments
described in the Series A Stock Agreement. The holders of Series A Stock have
voting rights and powers equal to the voting rights and powers of such Common
Stock.
Each share of Series A Stock is automatically converted into shares of Common
Stock immediately upon the effective date of a registration statement filed by
the Company pursuant to the Securities Act of 1933, as amended, in connection
with a firm commitment, underwritten public offering with an offering price of
not less than $5.00 per share and with gross proceeds equal to or exceeding $10
million.
In the event of any liquidation, dissolution or winding up of the Group,
the holders of the Series A Stock are entitled to receive, prior and in
preference to any distribution of any assets of the Group to the holders of
Common Stock, the amount of $1.00 per share plus any declared but unpaid
dividends. At any time after September 7, 2000, the Group is entitled to redeem
all or any portion of the outstanding shares of Series A Stock for $1.00 per
share plus any declared but unpaid dividends.
NOTE 8 COMMON STOCK WARRANTS
On September 7, 1993, the Group issued Common Stock Purchase Warrants ("the
Warrants"). The Warrants entitle the holders to purchase 153,525 shares of the
Group's Common Stock, at any time prior to September 7, 2003, at the price of
$2.54 per share, subject to certain adjustments described in the Warrants.
On December 28, 1995, the Group issued Common Stock Purchase Warrants (the
"Senior Note Warrants") in conjunction with the issuance of the Senior Notes
payable as discussed at Note 6. The Senior Note Warrants entitle the holders to
purchase 593,691 shares of the Group's Common Stock, at any time prior to
January 1, 2004, at the price of $5.61 per share, subject to certain
restrictions described in the Senior Note Warrants.
The Company believes the Warrants and the Senior Note Warrants were issued
at fair market value.
NOTE 9 SALE OF DIRECT BOOK OF BUSINESS
Prior to August 1994, approximately 10% of FPIC policies were sold directly
to policyholders. On August 1, 1994, FPIC sold its direct book of business to an
existing agent, resulting in a gain of $205,000. FPIC received a twenty percent
down payment during August 1994, with the remainder payable monthly over sixty
months. The monthly payments are based on the agent's retention of the book of
business. During 1996 and 1997, respectively, the Company charged-off to other
income $80,000 and $33,252 of the note receivable due to the agent's declining
book of business. The unsecured note receivable balance is $47,859 and $6,691 at
December 31, 1996 and 1997, respectively.
NOTE 10 STOCK INCENTIVE PLAN
During 1993, the Group adopted a Stock Incentive Plan, pursuant to which up
to 109,242 shares of Common Stock of the Group may be issued at the discretion
of the Board of Directors or a committee thereof. Awards may include, without
limitation, stock bonuses, restricted stock, stock options, reload options,
stock purchase warrants, other rights to acquire stock, securities convertible
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares. Officers, employees,
consultants, and advisors to the Company or any of its subsidiaries are eligible
for awards under the plan. To date, all awards have been in the form of stock
options issued with exercise prices at the estimated fair market value as of the
issue date.
74
<PAGE> 76
NOTE 10 STOCK INCENTIVE PLAN (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in
accounting for the stock incentive plan. Accordingly, no compensation cost has
been recognized in the accompanying consolidated financial statements. Had
compensation costs been determined consistent with FAS 123, the Company's net
income would have been adjusted to the pro forma amounts as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
As reported............................ $2,149,504 $2,003,286 $2,342,003
Pro forma.............................. $2,143,485 $1,983,453 $2,327,768
Pro forma Basic Earnings per share..... $ 4.41 $ 4.08 $ 4.79
Pro forma Diluted Earnings per share... $ 0.94 $ 0.68 $ 0.79
</TABLE>
The following is a summary of the transactions under the stock incentive
plan for the years ended December 31, 1995, 1996 and 1997, respectively:
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year...... 27,608 $2.81 25,636 $3.02 69,016 $3.02
Granted............................. 7,888 $3.15 43,380 $4.25 9,860 $4.82
Forfeited........................... (9,860) $2.54 -- -- (9,860) $3.30
------- ------- --------
Outstanding at end of year............ 25,636 $3.02 69,016 $3.80 69,016 $4.01
======= ======= ========
Options exercisable at year end....... 9,860 19,719 31,550
======= ======= ========
Weighted average fair value of options
granted during the year............. $ 3.15 $ 4.25 $ 4.82
======= ======= ========
</TABLE>
All of the stock options have a ten year term. Options issued and not yet
exercisable at December 31, 1997 vest over periods ranging from one to five
years. At December 31, 1997, 40,226 shares were available for future grants.
The following is a summary of options outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED NUMBER WEIGHTED
NUMBER CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
OUTSTANDING AT LIFE EXERCISE AT EXERCISE
RANGE OF EXERCISE PRICES 12/31/97 (IN YEARS) PRICE 12/31/97 PRICE
- ------------------------ -------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.54 to 3.15..................... 15,776 6.5 $2.84 15,775 $2.84
$4.20 to 4.33..................... 43,380 8.3 4.25 15,775 4.28
$4.82............................. 9,860 9.1 4.82 -- --
------ --- ----- ------ -----
$2.54 to 4.82..................... 69,016 8.0 $4.01 31,550 $3.56
====== === ===== ====== =====
</TABLE>
The fair value of each option grant was estimated using the Minimum Value
Method. Minimum value is determined by calculating the difference between the
current stock price and the present value of the exercise price with the
following assumptions for 1995, 1996 and 1997, respectively: risk free interest
rates of 5.4%, 6.2% and 5.7%, expected lives of 5 years and no expected
dividends.
NOTE 11 401(k) PLAN
The Company sponsors a contributory 401(k) plan. All employees of the
Company who have completed one year of service are eligible for participation in
the plan. The Company matches 100% of the employee's
75
<PAGE> 77
NOTE 11 401(k) PLAN (CONTINUED)
pre-tax contribution up to $1,000, $1,500 and $2,000 in 1995, 1996 and 1997,
respectively. In 1995, 1996 and 1997, the Company contributed $20,565, $61,435
and $87,980, respectively, to the plan.
NOTE 12 STATUTORY REGULATIONS AND ACCOUNTING
All dividends from FPIC require prior notice to the California Department
of Insurance ("DOI"). All "extraordinary" dividends must be approved in advance
by the DOI. A dividend is deemed "extraordinary" if, when aggregated with all
other dividends paid within the preceding 12 months, the dividend exceeds the
greater of (i) FPIC's statutory net income (excluding unrealized capital gains)
for the preceding calendar year or (ii) 10% of surplus as regards policyholders
as of the preceding December 31st. Additionally, unless approved in advance by
the DOI, no dividend may be paid by FPIC except from unassigned funds or earned
surplus. The DOI may disallow the payment of any dividend if, in the DOI's
opinion, the payment would in any way violate the Code or be hazardous to
policyholders, creditors or the public.
During 1998, the maximum dividend that may be paid by FPIC without approval
of the DOI is $1,426,180. During the years ended December 31, 1995, 1996 and
1997, FPIC paid dividends of $402,000, $630,000 and $900,000, respectively, with
the approval of the DOI.
Statutory accounting principles vary in some respects from generally
accepted accounting principles, the more significant of these differences being:
(a) the cost related to policy acquisition and commission costs are expensed
when incurred, rather than capitalized and amortized over the coverage period;
(b) federal income taxes are recorded when payable and deferred income taxes are
not provided; (c) assets must be included in the statutory statements of
admitted assets, liabilities and changes in capital and surplus at "admitted
asset value" and "non-admitted assets" are excluded through a charge against
surplus. The minimum statutory capital and surplus required by the California
Insurance Code is $2,600,000. As of December 31, 1996 and 1997, respectively,
FPIC had statutory capital and surplus of $13,788,332 and $14,261,802. FPIC's
statutory net income for the years ended December 31, 1995, 1996 and 1997 was
$2,095,205, $2,123,815 and $1,213,293, respectively.
In December 1993, the National Association of Insurance Commissioners
("NAIC") adopted a model law which establishes certain minimum Risk Based
Capital ("RBC") requirements for property/casualty insurance companies. The RBC
calculation serves as a benchmark for the regulation of insurance companies by
state insurance regulatory authorities. The calculation specifies various
formulas and rating factors that are applied to financial balances or various
levels of activity based on the perceived degree of risk, and are set forth in
the RBC requirements. The Company's capital as of December 31, 1996 and 1997
meets the minimum RBC requirements, and management expects capital to continue
to meet the amount required.
The NAIC recently approved newly codified accounting practices that will
change the definition of what constitutes prescribed statutory accounting
practices and may result in changes to the accounting policies that insurance
enterprises use to prepare their statutory financial statements commencing in
1999. The Company has not determined how the newly codified statutory accounting
practices will affect its insurance subsidiary's statutory financial statements
or how insurance rating agencies will interpret or react to any such changes. No
assurance can be given that future legislative or regulatory changes resulting
from such activities will not adversely affect the Company.
76
<PAGE> 78
NOTE 13 FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("FAS 107"), requires disclosures of fair
value information about financial instruments, whether or not recognized in the
consolidated balance sheet, for which it is practicable to estimate that value.
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 1996 and 1997. FAS 107
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents............ $ 497,388 $ 497,000 $ 632,495 $ 632,000
Premiums receivable.................. 13,016,982 13,017,000 14,631,026 14,631,000
Investment securities................ 24,045,597 24,046,000 29,976,813 29,977,000
Accrued interest receivable.......... 304,605 305,000 426,013 426,000
Financial liabilities
Notes payable........................ 5,479,414 5,500,000 4,984,561 5,000,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, premiums receivable and accrued interest receivable: The
carrying amounts approximate fair value because of the short maturity of
those instruments.
Investment securities: The fair values of debt securities and equity
investments are based on quoted market prices at the reporting date for
those or similar investments.
Notes payable: The fair value of the Group's notes payable is
estimated based upon discounting expected cash flows at rates currently
offered to the Group for debt of the same remaining maturities and
security.
NOTE 14 COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company occupied office space and leased
equipment and vehicles under various operating leases that have remaining
noncancellable lease terms in excess of one year. A summary of minimum future
non-cancelable lease commitments at December 31, 1997 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- -----------------------
<S> <C>
1998............................................. $ 511,697
1999............................................. 454,615
2000............................................. 360,016
2001............................................. 313,594
2002............................................. 313,594
Thereafter....................................... 1,124,375
----------
Total minimum payments................. $3,077,891
==========
</TABLE>
Rental expense of approximately $382,796, $494,587 and $541,736 for the
years ended December 31, 1995, 1996 and 1997, respectively, has been charged to
operations in the accompanying consolidated statements of operations.
The Company is also the subject of certain claims arising in the ordinary
course of its operations. The Company believes that the ultimate resolution of
such matters will not materially impact its financial condition.
77
<PAGE> 79
NOTE 15 EARNINGS PER SHARE
Reconciliations of the outstanding shares used in the basic and fully
diluted earnings per share calculations, are presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income (Numerator):
Income available to Common Stockholders for Basic and
Diluted earnings per share................................ $2,149,504 $2,003,286 $2,342,003
---------- ---------- ----------
Weighted Average Shares (Denominator):
Basic Shares................................................ 485,983 485,983 485,983
Effect of dilutive securities
Stock Options............................................. 7,380 13,158 37,115
Warrants.................................................. 63,612 666,454 703,273
Convertible Preferred stock............................... 1,735,250 1,735,250 1,735,250
---------- ---------- ----------
Diluted Shares.............................................. 2,292,225 2,900,845 2,961,621
========== ========== ==========
Per Share Amounts:
Basic Earnings per Share.................................... $ 4.42 $ 4.12 $ 4.82
Diluted Earnings per Share.................................. $ 0.94 $ 0.69 $ 0.79
</TABLE>
For the years ended December 31, 1995 and 1996, the Company had 593,691
warrants which could potentially dilute Basic EPS in the future but were not
included in Diluted EPS because their effect was antidilutive.
NOTE 16 SUBSEQUENT EVENT
On April 14, 1998, the Company declared a 394.375-to-1 stock split effected
in the form of a dividend to stockholders of record on April 14, 1998.
All data with respect to equity classification, earnings per share and
share information, including price per share, where applicable, in the
consolidated financial statements and notes thereto have been retroactively
adjusted to reflect the split.
78
<PAGE> 80
======================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT 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 UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH 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 THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATES SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 13
Dividend Policy....................... 13
Dilution.............................. 14
Capitalization........................ 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 25
Management............................ 43
Principal and Selling Stockholders.... 49
Certain Transactions.................. 50
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 57
Glossary of Selected Insurance
Terms............................... 58
Index to Consolidated Financial
Statements.......................... 61
</TABLE>
======================================================
======================================================
2,500,000 SHARES
[FINANCIAL PACIFIC LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
[EVEREN LOGO]
June , 1998
======================================================
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fees and the Nasdaq Stock Market
listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $9,330
NASD fee.................................................... $
Nasdaq National Market listing fee.......................... $
Printing and engraving expenses............................. $
Legal fees and expenses..................................... $
Accounting fees and expenses................................ $
Blue sky fees and expenses.................................. $
Transfer agent fees......................................... $
Miscellaneous fees and expenses............................. $
Total............................................. $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VI, Section 1, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Amended and
Restated Certificate of Incorporation provides that, pursuant to Delaware law,
its directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Company and its stockholders. This
provision in the Amended and Restated Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or state or federal
environmental laws. The Registrant has entered or will enter into
Indemnification Agreements with its officers and directors that provide the
Registrant's officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law. Reference is made to
Section of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April 1995, the Company has issued and sold the following
unregistered securities.
1. On December 28, 1995, Registrant issued Warrants to purchase up to
593,691 shares of its Common Stock and $5,000,000 aggregate principal amount of
12% Senior Notes due January 1, 2001 to a Group of four investors for an
aggregate purchase price of $5,000,000.
II-1
<PAGE> 82
2. Within the past three years, from time to time, the Registrant has
granted to employees, directors and consultants options to purchase an aggregate
of approximately 80,847 shares of Common Stock pursuant to stock option
agreements and the Registrant's stock option plans.
3. The Company has agreed to issue to the representative of the
Underwriters ("Representative") warrants (the "Representative's Warrants") to
purchase up to 143,750 shares of Common Stock, at an exercise price per share
equal to 110% of the initial public offering price per share. The
Representative's Warrants are exercisable for a period of four years, commencing
one year from the effective date (the "Effective Date") of the Registration
Statement and expire five years from the Effective Date. The Representative's
Warrants are not transferable prior to the expiration of one year from the
Effective Date other than to officers or partners of the Underwriters and
members of the selling group and their officers and partners. The holders of the
Representative's Warrants will have no voting, dividend or other shareholders'
rights until the Warrants are exercised. The Company has granted the
Representative certain demand and piggy-back registration rights related to the
Representative's Warrants, which are applicable during the period that the
Representative's Warrants are exercisable and expire five years from the
Effective Date.
The sales and issuances described above were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof, as
transactions by an issuer not involving any public offering, or in reliance upon
the exemption from registration provide by Rule 701 promulgated under the
Securities Act. In addition, the recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------
<C> <S>
1.1* Underwriting Agreement between EVEREN Securities, Inc. and
the Registrant.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1 Specimen Common Stock certificate.
4.2+ Stockholders Agreement, dated September 7, 1993, between the
Registrant and the investors named therein.
4.3 Amendment Number One to the Stockholders Agreement, dated
December 28, 1995, between the Registrant and the investors
named therein.
5.1* Opinion of Riordan & McKinzie, a Professional Law
Corporation.
10.1 1993 Stock Incentive Plan.
10.2 Form of Stock Option Agreement.
10.3** Employment Agreement between the Registrant and Robert C.
Goodell dated February 6, 1996, as amended.
10.4** Employment Agreement between the Registrant and Robert T.
Kingsley dated February 13, 1997.
10.5** Employment Agreement between the Registrant and Edward J.
Paoletti dated November 14, 1997.
10.6** Employment Agreement between the Registrant and Wallace G.
Rascher dated February 14, 1997.
10.7** Employment Agreement between the Registrant and Timothy N.
Blaede dated February 14, 1997.
10.8** Employment Agreement between the Registrant and John R.
Hollingshead dated November 14, 1997.
</TABLE>
II-2
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------
<C> <S>
10.9** Employment Agreement between the Registrant and Artur A.
Terner dated February 14, 1997.
10.10** Employment Agreement between the Registrant and Charles E.
Wardlaw dated January 1, 1998.
10.11+** Restricted Stock Agreement between the Registrant and Robert
C. Goodell dated September 7, 1993.
10.12 Note and Warrant Purchase Agreement dated December 28, 1995
among the Registrant and the purchasers listed therein.
10.13 Form of 12% Senior Note due 2001.
10.14 Form of Warrant issued by the Registrant dated December 28,
1995.
10.15 Form of Warrant issued by the Registrant dated September 7,
1993.
10.16 Financial Pacific Insurance Company Property Quota Share
Reinsurance Contract originally effective July 1, 1993.
10.17 Financial Pacific Insurance Company Contingent Excess of
Loss Reinsurance Contract originally effective July 1, 1996.
10.18 Financial Pacific Insurance Company Contingent Excess of
Loss Reinsurance Contrast originally effective January 1,
1997.
10.19 Financial Pacific Insurance Company Semi-Automatic Casualty
Facultative Reinsurance Contract originally effective July
1, 1996.
10.20 Financial Pacific Insurance Company (M.L. Oates Insurance
Company) Property Quota Share Reinsurance Contract
originally effective July 1, 1993.
10.21 Financial Pacific Insurance Company First Excess Casualty
Reinsurance Contract originally effective January 1, 1997.
10.22 Producer Agreement between American Underwriting Managers
Agency, Inc. and Financial Pacific Insurance Agency, Inc.
("FPIA") effective October 1, 1995.
10.23 Claims Management Agreement between FPIA and American
Underwriting Managers dated November 28, 1995
10.24 Agreement between Financial Pacific Insurance Company
("FPIC") and General Reinsurance Corporation (No. 118).
10.25 Agreement between FPIC and General Reinsurance Corporation
(No. AFF-6243440)
10.26 Agreement between FPIC and General Reinsurance Corporation
(No. 8090).
10.27 Quota Share Reinsurance Agreement between FPIC and American
Re-insurance dated October 23, 1997.
10.28 Net Lease Agreement between FPIC and Stanford Ranch I, LLC
dated June 11, 1996.
10.29 Promissory Note dated September 15, 1997 issued by the
Registrant to U.S. Bank
10.30 Stock Purchase Agreement dated February 24, 1997 between
Robert C. Goodell and the purchasers listed therein.
10.31 Form of Indemnification Agreement between the Registrant and
each director of the Registrant.
11.1 Computation of Net Income Per Share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of KPMG Peat Marwick LLP, Independent Accountants.
23.2* Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.3* Consent of LeBoeuf, Lamb, Greene & Macrae.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment requested.
+ The Schedules to this Exhibit have not been filed with the Commission
because the Registrant believes that such Schedules do not contain
information that is material to an investment decision. The Registrant
hereby agrees to furnish supplementally a copy of the omitted schedules to
the Commission upon request.
II-3
<PAGE> 84
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
maybe permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, 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 Securities 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 by such director, officer or controlling person
in connection with the securities being registered hereunder, 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
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final jurisdiction
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this Registrant
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
Securities Act shall be deemed to be part of this Registrant Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities 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-4
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Rocklin, State of California, on this 17th day of April, 1998.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By /s/ ROBERT C. GOODELL
-------------------------------------
Robert C. Goodell
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert C. Goodell, Robert T. Kingsley and Artur
A. Terner, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement,
and any registration statement relating to the offering covered by this
Registrant Statement and filed pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ ROBERT C. GOODELL President and Chief Executive April 17, 1998
- --------------------------------------------------- Officer and Director
Robert C. Goodell (Principal Executive Officer)
/s/ ARTUR A. TERNER Chief Financial Officer April 17, 1998
- --------------------------------------------------- (Principal Financial and
Artur A. Terner Accounting Officer)
/s/ RICHARD G. PFEIFFER Director April 17, 1998
- ---------------------------------------------------
Richard G. Pfeiffer
/s/ PATRICK C. HADEN Director April 17, 1998
- ---------------------------------------------------
Patrick C. Haden
/s/ MICHAEL J. MORRISSEY Director April 17, 1998
- ---------------------------------------------------
Michael J. Morrissey
/s/ STEPHEN E. ADAMSON Director April 17, 1998
- ---------------------------------------------------
Stephen E. Adamson
</TABLE>
II-5
<PAGE> 86
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders
Financial Pacific Insurance Group, Inc.
The audits referred to in our report dated January 30, 1998, except as to
Note 16, which is as of April 14, 1998, included the related financial statement
schedules as of December 31, 1997, and for each of the years in the three-year
period ended December 31, 1997, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the Prospectus.
KPMG Peat Marwick LLP
Los Angeles, California
April 17, 1998
S-1
<PAGE> 87
SCHEDULE I
FINANCIAL PACIFIC INSURANCE GROUP, INC.
SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- --------------------------------------------------- -------- ------------ ----------------
AMOUNT AS
SHOWN ON BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- --------------------------------------------------- -------- ------------ ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
United States Government and Government
Agencies and Authorities.................... $15,619 $ 15,628 $15,628
States, municipalities and political
subdivisions................................ 66 71 71
Foreign governments........................... -- -- --
Public utilities.............................. -- -- --
Convertibles and bonds with warrants
attached.................................... -- -- --
All other corporate bonds..................... 14,130 14,065 14,065
------- ------------ -------
Total bonds.............................. 29,815 29,764 29,764
Certificates of deposit....................... 213 213 213
Redeemable preferred stock.................... -- -- --
------- ------------ -------
Total fixed maturities................... 30,028 29,977 29,977
------- ------------ -------
Equity Securities:
Common stock:
Public utilities.............................. -- -- --
Banks, trust and insurance companies.......... -- -- --
Industrial, miscellaneous and all other....... -- -- --
Non-redeemable preferred stock................... -- -- --
------- ------------ -------
Total equity securities.................. -- -- --
------- ------------ -------
Mortgage loans on real estate...................... -- xxxxxxxxxxxx --
Real estate........................................ -- xxxxxxxxxxxx --
Policy loans....................................... -- xxxxxxxxxxxx --
Other long-term investments........................ -- xxxxxxxxxxxx --
Short-term money-market investments................ -- xxxxxxxxxxxx --
------- ------------ -------
Total investments........................ $30,028 xxxxxxxxxxxx $29,977
======= ============ =======
</TABLE>
S-2
<PAGE> 88
SCHEDULE II.1
FINANCIAL PACIFIC INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
-------- --------
<S> <C> <C>
Investment in subsidiaries.................................. $16,309 $18,655
Cash and cash equivalents................................... 3 5
Other assets................................................ 277 487
------- -------
Total assets...................................... $16,589 $19,147
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable, net........................................ $ 5,479 $ 4,985
Interest payable.......................................... 304 300
Due to affiliates......................................... 190 464
------- -------
Total liabilities................................. 5,973 5,749
======= =======
Stockholders' Equity
Series A convertible preferred stock, $.001 par value;
5,000 shares authorized; 4,400 shares issued and
outstanding at 1996 and 1997, respectively............. -- --
Common stock, $.001 par value; 3,000,000 shares
authorized; 485,983 issued and outstanding at 1996 and
1997, respectively..................................... -- --
Additional paid-in capital................................ 4,950 4,950
Retained earnings......................................... 6,140 8,482
Net unrealized loss on available for sale securities, net
of deferred income tax benefit of $244,337 in 1996 and
$17,269 in 1997........................................ (474) (34)
------- -------
Total stockholders' equity........................ 10,616 13,398
------- -------
Total liabilities and stockholders' equity........ $16,589 $19,147
======= =======
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE> 89
SCHEDULE II.2
FINANCIAL PACIFIC INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenues:
Equity in income of subsidiaries.......................... $2,204 $2,462 $2,804
Net investment income..................................... 4 2 2
------ ------ ------
Total revenues.................................... 2,208 2,464 2,806
Expenses:
General and administrative................................ 5 5 4
Interest espense.......................................... 128 692 617
Due diligence expense..................................... -- -- 81
------ ------ ------
133 697 702
Income before federal indome tax benefit.......... 2,075 1,767 2,104
Provision for federal income tax benefit.................... 75 236 238
------ ------ ------
$2,150 $2,003 $2,342
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
S-4
<PAGE> 90
SCHEDULE II.3
FINANCIAL PACIFIC INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
A2YEAR ENDED DECEMBER 31,
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,150 $ 2,003 $ 2,342
Less equity in income of subsidiaries..................... (1,804) (1,832) (1,904)
------- ------- -------
Net loss from operations............................... 346 171 438
Amortization........................................... 15 32 8
Adjustments:
Increase in other assets (164) (104) (214)
Increase (decrease) in federal income taxes payable (3) 3
Increase (decrease) in interest payable.............. 15 289 (4)
Increase in intercompany payable..................... 118 43 274
------- ------- -------
Net cash provided (used).......................... 327 434 502
Cash flows from investing activities:
Proceeds from sale of fixed maturities available for
sale................................................... 5
Purchase of fixed maturities available for sale........... (55)
------- ------- -------
Net cash provided by investing activities..............
Cash flows from financing activities:
Proceeds form issuance of note payable.................... 5,000 500
Capital contribution...................................... (5,000)
Principal repayment on note payable....................... (315) (945) (500)
------- ------- -------
Net cash provided (used) by financing activities....... (315) (445) (500)
Net increase (decrease) in cash and cash equivalents... 12 (11) 2
Cash and cash equivalents, beginning of year........... 1 14 3
------- ------- -------
Cash and cash equivalents, end of year................. $ 13 $ 3 $ 5
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
S-5
<PAGE> 91
SCHEDULE II.4
FINANCIAL PACIFIC INSURANCE GROUP, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed financial statements include the accounts of
Financial Pacific Insurance Group, Inc. (the "Parent Company"). The Parent
Company's wholly-owned subsidiaries, Financial Pacific Insurance Company
("Insurance Company") and Financial Pacific Insurance Agency and Financial
Pacific Technologies, Inc. are not presented as consolidated entities on these
condensed financial statements.
2. MATERIAL CONTINGENCIES
The Parent Company is the subject of certain claims arising in the ordinary
course of its operations. The Parent Company believes that the ultimate
resolution of such matters will not materially affect its financial condition.
3. NOTES PAYABLE, NET
At December 31, 1995 and 1996, the Parent Company owed $5,000,000 under an
unsecured senior note payable to certain stockholders and directors of the
Parent Company. The note payable accrues 12% interest compounded annually and is
payable semi-annually. The note is due on January 1, 2001. The note was issued
with a Common Stock Warrant Purchase agreement which entitles the holders the
option to purchase up to 1,505.4 shares of the Group's common stock. The Group
is subject to certain restrictions described in the note agreement.
At December 31, 1995, the Parent Company owed $945,000 under a secured
promissory note issued in conjunction with the Acquisition of the Insurance
Company and Agency. Effective February 1, 1995, the note was amended to extend
the maturity to November 12, 1998 with interest to accrue at 10% compounded
annually and payable quarterly. Principal payments of $315,000 are due annually
on the anniversary date of the promissory note, November 12, 1993. The
promissory note is secured by the common stock of the Insurance Company. The
note was issued with a stock option agreement which grants the holder an option
to purchase from the Parent Company common stock equal to 5% of the Insurance
Company's outstanding common stock each year during the term of promissory note,
on the anniversary of the promissory note, in exchange for the cancellation by
the holder of the principal payment then due under the promissory note.
Effective May 1, 1996, the Parent Company paid off the balance due under this
note and obtained a general release from the former owner.
At December 31, 1996, the Parent Company owed $500,000 under a $530,000
bank line of credit. The line of credit is unsecured, matures April 1, 1997, and
bears interest (payable monthly) at an annual rate of 1 percent over the bank's
base rate. The effective annual interest through December 31, 1996 was 9.25%.
The bank also granted a $30,000 irrevocable letter of credit covered by this
line of credit.
The notes payable are presented net of deferred debt issue costs. Deferred
debt issue costs are amortized over the term of the note. Unamortized debt issue
costs totaled $20.586 and $44,340 at December 31, 1996 and 1995, respectively.
NOTE 4. DIVIDENDS FROM SUBSIDIARIES
Financial Pacific Insurance Company, a consolidated subsidiary of the
Parent Company paid dividends to its parent of $402,000, $630,000, and $900,000
in 1995, 1996, and 1997 respectively.
S-6
<PAGE> 92
SCHEDULE III
FINANCIAL PACIFIC INSURANCE GROUP, INC.
SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
- ------------------------------------------ ----------- -------------- -------- ---------- -------- ----------
FUTURE POLICY OTHER
DEFERRED BENEFITS, POLICY
POLICY LOSSES, CLAIMS CLAIMS AND NET NET
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT
SEGMENT COST EXPENSES PREMIUM PAYABLE REVENUE INCOME
- ------------------------------------------ ----------- -------------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1997 -- Property & Casualty Insurance..... $5,357 $19,592 21,968 -- $22,854 $ 1,720
====== ======= ======= == ======= =======
1996 -- Property & Casualty Insurance..... $3,778 $13,944 $18,980 -- $14,987 $ 1,449
====== ======= ======= == ======= =======
1995 -- Property & Casualty Insurance..... $2,495 $12,225 $13,659 -- $12,060 $ 1,029
====== ======= ======= == ======= =======
<CAPTION>
COLUMN A COLUMN H COLUMN I COLUMN J COLUMN K
- ------------------------------------------ -------------- ------------ --------- --------
BENEFITS, AMORTIZATION
CLAIMS, LOSSES OF DEFERRED
AND POLICY OTHER NET
SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES COSTS EXPENSES WRITTEN
- ------------------------------------------ -------------- ------------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1997 -- Property & Casualty Insurance..... $12,748 $ 7,440 $ 1,655 $26,936
======= ======= ======= =======
1996 -- Property & Casualty Insurance..... $ 9,750 $ 4,785 $ 1,443 $18,253
======= ======= ======= =======
1995 -- Property & Casualty Insurance..... $ 6,325 $ 3,684 $ 1,447 $14,042
======= ======= ======= =======
</TABLE>
S-7
<PAGE> 93
SCHEDULE IV
FINANCIAL PACIFIC INSURANCE GROUP, INC.
REINSURANCE
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------- -------- --------- ---------- -------- ----------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
-------- --------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Life insurance in force.............. $ -- $ -- $ -- $ -- --%
------- ------- ------- ------- ---
Premiums:
Life insurance..................... -- -- -- -- --
Accident and health insurance...... -- -- -- -- --
Property and liability insurance... 39,512 12,576 -- 26,936 0.0
Title insurance.................... -- -- -- -- --
------- ------- ------- ------- ---
Total Premiums............. $39,512 $12,576 -- $26,936 0.0%
======= ======= ======= ======= ===
</TABLE>
S-8
<PAGE> 94
SCHEDULE IV
FINANCIAL PACIFIC INSURANCE GROUP, INC.
REINSURANCE
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------- -------- --------- ---------- -------- ----------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
-------- --------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Life insurance in force.............. $ -- $ -- $ -- $ -- --%
------- ------- ------- ------- ---
Premiums:
Life insurance..................... -- -- -- -- --
Accident and health insurance...... -- -- -- -- --
Property and liability insurance... 31,927 13,674 -- 18,253 0.0
Title insurance.................... -- -- -- -- --
------- ------- ------- ------- ---
Total Premiums............. $31,927 $13,674 $ -- $18,253 0.0%
======= ======= ======= ======= ===
</TABLE>
S-9
<PAGE> 95
SCHEDULE IV
FINANCIAL PACIFIC INSURANCE GROUP, INC.
REINSURANCE
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ------------------------------------- -------- --------- ---------- -------- ----------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
-------- --------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Life insurance in force.............. $ -- $ -- $ -- $ -- --%
------- ------- ------- ------- ---
Premiums:
Life insurance..................... -- -- -- -- --
Accident and health insurance...... -- -- -- -- --
Property and liability insurance... 24,695 10,653 -- 14,042 0.0
Title insurance.................... -- -- -- -- --
------- ------- ------- ------- ---
Total Premiums............. $24,695 $10,653 $ -- $14,042 0.0%
======= ======= ======= ======= ===
</TABLE>
S-10
<PAGE> 96
SCHEDULE V
FINANCIAL PACIFIC INSURANCE GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------- ------------ ------------ ------------- ----------
DEDUCTIONS --
ADDITIONS -- FROM PREMIUM
BALANCE AT CHARGED TO BALANCE TO BALANCE AT
BEGINNING OF COSTS AND ALLOWANCE END OF
PERIOD EXPENSES ACCOUNT PERIOD
------------ ------------ ------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1997:
Allowance for doubtful accounts............. $40 $30 $30 $40
=== === === ===
1996:
Allowance for doubtful accounts............. $40 $31 $31 $40
=== === === ===
1995:
Allowance for doubtful accounts............. $20 $56 $36 $40
=== === === ===
</TABLE>
S-11
<PAGE> 97
SCHEDULE VI
FINANCIAL PACIFIC INSURANCE GROUP, INC.
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
- ------------------------- ------------ ------------ --------- -------- -------- ---------- ------------------
NET CLAIMS AND
CLAIMS ADJUSTMENT
RESERVES FOR EXPENSES INCURRED
UNPAID DISCOUNT, RELATED TO
DEFERRED CLAIMS & IF ANY, ------------------
POLICY CLAIM DEDUCTED NET NET (1) (2)
AFFILIATION WITH ACQUISITIONS ADJUSTMENT IN UNEARNED EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUM INCOME YEAR YEAR
- ------------------------- ------------ ------------ --------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997:
Financial Pacific
Insurance Company...... $5,357 $19,592 $-- $21,968 $22,854 $1,720 $10,991 $1,757
====== ======= == ======= ======= ====== ======= ======
1996:
Financial Pacific
Insurance Company...... $3,778 $13,944 $-- $18,980 $14,987 $1,449 $ 7,183 $2,356
====== ======= == ======= ======= ====== ======= ======
1995:
Financial Pacific
Insurance Company...... $2,495 $12,225 $-- $13,659 $12,060 $1,029 $ 6,702 $ (166)
====== ======= == ======= ======= ====== ======= ======
<CAPTION>
COLUMN A COLUMN I COLUMN J COLUMN K
- ------------------------- ------------ ---------- --------
AMORTIZATION PAID NET
OF DEFERRED CLAIMS AND
POLICY CLAIM NET
AFFILIATION WITH ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT COST EXPENSES WRITTEN
- ------------------------- ------------ ---------- --------
<S> <C> <C> <C>
1997:
Financial Pacific
Insurance Company...... $7,440 $9,278 $26,936
====== ====== =======
1996:
Financial Pacific
Insurance Company...... $4,785 $7,477 $18,253
====== ====== =======
1995:
Financial Pacific
Insurance Company...... $3,684 $3,899 $14,042
====== ====== =======
</TABLE>
S-12
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------- ----------------------- -------------
<C> <S> <C>
1.1* Underwriting Agreement between EVEREN Securities, Inc. and
the Registrant. ............................................
3.1 Restated Certificate of Incorporation of the Registrant. ...
3.2 Bylaws of the Registrant. ..................................
4.1 Specimen Common Stock certificate. .........................
4.2+ Stockholders Agreement, dated September 7, 1993, between the
Registrant and the investors named therein. ................
4.3 Amendment Number One to the Stockholders Agreement, dated
December 28, 1995, between the Registrant and the investors
named therein. .............................................
5.1* Opinion of Riordan & McKinzie, a Professional Law
Corporation. ...............................................
10.1 1993 Stock Incentive Plan. .................................
10.2 Form of Stock Option Agreement. ............................
10.3** Employment Agreement between the Registrant and Robert C.
Goodell dated February 6, 1996, as amended. ................
10.4** Employment Agreement between the Registrant and Robert T.
Kingsley dated February 13, 1997. ..........................
10.5** Employment Agreement between the Registrant and Edward J.
Paoletti dated November 14, 1997. ..........................
10.6** Employment Agreement between the Registrant and Wallace G.
Rascher dated February 14, 1997. ...........................
10.7** Employment Agreement between the Registrant and Timothy N.
Blaede dated February 14, 1997. ............................
10.8** Employment Agreement between the Registrant and John R.
Hollingshead dated November 14, 1997. ......................
10.9** Employment Agreement between the Registrant and Artur A.
Terner dated February 14, 1997. ............................
10.10** Employment Agreement between the Registrant and Charles E.
Wardlaw dated January 1, 1998. .............................
10.11+** Restricted Stock Agreement between the Registrant and Robert
C. Goodell dated September 7, 1993. ........................
10.12 Note and Warrant Purchase Agreement dated December 28, 1995
among the Registrant and the purchasers listed therein. ....
10.13 Form of 12% Senior Note due 2001. ..........................
10.14 Form of Warrant issued by the Registrant dated December 28,
1995. ......................................................
10.15 Form of Warrant issued by the Registrant dated September 7,
1993. ......................................................
10.16 Financial Pacific Insurance Company Property Quota Share
Reinsurance Contract originally effective July 1, 1993. ....
10.17 Financial Pacific Insurance Company Contingent Excess of
Loss Reinsurance Contract originally effective July 1,
1996. ......................................................
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------- ----------------------- -------------
<C> <S> <C>
10.18 Financial Pacific Insurance Company Contingent Excess of
Loss Reinsurance Contract originally effective January 1,
1997. ......................................................
10.19 Financial Pacific Insurance Company Semi-Automatic Casualty
Facultative Reinsurance Contract originally effective July
1, 1996. ...................................................
10.20 Financial Pacific Insurance Company (M.L. Oates Insurance
Company) Property Quota Share Reinsurance Contract
originally effective July 1, 1993. .........................
10.21 Financial Pacific Insurance Company First Excess Casualty
Reinsurance Contract originally effective January 1,
1997. ......................................................
10.22 Producer Agreement between American Underwriting Managers
Agency, Inc. and Financial Pacific Insurance Agency, Inc.
("FPIA") effective October 1, 1995. ........................
10.23 Claims Management Agreement between FPIA and American
Underwriting Managers dated November 28, 1995 ..............
10.24 Agreement between Financial Pacific Insurance Company
("FPIC") and General Reinsurance Corporation (No. 118). ....
10.25 Agreement between FPIC and General Reinsurance Corporation
(No. AFF-6243440) ..........................................
10.26 Agreement between FPIC and General Reinsurance Corporation
(No. 8090). ................................................
10.27 Quota Share Reinsurance Agreement between FPIC and American
Re-insurance dated October 23, 1997. .......................
10.28 Net Lease Agreement between FPIC and Stanford Ranch I, LLC
dated June 11, 1996. .......................................
10.29 Promissory Note dated September 15, 1997 issued by the
Registrant to U.S. Bank ....................................
10.30 Stock Purchase Agreement dated February 24, 1997 between
Robert C. Goodell and the purchasers listed therein. .......
10.31 Form of Indemnification Agreement between the Registrant and
each director of the Registrant. ...........................
11.1 Computation of Net Income Per Share. .......................
21.1 Subsidiaries of the Registrant. ............................
23.1* Consent of KPMG Peat Marwick LLP, Independent
Accountants. ...............................................
23.2* Consent of Riordan & McKinzie (contained in Exhibit 5.1)....
23.3* Consent of LeBoeuf, Lamb, Greene & Macrae L.L.P. ...........
24.1 Power of Attorney (see page II-5). .........................
27.1 Financial Data Schedule. ...................................
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment requested.
+ The Schedules to this Exhibit have not been filed with the Commission
because the Registrant believes that such Schedules do not contain
information that is material to an investment decision. The Registrant
hereby agrees to furnish supplementally a copy of the omitted schedules to
the Commission upon request.
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
FINANCIAL PACIFIC INSURANCE GROUP, INC.
(Pursuant to Section 245 of the
Delaware General Corporation Law)
FINANCIAL PACIFIC INSURANCE GROUP, INC., a corporation incorporated
under the General Corporation Law of Delaware (the "Corporation"), hereby amends
and restates its Certificate of Incorporation (as originally filed by the
Secretary of State on May 26, 1993) so that the same shall read, in its
entirety, as follows:
ARTICLE I
The name of the Corporation is Financial Pacific Insurance Group, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 32 Lockerman Square, Suite L-100, City of Dover, County of Kent,
Delaware 19901. The name of its registered agent at such address is The
Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware, as amended from time to time.
ARTICLE IV
Section 4.1 Authorized Capital.
(a) The total number of shares of all classes of capital
stock with which the Corporation shall have authority to issue is 9,500,000
shares, consisting of 2,000,000 shares of Preferred Stock, par value $.001 per
share (the "Preferred Stock"), and 7,500,000 shares of Common Stock, par value
$.001 per share (the "Common Stock").
(b) The number of authorized shares of any class or
classes of capital stock may be increased or decreased (but not below the number
of shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the capital stock of the Corporation entitled to vote on all matters
to be voted on by the stockholders of the Corporation.
<PAGE> 2
Section 4.2 Preferred Stock.
(a) The Board of Directors of this Corporation is
authorized to determine the number of series into which shares of Preferred
Stock may be divided and the designation of any such series; and except with
respect to the Series A Preferred Stock, which is described below, the Board of
Directors is authorized to determine the rights, preferences, privileges and
restrictions granted or to be imposed upon the Preferred Stock or any series
thereof or any holders thereof, to determine and alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly-unissued
series of Preferred Stock or the holders thereof, to fix the number of shares
constituting any series prior to the issuance of shares of that series, and to
increase or decrease, within the limits stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares constituting
any series (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issuance of shares of
that series.
Upon such designation, the Secretary of the Corporation shall cause a
Certificate of Designation setting forth a copy of such resolution and the
number of shares of the Preferred Stock as to which the resolution applied to be
executed, acknowledged, filed and recorded in accordance with Section 103 of the
General Corporation Law of the State of Delaware.
(b) The Corporation is authorized to issue 5,000 shares
of the Series A Preferred Stock. The rights, preferences, privileges and
restrictions of such series of Preferred Stock and the Common Stock, as well as
the holders of such stock, are set forth below in this Article IV.
(c) Designation. The series of Preferred Stock having the
rights, preferences, privileges and restrictions set forth below shall be
designated and known as the "Series A Preferred Stock" (hereinafter referred to
as the "Series A Stock").
(d) Number of Shares of Series. The number of shares
constituting all of the Series A Stock shall be 5,000.
(e) Dividends.
(i) The holders of Series A Stock shall not be
entitled to receive dividends unless and until expressly declared by
the Board of Directors of the Corporation with respect to the Series A
Stock, or to otherwise participate in any manner in the earnings of the
Corporation; provided, however, that in the event the Corporation pays
a dividend or makes any other distribution, whether in cash, property
or otherwise, including, without limitation, any rights, options or
warrants to acquire securities or other securities, pro rata to the
holders of its Series A Stock, then the record holders of the Common
Stock outstanding on the applicable record date of such dividend or
other distribution shall be entitled to
2.
<PAGE> 3
receive dividends or such other distributions, out of funds legally
available therefor, in an amount per share of Common Stock equal to the
dividend or other distribution receivable had the holders of the Series
A Stock converted their Series A Stock into Common Stock immediately
prior to the record date for such dividend or other distribution
pursuant to the terms of this Certificate, whether or not such Series A
Stock was at such time convertible.
(ii) No provision of this Certificate shall be
deemed to limit or otherwise restrict or qualify the right of the
Corporation to declare, pay or set apart for payment on any of its
capital stock (whether outstanding on the date hereof or issued in the
future) any dividends, whether in cash, property or otherwise, or to
otherwise make any distribution in respect of or purchase, redeem or
otherwise acquire any such capital stock, subject only to the right of
the holders of Common Stock, pursuant to Section 4.2(e)(i) hereof, to
receive certain dividends and other distributions payable in respect of
the Series A Stock.
(f) Liquidation Preference.
(i) In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the
holders of the Series A Stock shall be entitled to receive, prior and
in preference to any distribution of any assets of the Corporation to
the holders of Common Stock, the amount of $1,000 per share plus any
declared but unpaid dividends.
(ii) After distribution to the holders of the
Series A Stock of the preferential amount set forth in subparagraph (i)
above, and after distribution to the holders of any other class or
series of shares entitled to a liquidation preference over the Common
Stock of the full preferential amount to which such holders may be
entitled, the remaining assets of the Corporation legally available for
distribution to the holders of Common Stock shall be distributed among
the holders of the Common Stock.
(iii) A consolidation or merger of the Corporation
with or into any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation, shall not be deemed
a liquidation, dissolution or winding up within the meaning of this
Section 4.2(f); provided, that the Corporation shall give advance
notice of any such event to the holders of the Series A Stock not less
than 20 days prior to the effective date thereof, such notice to be
given in the manner required by Section 251 of the Delaware General
Corporation Law.
3.
<PAGE> 4
(g) Redemption.
(i) At any time after September 7, 2000, the
Corporation shall be entitled to redeem, out of funds legally available
therefor, all or any portion of the outstanding shares of Series A
Stock held by each holder of Series A Stock. On the date of redemption
(the "Redemption Date") the redemption shall be made by payment in cash
of a sum per share of Series A Stock equal to the liquidation
preference set forth in Section 4.2(f)(i) hereof (the "Redemption
Price").
(ii) At least 30 days but no more than 60 days
prior to the Redemption Date, written notice (the "Redemption Notice")
shall be mailed, first class postage prepaid, by the Corporation to
each holder of record (at the close of business on the business day
next preceding the day on which the Redemption Notice is given) of the
Series A Stock, at the address last shown on the records of the
Corporation for such holder, notifying such holder of the redemption
which is to be effected, specifying the percentage of shares which is
to be redeemed from such holder, the Redemption Date, the Redemption
Price, the place at which payment may be obtained and calling upon each
such holder to surrender to the Corporation, in the manner and at the
place designated, a certificate or certificates representing the number
of shares to be redeemed (calculated by multiplying the specified
percentage of shares to be redeemed by the total number of shares of
Series A Stock held by such holder as of the Redemption Date). Except
as provided in Section 4.2(g)(iii), on or after the Redemption Date,
each holder of Series A Stock shall surrender to the Corporation the
certificate or certificates representing the specified percentage of
shares of Series A Stock owned by it as of the Redemption Date, in the
manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the
order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate
shall be canceled. In the event less than all the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(iii) From and after 5:00 p.m., Los Angeles time,
on the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of shares
which have been redeemed (except the right to receive the Redemption
Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares
shall not thereafter be transferred on the books of the Corporation or
be deemed to be outstanding for any purpose whatsoever. If the
Corporation elects to redeem less than all of the Series A Stock, the
Corporation will redeem shares ratably among the holders of such shares
to be redeemed. The shares not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter the Corporation may elect to redeem all
4.
<PAGE> 5
or any portion of the remaining shares of Series A Stock upon the terms
and subject to the conditions of this Section 4.2(g).
(iv) On or prior to a given Redemption Date, the
Corporation shall deposit the Redemption Price of all shares to be
redeemed on such Redemption Date with a bank or trust company having
aggregate capital and surplus in excess of $100,000,000 as a trust fund
for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed, with irrevocable instructions and
authority to the bank or trust company to pay the Redemption Price for
such shares to their respective holders on or after the Redemption Date
upon receipt of notification from the Corporation that such holder has
surrendered its share certificate to the Corporation pursuant to
Section 4.2(g)(ii) above. The balance of any moneys deposited by the
Corporation pursuant to this Section 4.2(g)(iv) remaining unclaimed at
the expiration of six months following the Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in
a resolution of its Board of Directors.
Nothing contained herein shall prevent the holder of shares of Series A
Stock from converting to Common Stock all or any shares of Series A Stock to
which the Redemption Notice applies in accordance with the provisions of Section
4.2(i) hereof prior to 5:00 p.m., Los Angeles time, on the Redemption Date.
(h) Voting Rights. Except as otherwise expressly
provided in Section 4.2(j) hereof or as required by law, the holder of each
share of Series A Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such shares of Series A Stock could
then be converted and shall have voting rights and powers equal to the voting
rights and powers of such Common Stock (except as otherwise expressly provided
herein or as required by law, voting together with the Common Stock as a single
class) and shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation in the same manner and at the same
time as holders of Common Stock. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Series A Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(i) Conversion. The holders of the Series A
Stock shall have conversion rights as follows:
(i) Right to Convert. Each share of
Series A Stock shall be convertible, at the option of the holder
thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) $1,000 by (ii) the
Conversion Price determined as hereinafter provided in effect on said
date.
5.
<PAGE> 6
The Conversion Price shall, as of the date hereof, be $2.5356576 per
share, and shall be subject to adjustment as hereinafter provided.
(ii) Automatic Conversion. Each share of
Series A Stock shall automatically be converted into shares of Common
Stock at the then effective Conversion Price immediately upon the
effective date of a registration statement filed pursuant to the
Securities Act of 1933, as amended (other than a registration relating
solely to a transaction under Rule 145 under such Act or any successor
thereto, or to an employee benefit plan of the Corporation), in
connection with the sale of the Corporation's Common Stock in a firm
commitment, underwritten public offering with gross proceeds to be
received by the Corporation which equal or exceed $10,000,000 and a
public offering price of the Common Stock of not less than $12.68 per
share, as of the date hereof, as adjusted pursuant to Section
4.2(i)(iv) (an "Initial Public Offering").
(iii) Mechanics of Conversion. Before any
holder of Series A Stock shall be entitled to convert the same into
shares of Common Stock, the holder shall surrender the certificate or
certificates thereof, duly endorsed, at the office of the Corporation
or of any transfer agent for such stock, and shall give written notice
to the Corporation at such office that he elects to convert the same
and shall state therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued.
The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder a certificate or certificates for
the number of shares of Common Stock to which it shall be entitled as
aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of
the shares of Series A Stock to be converted, except that in the case
of an automatic conversion pursuant to Section 4.2(i)(ii) hereof, such
conversion shall be deemed to have been made immediately prior to the
effective date of the offering referred to in Section 4.2(i)(ii) and
shall be deemed to have been made whether or not certificates for the
Series A Stock shall have been surrendered. The person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(iv) Adjustments to Conversion Price.
(A) Subdivision or Combination
of Stock. In case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares by way of stock split,
stock dividend or similar event, the Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock shall be combined into a smaller
number of shares
6.
<PAGE> 7
by way of reverse stock split or similar event, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
(B) Reorganization,
Reclassification, Consolidation, Merger or Sale. If any capital reorganization
or reclassification of the capital stock of the Corporation, any consolidation
or merger of the Corporation with another entity, or the sale of all or
substantially all of the Corporation's assets to another entity shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the holders
of Series A Stock shall receive such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore receivable upon the conversion of the
Series A Stock had such reorganization, reclassification, consolidation, merger
or sale not taken place and in any such case appropriate provision shall be made
with respect to the rights and interests of the holders of the Series A Stock to
the end that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion of the Series A Stock. The Corporation will not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Corporation) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument, executed and mailed or delivered to the holder of
Series A Stock at the last address thereof appearing on the books of the
Corporation, the obligation to deliver to such holders such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
(C) Issuance of Certain
Additional Shares. If the Corporation shall sell or issue to any person any
shares of Common Stock or any options, warrants or rights entitling any person
to subscribe for, purchase or convert, or exchange shares of Common Stock (other
than (i) sales or issuance to officers or employees of, or consultants or
advisors to, the Corporation pursuant to any stock incentive plan or arrangement
approved by the Corporation's Board of Directors and (ii) shares issued upon
conversion of the Series A Stock) at a price per share of Common Stock, or
having an exercise price per share of Common Stock, as the case may be, that is
less than the Current Market Value (as hereinafter defined) of Common Stock on
the date of issuance (such shares being referred to as the "Below Market
Shares"), the Conversion Price shall be adjusted on and after the date of such
sale and issuance by multiplying the Conversion Price by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding on such
date plus the number of shares of Common Stock that the aggregate purchase price
or exercise price of such Below Market Shares would purchase at the Current
Market Value, and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of Below Market Shares.
The adjustment to the Conversion Price set forth above shall be made
successively whenever a sale or issuance of Below Market Shares occurs;
provided, however, that, if any such options, warrants or rights
7.
<PAGE> 8
expire without the issuance of shares of Common Stock, then the Conversion Price
shall again be adjusted to equal the Conversion Price in effect had such
issuance of Below Market Shares not occurred.
(v) Definitions. As used herein, the following
terms shall have the following meanings:
"Current Market Value" per share of Common Stock means (i) if an
Initial Public Offering of the Common Stock has taken place, the price at the
close of the market on the first day of trading of such Common Stock following
the effectiveness of a registration statement for the Common Stock and (ii) if
no Initial Public Offering has taken place, the Fair Market Value of the Common
Stock based upon the Fair Market Value of 100% of the Corporation if sold as a
going concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of Common Stock do not constitute a majority
or controlling interest in the Corporation and assuming the exercise of all
warrants, convertible securities, options or other rights to subscribe for or
purchase any additional shares of Common Stock or securities convertible or
exchangeable into Common Stock.
"Fair Market Value" shall mean the value obtainable upon a sale in an
arm's length transaction to an unaffiliated third party under usual and normal
circumstances, with neither the buyer nor the seller under any compulsion to
act, with equity to both, as determined by the Board in good faith; provided,
however, that if the holders of 75% of the outstanding shares of Series A Stock
(the "Disputing Holders") shall dispute the Fair Market Value as determined by
the Board, the Disputing Holders may undertake to have the Corporation retain an
Independent Expert. The determination of Fair Market Value by the Independent
Expert shall be final, binding and conclusive on the Corporation and the
Disputing Holders. All costs and expenses of the Independent Expert shall be
borne by the Disputing Holders, unless the determination of Fair Market Value by
the Independent Expert is more than 5% more favorable to the Corporation than
the Fair Market Value determined by the Board, in which event the cost of the
Independent Expert shall be shared equally by the Disputing Holders, on the one
hand, and the Corporation, on the other hand, or more than 10% more favorable to
the Corporation than the Fair Market Value determined by the Board, in which
event the cost of the Independent Expert shall be borne solely by the
Corporation.
"Independent Expert" shall mean an investment banking firm reasonably
agreeable to the Corporation and the Disputing Holders, who does not (and whose
affiliates do not) have a financial interest in the Corporation or any of its
stockholders.
(vi) Certificates as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Section 4.2(i), the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and cause independent public accountants selected by the
Corporation to verify such
8.
<PAGE> 9
computation and prepare and furnish to each holder of Series A Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of
any holder of Series A Stock, furnish or cause to be furnished to such
holder a like certificate prepared by the Corporation setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price at the
time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received
upon the conversion of Series A Stock.
(vii) Notice of Record Date. In the event of any
taking by the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any security or right convertible into or entitling the
holder thereof to receive Additional Shares of Common Stock, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive
any other right, the Corporation shall mail to each holder of Series A
Stock at least 15 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right and the
amount and character of such dividend, distribution, security or right.
(viii) Issue Taxes. The Corporation shall pay any
and all issue and other taxes, excluding federal, state or local income
taxes, that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series A Stock
pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(ix) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of the
Series A Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval.
9.
<PAGE> 10
(x) Fractional Shares. No fractional shares
shall be issued upon the conversion of any share or shares of Series A
Stock. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one share of Series A Stock by a
holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result
in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the
fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors of the Corporation).
(xi) Notices. Any notice required hereunder to be
given to the holders of shares of Series A Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed
to each holder of record at its address appearing on the books of the
Corporation.
(j) Restrictions and Limitations. So long as at least 25%
of the originally issued shares of Series A Stock are outstanding, the
Corporation shall not modify its Certificate of Incorporation or Bylaws so as to
amend or change any of the rights, preferences, privileges of or limitations on
the Series A Stock without the consent of a majority of the votes entitled to be
cast by the holders of the Series A Stock.
Section 4.3 Common Stock.
(a) Liquidation or Dissolution. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, holders of Common Stock shall receive a pro rata distribution of
any remaining assets after payment or provision for liabilities and the
liquidation preference on Preferred Stock, if any.
(b) Voting Rights. The holders of Common Stock shall be
entitled to one vote per share on all matters to be voted on by the stockholders
of the Corporation."
ARTICLE V
Upon filing of this Restated Certificate of Incorporation, and without
any further action on the part of the holders thereof, each issued and
outstanding share of Common Stock shall be converted into 394.375 shares of
Common Stock.
ARTICLE VI
The Corporation is to have perpetual existence.
10.
<PAGE> 11
ARTICLE VII
In furtherance and not in limitation of the powers conferred by
statute:
A. The Board of Directors of the Corporation is
expressly authorized to adopt, amend, alter or repeal the bylaws of the
Corporation;
B. Elections of directors need not be by written ballot
unless the bylaws of the Corporation shall so provide; and
C. The books of the Corporation may be kept at such
place within or without the State of Delaware as the bylaws of the Corporation
may provide or as may be designated from time to time by the Board of Directors
of the Corporation.
ARTICLE VIII
A. The Corporation shall indemnify each of the
Corporation's directors and officers in each and every situation where, under
Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time ("Section 145"), the Corporation is permitted or empowered to
make such indemnification. The Corporation may, in the sole discretion of the
Board of Directors of the Corporation, indemnify any other person who may be
indemnified pursuant to Section 145 to the extent the Board of Directors deems
advisable, as permitted by Section 145. The Corporation shall promptly make or
cause to be made any determination required to be made pursuant to Section 145.
B. No person shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty or
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an improper
personal benefit. If the General Corporation Law of the State of Delaware is
subsequently amended to further eliminate or limit the liability of a director,
then a director of the Corporation, in addition to the circumstances in which a
director is not personally liable as set forth in the preceding sentence, shall
not be liable to the fullest extent permitted by the amended General Corporation
Law of the State of Delaware. For purposes of this Article VIII, "fiduciary duty
as a director" shall include any fiduciary duty arising out of serving at the
Corporation's request as a director of another corporation, partnership, joint
venture or other enterprise, and "personal liability to the Corporation or its
stockholders" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
Corporation in its capacity as a security holder, joint venturer, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
11.
<PAGE> 12
ARTICLE IX
The Corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
This Restated Certificate of Incorporation has been duly adopted by the
stockholders of the Corporation in accordance with the provisions of Sections
245 and 242 of the General Corporation Law of Delaware, as amended.
IN WITNESS WHEREOF, the undersigned have executed this Restated
Certificate of Incorporation this 14th day of April, 1998.
/s/ ROBERT C. GOODELL
-------------------------------------
Robert C. Goodell,
President and Chief Executive Officer
/s/ ROBERT T. KINGSLEY
-------------------------------------
Robert T. Kingsley
Secretary
12.
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EXHIBIT 3.2
BYLAWS
OF
FINANCIAL PACIFIC INSURANCE GROUP, INC.
A Delaware Corporation
As adopted May 28, 1993
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TABLE OF CONTENTS
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ARTICLE I OFFICES...................................................................................1
Section 1. Registered Office............................................................1
Section 2. Other Offices................................................................1
Section 3. Books........................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS....................................................................1
Section 1. Place of Meetings............................................................1
Section 2. Annual Meetings..............................................................1
Section 3. Special Meetings.............................................................1
Section 4. Notification of Business to be Transacted at Meeting.........................2
Section 5. Notice; Waiver of Notice.....................................................2
Section 6. Quorum; Adjournment..........................................................2
Section 7. Voting.......................................................................2
Section 8. Stockholder Action by Written Consent Without a Meeting......................3
Section 9. List of Stockholders Entitled to Vote........................................3
Section 10. Stock Ledger.................................................................3
Section 11. Inspectors of Election.......................................................3
Section 12. Organization.................................................................3
Section 13. Order of Business............................................................4
ARTICLE III DIRECTORS...................................................................................4
Section 1. Powers.......................................................................4
Section 2. Number and Election of Directors.............................................4
Section 3. Vacancies....................................................................4
Section 4. Time and Place of Meetings...................................................4
Section 5. Annual Meeting...............................................................4
Section 6. Regular Meetings.............................................................5
Section 7. Special Meetings.............................................................5
Section 8. Quorum; Vote Required for Action; Adjournment................................5
Section 9. Action by Written Consent....................................................5
Section 10. Telephone Meetings...........................................................6
Section 11. Committees...................................................................6
Section 12. Compensation.................................................................6
Section 13. Interested Directors.........................................................6
ARTICLE IV OFFICERS....................................................................................7
Section 1. Officers.....................................................................7
Section 2. Appointment of Officers......................................................7
Section 3. Subordinate Officers.........................................................7
Section 4. Removal and Resignation of Officers..........................................7
Section 5. Vacancies in Offices.........................................................7
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Section 6. Chairman of the Board........................................................7
Section 7. Vice Chairman of the Board...................................................7
Section 8. Chief Executive Officer......................................................8
Section 9. President....................................................................8
Section 10. Vice President...............................................................8
Section 11. Secretary....................................................................8
Section 12. Chief Financial Officer......................................................9
ARTICLE V STOCK.......................................................................................9
Section 1. Form of Certificates.........................................................9
Section 2. Signatures...................................................................9
Section 3. Lost Certificates............................................................9
Section 4. Transfers....................................................................9
Section 5. Record Holders...............................................................9
ARTICLE VI INDEMNIFICATION............................................................................10
Section 1. Right to Indemnification....................................................10
Section 2. Right of Indemnitee to Brim Suit............................................10
Section 3. Non-Exclusivity of Rights...................................................11
Section 4. Insurance...................................................................11
Section 5. Indemnification of Employees or Agents of the Corporation...................11
Section 6. Indemnification Contracts...................................................11
Section 7. Effect of Amendment.........................................................11
ARTICLE VII GENERAL PROVISIONS.........................................................................12
Section 1. Dividends...................................................................12
Section 2. Disbursements...............................................................12
Section 3. Fiscal Year.................................................................12
Section 4. Corporate Seal..............................................................12
Section 5. Record Date.................................................................12
Section 6. Voting of Stock Owned by the Corporation....................................12
Section 7. Construction and Definitions................................................12
Section 8. Amendments..................................................................12
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BYLAWS
OF
FINANCIAL PACIFIC INSURANCE GROUP, INC.,
a Delaware corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Section 3. Books. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meetings. Annual meetings of stockholders shall be
held at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.
Section 3. Special Meetings. Special meetings of stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chief Executive Officer and
shall be called by the Chief Executive Officer or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
a stockholder or stockholders owning stock of the Corporation possessing ten
percent (10%) of the voting power possessed by all of the then outstanding
capital stock of any
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class of the Corporation entitled to vote. Such request shall state the purpose
or purposes of the proposed meeting.
Section 4. Notification of Business to be Transacted at Meeting. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.
Section 5. Notice; Waiver of Notice. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, such notice shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 6. Quorum; Adjournment. Except as otherwise required by law, or
provided by the Certificate of Incorporation or these Bylaws, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding the withdrawal of enough votes to leave less than a quorum, if
any action taken is approved by at least a majority of the required quorum to
conduct that meeting. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting of the time and place of the adjourned meeting, until a quorum shall
be present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.
Section 7. Voting. Except as otherwise required by law, or provided by the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders at which a quorum is present shall be decided by the
vote of the holders of a majority of the stock represented and entitled to vote
thereat. Unless otherwise provided in the Certificate of Incorporation, each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. Elections of directors need
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not be by ballot unless the Chairman of the meeting so directs or unless a
stockholder demands election by ballot at the meeting and before the voting
begins.
Section 8. Stockholder Action by Written Consent Without a Meeting. Except
as otherwise provided in the Certificate of Incorporation, any action which may
be taken at any annual or special meeting of stockholders, may be taken without
a meeting and without prior notice, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed with the Secretary of the
Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 9. List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11. Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors may appoint one or more persons (who shall
not be candidates for office) as inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not so appointed, or
if an appointed inspector fails to appear or fails or refuses to act at a
meeting, the Chairman of any meeting of stockholders may, and on the request of
any stockholder or his proxy shall, appoint an inspector or inspectors of
election at the meeting. The duties of such inspector(s) shall include:
determining the number of shares outstanding and the voting power of each; the
shares represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all stockholders. In the event of any dispute between
or among the inspectors, the determination of the majority of the inspectors
shall be binding.
Section 12. Organization. At each meeting of stockholders the Chairman
of the Board of Directors, if one shall have been elected, (or in his absence or
if one shall not have been elected,
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the President) shall act as Chairman of the meeting. The Secretary (or in his
absence or inability to act, the person whom the Chairman of the meeting shall
appoint secretary of the meeting) shall act as secretary of the meeting and keep
the minutes thereof.
Section 13. Order of Business. The order and manner of transacting
business at all meetings of stockholders shall be determined by the Chairman of
the meeting.
ARTICLE III
DIRECTORS
Section 1. Powers. Except as otherwise required by law or provided by
the Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
Section 2. Number and Election of Directors. Subject to any limitations
in the Certificate of Incorporation, the authorized number of directors of the
Corporation shall be not less than one (1) nor more than four (4). The exact
number of Directors within these limits shall be fixed from time to time by
resolution of the Board of Directors of the Corporation. The number of Directors
shall be so variable until changed by an amendment to this Section 2 of Article
III of these Bylaws adopted by the affirmative vote of a majority of the entire
Board of Directors or by the stockholders at the annual meeting. The number of
Directors presently authorized is one (1). Directors shall be elected at each
annual meeting of stockholders to replace directors whose terms then expire, and
each director elected shall hold office until his successor is duly elected and
qualified, or until his earlier death, resignation or removal. Any director may
resign at any time effective upon giving written notice to the Corporation,
unless the notice specifies a later time for such resignation to become
effective. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. If the resignation of a
director is effective at a future time, the Board of Directors may elect a
successor prior to such effective time to take office when such resignation
becomes effective. Directors need not be stockholders.
Section 3. Vacancies. Subject to the limitations in the Certificate of
Incorporation, vacancies in the Board of Directors resulting from death,
resignation, removal or otherwise and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Each director so selected shall hold office for the
remainder of the full term of office of the former director which such director
replaces and until his successor is duly elected and qualified, or until his
earlier death, resignation or removal. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent directors.
Section 4. Time and Place of Meetings. The Board of Directors shall hold
its meetings at such place, either within or without the State of Delaware, and
at such time as may be determined from time to time by the Board of Directors.
Section 5. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable
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after each annual meeting of stockholders, on the same day and at the same place
where such annual meeting shall be held. Notice of such meeting need not be
given. In the event such annual meeting is not so held, the annual meeting of
the Board of Directors may be held at such place, either within or without the
State of Delaware, on such date and at such time as shall be specified in a
notice thereof given as hereinafter provided in Section 7 of this Article III or
in a waiver of notice thereof.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware at such date
and time as the Board of Directors may from time to time determine and, if so
determined by the Board of Directors, notices thereof need not be given.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, the Secretary or by
any director. Notice of the date, time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at the director's
address as it is shown on the records of the Corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. In case the notice is delivered
personally or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. The notice need not specify the purpose of
the meeting. A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 8. Quorum; Vote Required for Action; Adjournment. Except as
otherwise required by law, or provided in the Certificate of Incorporation or
these Bylaws, a majority of the directors shall constitute a quorum for the
transaction of business at all meetings of the Board of Directors and the
affirmative vote of not less than a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
A meeting at which a quorum is initially present may continue to transact
business, notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum to conduct that meeting.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting.
Section 9. Action by Written Consent. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or committee.
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Section 10. Telephone Meetings. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this Section 10 shall constitute presence
in person at such meeting.
Section 11. Committees. The Board of Directors may, by resolution passed
unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the committee member or members present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member. Any committee, to the extent allowed by law
and as provided in the resolution establishing such committee, shall have and
may exercise all the power and authority of the Board of Directors in the
management of the business and affairs of the Corporation, but no such committee
shall have the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of a or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Each
committee shall keep regular minutes of its meetings and report to the Board of
Directors when required.
Section 12. Compensation. The directors may be paid such compensation
for their services as the Board of Directors shall from time to time determine.
Section 13. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a
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committee thereof. or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, a
Vice Chairman of the Board, a Chief Executive Officer, one or more Vice
Presidents, one or more Assistant Financial Officers and Treasurers, one or more
Assistant Secretaries and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article IV.
Section 2. Appointment of Officers. The officers of the Corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be appointed by the Board of
Directors, and each shall serve at the pleasure of the Board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. Subordinate Officers. The Board of Directors may appoint, and
may empower the Chief Executive Officer or President to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the Bylaws or as the Board of Directors may from time to time
determine.
Section 4. Removal and Resignation of Officers. Subject to the rights of
an officer under any contract, any officer may be removed at any time, with or
without cause, by the Board of Directors or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation shall be without prejudice to
the rights of the Corporation under any contract to which the officer is a
party.
Section 5. Vacancies in Offices. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular appointments to that
office.
Section 6. Chairman of the Board. The Chairman of the Board, if such an
officer is elected, shall, if present, preside at meetings of the stockholders
and of the Board of Directors. He shall, in addition, perform such other
functions (if any) as may be prescribed by the Bylaws or the Board of Directors.
Section 7. Vice Chairman of the Board. The Vice Chairman of the Board,
if such an officer is elected, shall, in the absence or disability of the
Chairman of the Board, perform all
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duties of the Chairman of the Board and when so acting shall have all the powers
of and be subject to all of the restrictions upon the Chairman of the Board. The
Vice Chairman of the Board shall have such other powers and duties as may be
prescribed by the Board of Directors or the Bylaws.
Section 8. Chief Executive Officer. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the Corporation. He shall exercise the duties usually vested in the chief
executive officer of a corporation and perform such other powers and duties as
may be assigned to him from time to time by the Board of Directors or prescribed
by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman
of the Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and of the Board of Directors.
Section 9. President. The President of the Corporation shall, subject to
the control of the Board of Directors and the Chief Executive Officer of the
Corporation, if there be such an officer, have general powers and duties of
management usually vested in the office of president of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the Bylaws or the Chief Executive Officer of the Corporation. In the absence
of the Chairman of the Board, Vice Chairman of the Board and Chief Executive
Officer, the President shall preside at all meetings of the Board of Directors
and stockholders.
Section 10. Vice President. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the Bylaws, and the President, or the Chairman of the
Board.
Section 11. Secretary. The Secretary shall keep or cause to be kept, at
the principal executive office or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of Directors, and stockholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice given, the names
of those present at Directors' meetings or committee meetings, the number of
shares present or represented at stockholders' meetings, and a summary of the
proceedings.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the Corporation's transfer agent or registrar, as
determined by resolution of the Board of Directors, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by the Bylaws or by law
to be given, and he shall keep or cause to be kept the seal of the Corporation
if one be adopted, in safe custody, and shall have
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such powers and perform such other duties as may be prescribed by the Board of
Directors or by the Bylaws.
Section 12. Chief Financial Officer. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation. The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation. The Chief Financial
Officer shall also have such other powers and perform such other duties as may
be prescribed by the Board of Directors or the Bylaws.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, or
the President or a Vice President and (ii) by the Chief Financial Officer or the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by such stockholder in
the Corporation.
Section 2. Signatures. Any or all of the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Corporation may issue a new certificate
to be issued in place of any certificate theretofore issued by the Corporation,
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen or
destroyed. The Corporation may, in the discretion of the Board of Directors and
as a condition precedent to the issuance of such new certificate, require the
owner of such lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond (or other security) sufficient to
indemnify it against any claim that may be made against the Corporation
(including any expense or liability) on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws or in any agreement with the
stockholder making the transfer. Transfers of stock shall be made on the books
of the Corporation only by the person named in the certificate or by his
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
Section 5. Record Holders. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the record holder of
shares to receive dividends, and
9
<PAGE> 13
to vote as such record holder, and to hold liable for calls and assessments a
person registered on its books as the record holder of shares, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise required by law.
ARTICLE VI
INDEMNIFICATION
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director or officer and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of this Article VI with respect to proceedings
to enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the Board
of Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking, by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this Article VI or otherwise (hereinafter an
"undertaking").
Section 2. Right of Indemnitee to Bring Suit. If a claim under Section 1
of this Article VI is not paid in full by the Corporation within forty-five (45)
days after a written claim has been received by the Corporation, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or part in any such suit or
in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. In (i) any suit
brought by the indemnitee to enforce a right to
10
<PAGE> 14
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) any suit by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified or to
such advancement of expenses under this Article VI or otherwise shall be on the
Corporation.
Section 3. Non-Exclusivity of Rights. The rights of indemnification and to
the advancement of expenses conferred in this Article VI shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.
Section 4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 5. Indemnification of Employees or Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VI with respect to the indemnification and
advancement of expenses of directors or officers of the Corporation.
Section 6. Indemnification Contracts. The Board of Directors is authorized
to enter into a contract with any director, officer, employee or agent of the
Corporation, or any person serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determinates, greater than, those provided for in this Article VI.
Section 7. Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VI by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
11
<PAGE> 15
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Subject to limitations contained in the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of capital
stock of the Corporation, which dividends may be paid either in cash, securities
of the Corporation or other property.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The Corporation shall have a corporate seal in
such form as shall be prescribed by the Board of Directors.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. Stockholders on the record date are entitled to
notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as otherwise provided by agreement or by applicable law.
Section 6. Voting of Stock Owned by the Corporation. The Chairman of the
Board, the Chief Executive Officer, the President and any other officer of the
Corporation authorized by the Board of Directors shall have power, on behalf of
the Corporation, to attend, vote and grant proxies to be used at any meeting of
stockholders of any corporation (except this Corporation) in which the
Corporation may hold stock.
Section 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction and definitions in the
General Corporation Law of the State of Delaware shall govern the construction
of these Bylaws.
Section 8. Amendments. Subject to the General Corporation Law of the State
of Delaware, the Certificate of Incorporation and these Bylaws, the Board of
Directors may by the affirmative vote of a majority of the entire Board of
Directors amend or repeal these Bylaws, or adopt other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Corporation. Unless otherwise restricted by the Certificate of
Incorporation, these
12
<PAGE> 16
Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, at
any annual meeting of the stockholders (or at any special meeting thereof duly
called for that at purpose) by a majority of the combined voting power of the
then outstanding shares of capital stock of all classes and series of the
Corporation entitled to vote generally in the election of directors, voting as a
single class, provided that, in the notice of any such special meeting, notice
of such purpose shall be given.
13
<PAGE> 17
CERTIFICATE OF INCORPORATOR
I, the undersigned, do hereby certify:
1. That I am the sole incorporator of FINANCIAL PACIFIC INSURANCE GROUP,
INC., a Delaware corporation; and
2. That the foregoing bylaws, comprising 13 pages, constitute the bylaws
of said corporation as duly adopted by action of the Incorporator of the
Corporation duly taken on May 28, 1993.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 28th
day of May, 1993.
/s/ NANCY J. DEWHIRST
------------------------------------------
Nancy J. Dewhirst
<PAGE> 18
INTEROFFICE MEMORANDUM
FINANCIAL PACIFIC INSURANCE COMPANY
TO: File
FROM: Annmarie Schremp
DATE: August 23, 1995
RE: Articles of Incorporation and Bylaws
- --------------------------------------------------------------------------------
As a matter of corporate record, I certify that the attached copies of the
Restated Articles of Incorporation and the Restated Bylaws of Financial Pacific
Insurance Company, both executed on December 3, 1993, are the most current
version of these documents. There have been no changes to either document.
/s/ ANN SCHREMP 8/23/95
- -------------------------------- ------------------------------------
Ann Schremp Date
Corporate Secretary
Attachments
<PAGE> 19
CERTIFICATION OF BYLAWS
The undersigned, Robert C. Goodell, does hereby certify that:
1. He is the duly elected, qualified and acting President and Chief
Executive Officer of Financial Pacific Insurance Group, Inc., a Delaware
corporation (the "Corporation").
2. The Bylaws of the Corporation consisting of 13 pages attached hereto
are the full, true and correct Bylaws of the Corporation duly adopted by the
Corporation; and
3. The attached Bylaws were in effect on May 28, 1993 and have not been
amended, repealed or modified in any manner and are on the date hereof still in
full force and effect.
Dated: December 23, 1995
/s/ ROBERT C. GOODELL
-------------------------------------
Robert C. Goodell
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
MAY 26, 1993
NUMBER SHARES
40
FINANCIAL PACIFIC INSURANCE GROUP INC.
10,000,000 SHARES COMMON STOCK 4,000,000 SHARES SERIES A CONVERTIBLE
PREFERRED STOCK
$.001 PAR VALUE EACH $.001 PAR VALUE EACH
THIS CERTIFIES THAT: _________________________________________ IS THE REGISTERED
HOLDER OF ______________________________________ Shares of the Common Stock of
FINANCIAL PACIFIC INSURANCE GROUP, INC.
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE SHARE REGISTER OF
THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares represented hereby shall be held subject
to all of the provisions of the Certificate of Incorporation and the By-laws of
said Corporation, a copy of each of which is on file at the office of the
Corporation, and made a part hereof as fully as though the provisions of said
Certificate of Incorporation and By-laws were imprinted in full on this
certificate, to all of which the holder of this certificate, by acceptance
hereof, asserts and agrees to be bound.
Any stockholder may obtain from the principal office of the Corporation,
upon request and without charge, a statement of the number of shares
constituting each class or series of stock and the designation thereof; and a
copy of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights and the By-laws.
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF
ITS DULY AUTHORIZED OFFICERS.
DATED:
- ------------------------------- -------------------------------
SECRETARY PRESIDENT
<PAGE> 2
NO. ____
CERTIFICATE
FOR
_______
SHARES
OF
COMMON STOCK
ISSUED TO
___________________
DATED
_________________
- --------------------------------------------------------------------------------
For Value Received, _____ hereby sell, assign and transfer unto
________________________________________________________________________________
_________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said Stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ___________________________ 19_____
In presence of
----------------------------------------
- -------------------------------------
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 4.3
AMENDMENT TO STOCKHOLDERS AGREEMENT
This Amendment to Stockholders Agreement ("Amendment") is entered
into as of December 28, 1995 among the parties whose signatures appear below for
the purpose of amending that certain Stockholders Agreement dated as of
September 7, 1993 among such parties (the "Original Agreement").
The parties hereto hereby agree as follows:
1. Amendment. The lead-in to Section 8 of the Original Agreement
is amended in entirety to read as follows:
"8. Termination of this Agreement. Other than with respect to the
registration rights set forth in Section 6 of this Agreement which shall
terminate solely in accordance with subparagraph (n) of such Section 6, this
Agreement shall terminate upon the earliest to occur of:"
2. Entire Agreement. Except to the extent expressly provided in
this Amendment, the terms and conditions of the Original Agreement shall remain
in full force and effect. This Amendment constitutes and contains the entire
agreement of the parties hereto and supersedes any and all prior agreements,
negotiations, correspondence, understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof.
3. Counterparts. This Amendment may be executed in counterparts,
each of which when so executed shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
FINANCIAL PACIFIC INSURANCE GROUP,
INC.
By: /s/ ROBERT C. GOODELL
------------------------------------
Robert C. Goodell, President
FINPAC PARTNERS,
a California limited partnership
By: /s/ PATRICK C. HADEN
------------------------------------
Patrick C. Haden, General Partner
ST. PAUL FIRE AND MARINE INSURANCE
COMPANY
By: /s/ B. A. BACKBERG
------------------------------------
B. A. Backberg
Vice President &
Corporate Secretary
THE FIREMARK GLOBAL INSURANCE
FUND, L.P.,
a Delaware limited partnership
By: Firemark Advisors, Inc.,
General Partner
By: /s/ [SIG]
------------------------------------
WELLS FARGO BANK, N.A., TRUSTEE FOR
LATHAM & WATKINS FOR THE BENEFIT
OF DAVID B. ROGERS
By:. [SIG]
------------------------------------
/s/ ROBERT C. GOODELL
----------------------------------------
Robert C. Goodell
/s/ SUZANNE M. GOODELL
----------------------------------------
Suzanne M. Goodell
NORTH AMERICAN TRUST, AS TRUSTEE FOR
LATHAM & WATKINS FOR THE BENEFIT
OF DAVID B. ROGERS
By: /s/ LOYE L. REDDING
------------------------------------
<PAGE> 2
CERTIFICATE OF SECRETARY
I DO HEREBY CERTIFY that I am the duly elected and acting Secretary for North
American Trust Company, San Diego, California, a California Corporation, and
that the following is a true and correct copy of a resolution adopted by the
Board of Directors held on the 8th day of October, 1993:
"WHEREAS", Section 5.5 of the By-Laws of the Corporation provide that the
Board of Directors may authorize any Officer or Officers to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation;
NOW, THEREFORE, BE IT HEREBY RESOLVED, that any Vice President, or any two
other Officers, of this Corporation are authorized and empowered to make
delivery of and to execute all assignments, transfers, powers of attorney,
and other instruments necessary or proper to consummate the sale or
exchange of any stocks, bonds and/or securities of every kind standing in
the name of this Corporation, as trustee, custodian, or in any fiduciary
character whatsoever; and to deposit under any deposit or protective
agreement or reorganization plan any and all securities standing in the
name of this Corporation, as trustee, custodian, or in any fiduciary
character whatsoever and to execute all papers or instruments or writing
necessary or proper to accompany such deposits and/or withdrawal of any or
all securities so deposited and/or the acceptance of any cash and/or
securities in payment, exchange or substitution of any securities owned or
held by the Corporation in any fiduciary character whatsoever; and I
further certify that the foregoing resolution is presently in full force
and effect and has not been revoked or rescinded as of the date hereof."
IN WITNESS WHEREOF, I hereby affix my signature.
Dated: December 31, 1995
/s/ [SIG]
- ---------------------------------------
Secretary
<PAGE> 3
CERTIFICATE OF INCUMBENCY
I, Amy Romaker, Secretary of North American Trust Company, a California
Corporation, hereby certify that by Resolution, duly adopted by the Board of
Directors of this Corporation, the Officers named upon this certificate have
been duly elected or appointed by the President as approved in the By-laws, are
now acting and are qualified to sign on behalf of this Corporation, that the
specimen signature appearing opposite the name and title of each such officer is
the genuine signature of such Officer and that said Resolution or appointment is
in full force and effect.
Vault Entry/Fiduciary Deposit Transactions/Safety Deposit/Securities
<TABLE>
<CAPTION>
Name Title Signature
- ---- ----- ---------
<S> <C> <C>
DAVID R. MORRIS Chief Financial Officer /s/ DAVID R. MORRIS
AMY J. ROMAKER Vice President /s/ AMY J. ROMAKER
SANDRA L. SHERMAN Vice President /s/ SANDRA L. SHERMAN
DANIEL AGUILAR Asst. Vice President /s/ DANIEL AGUILAR
MELANIE MERCIER Asst. Vice President /s/ MELANIE MERCIER
LOYE L. REDDING Asst. Vice President /s/ LOYE L. REDDING
RANDALL R. REED Asst. Vice President /s/ RANDALL R. REED
CARLA B. ALLEN Trust Officer /s/ CARLA B. ALLEN
TERESA BURDICK Trust Officer /s/ TERESA BURDICK
DIANE L. DEWINTER Trust Officer /s/ DIANE L. DEWINTER
KATHRYN SCHNETZER Trust Officer /s/ KATHRYN SCHNETZER
DENISE RUDERMAN Trust Officer /s/ DENISE RUDERMAN
KATHY BARKER Internal Control Supervisor /s/ KATHY BARKER
ADALEAH BRUNETTO Operations Supervisor /s/ ADALEAH BRUNETTO
</TABLE>
IN WITNESS WHEREOF, I have subscribed my name this 31st day of December, 1995.
/s/ AMY ROMAKER
----------------------------------------
Secretary
<PAGE> 1
Exhibit 10.1
STOCK INCENTIVE PLAN
1. Purpose of Plan. The purpose of this Plan is to enable the
Corporation and its subsidiaries to attract, retain and motivate their
employees and certain other eligible individuals by providing incentives
related to equity interests.
2. Persons Eligible Under Plan. Any person who is an officer or
employee of or consultant or advisor to the Corporation or any of its
subsidiaries (an "Eligible Person") shall be eligible for the grant of an Award
under this Plan, provided that in the case of a consultant or advisor, such
person (directly or through an entity with which he or she is associated)
renders or has rendered bona fide services of a nature similar to those
services that may be rendered by employees.
3. Stock Subject to Plan. The maximum number of shares of Common Stock
of the Corporation (the "Common Shares") that may be issued under this Plan is
277,417 subject to adjustment as provided in Section 7 hereof. Common Shares
subject to Award that expire or for any reason are terminated and are not
issued, shall again be available for subsequent Awards under the Plan.
4. Administration of Plan.
(a) The Committee. This Plan shall be administered by a committee
(the "Committee") of the Board of Directors of the Corporation (the "Board")
consisting of two or more directors, each of whom is a "disinterested person",
as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934
(the "Exchange Act").
(b) Powers of the Committee. Subject to the express provisions of
this Plan, the Committee shall be authorized and empowered to do all things
necessary or desirable in connection with the administration of this Plan,
including, without limitation, the following:
(i) adopt, amend and rescind rules, regulations and
procedures relating to this Plan and its administration or the Awards granted
under this Plan;
(ii) determine which persons meet the requirements of
Section 2 hereof for eligibility under this Plan and to which such persons, if
any, Awards will be granted under this Plan;
(iii) grant Awards to persons determined to be Eligible Persons
and determine the terms and conditions of such Awards, including but
<PAGE> 2
not limited to the number of Common Shares issuable pursuant thereto, the times
(not more than ten years after the initial Award) at which and conditions upon
which Awards become exercisable or vest or shall expire or terminate, the fair
market value of the Common Shares or Awards from time to time and/or the manner
in which it will be determined, and (subject to applicable law) the
consideration, if any, to be paid upon receipt, exercise or vesting of Awards;
(iv) determine whether, and the extent to which,
adjustments are required pursuant to Section 7 hereof;
(v) interpret and construe this Plan and the terms and
conditions of any Award granted hereunder, whether before or after the date set
forth in Section 6; and
(vi) determine the circumstances under which, consistent
with the provisions of Section 8, any outstanding Award may be amended.
(c) Specific Committee Responsibility and Discretion Regarding
Awards. Subject to the express provisions of this Plan, the Committee shall
determine all of the terms and conditions of each Award granted under this
Plan, which terms and conditions may include provisions that:
(i) permit the recipient of such Award, including but not
limited to any recipient who is a director or officer of the Corporation, to
pay the purchase price of the Common Shares or other securities issuable
pursuant to such Award, or any applicable tax withholding obligation upon such
issuance or in respect of such Award or Shares, in whole or in part, by any one
or more of the following:
(A) the delivery of previously owned shares of capital
stock of the Corporation (including shares acquired as or pursuant to Awards)
or other property,
(B) a reduction in the amount of Common Shares or other
property otherwise issuable pursuant to such Award, or
(C) the delivery of a promissory note, the terms and
conditions of which shall be determined by the Committee;
(ii) accelerate the receipt of benefits pursuant to such
Award upon the occurrence of specified events, including, without limitation, a
change of control of the Corporation, an acquisition of a specified percentage
2.
<PAGE> 3
of the voting power of the Corporation, the dissolution or liquidation of
the Corporation, a sale of substantially all of the property and assets of
the Corporation or an event of the type described in Section 7 hereof, or
in other circumstances or upon the occurrence of other events as deemed
appropriate by the Committee;
(iii) qualify such Award as an Incentive Stock Option;
(iv) extend the exercisability or term of any or all
outstanding Awards, change the price of any or all outstanding Awards or
otherwise change previously imposed terms and conditions, in the specified
events described in clause (ii) above or in other circumstances or upon
the occurrence of other events as deemed appropriate by the Committee, in
each case subject to Section 8;
(v) authorize the conversion, succession or substitution of
outstanding Awards upon the occurrence of an event of the type described
in Section 7, or in other circumstances or upon the occurrence of other
events as deemed appropriate by the Committee; and/or
(vi) provide for automatic grants of Awards or successive
Awards.
(d) Binding Determinations. Any action taken by, or inaction of, the
Corporation, the Board or the Committee relating or pursuant to this Plan shall
be within the absolute discretion of that entity or body and shall be conclusive
and binding upon all persons. No member of the Board or officer of the
Corporation shall be liable for any such action or inaction of the entity or
body, of another person or, except in circumstances involving bad faith, of
himself or herself.
(e) Reliance on Experts. In making any determination or in taking or
not taking any action under this Plan, the Board and the Committee may obtain
and may rely upon the advice of experts, including professional advisors to the
Corporation. No director, officer or agent of the Corporation shall be liable
for any such action or determination taken or make or omitted in good faith.
(f) Delegation. The Committee may delegate ministerial,
non-discretionary functions to individuals who are officers or employees of the
Corporation.
5. Awards.
(a) Types of Awards. The Committee, on behalf of the Corporation, is
authorized under this Plan to enter into any type of arrangement with an
3.
<PAGE> 4
Eligible Person that is not inconsistent with the provisions of this Plan and
that by its terms, involves or might involve the issuance of (i) Common Shares,
(ii) an option, warrant, convertible security, stock appreciation right or
similar right with an exercise or conversion privilege at a fixed or variable
price related to the Common Shares or other equity securities of the
Corporation and/or the passage of time, the occurrence of one or more events,
or the satisfaction of performance criteria or other conditions, or (iii) any
similar security with a value derived from the value of the Common Shares or
other equity securities of the Corporation. The authorization of any such
arrangement (including any benefits described in Section 5(d)) is referred to
herein as the "grant" of an "Award." The Committee may authorize any officer
(other than the particular recipient) to execute any or all agreements
memorializing any grant of an Award by the Committee under this Plan. All
Awards shall be evidenced by a writing executed on behalf of the Corporation
and, if required by the Committee, by the recipient of the Award.
(b) Form of Awards. Awards are not restricted to any specified form
or structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and an
Award may consist of one such security or benefit, or two or more of them in
any combination or alternative.
(c) Price; Consideration. Common Shares may be issued pursuant to an
Award for any lawful consideration as determined by the Committee, including,
without limitation, services rendered by the recipient of such Award, but shall
not be issued for less than the minimum lawful consideration.
(d) Cash Awards; Loans. The Committee shall have the express
authority to create, add or include a cash payment or benefit under this Plan,
whether in lieu of, in addition to or as an Award or as a component of another
type of Award, and to make or authorize loans to finance, or to otherwise
accommodate the financing of, the acquisition or exercise of an Award.
(e) Transfer Restrictions. If Section 16 of the Exchange Act is or
becomes applicable to the Corporation and its directors and officers, any Award
that constitutes a derivative security (as defined in Rule 16a-1(c) under the
Exchange Act) and that is granted to or held by a person subject to Section 16
of the Exchange Act shall be subject to the restrictions on exercisability and
on transfer set forth in or pursuant to Rule 16b-3, which restrictions are
incorporated herein by this reference.
(f) Tax Withholding. Upon any exercise, vesting or payment of any
Award, the Corporation shall have the right at its option to (i) require the
Eligible Person (or his or her personal representative or beneficiary, as the
case may be) to provide
4.
<PAGE> 5
for payment of the amount of any taxes which the Corporation or any subsidiary
may be required to withhold with respect to such transaction or (ii) deduct from
any amount payable in cash the amount of any taxes which the Corporation or any
subsidiary may be required to be withheld in connection with the delivery of
shares of Common Stock under this Plan, the Committee may grant (either at the
time of the Award or thereafter) to the Participant the right to elect, pursuant
to such rules and subject to such conditions as the Committee may establish, to
have the Corporation reduce the number of shares to be delivered by (or
otherwise reacquire) the appropriate number of shares valued at their then fair
market value, to satisfy such withholding obligation.
6. Term of Plan. No award shall be granted under this Plan after
September_____, 2003. Although Common Shares and/or cash may be issued after
that date pursuant to Awards granted prior to such date, no Common Shares or
cash shall be otherwise issued under this Plan after such date. Notwithstanding
the foregoing, any Award granted prior to such date may be amended after such
date in any manner that would have been permitted prior to such date, except
that no such amendment except for an adjustment under Section 7 shall increase
the number of shares to, comprising or referenced in such Award.
7. Adjustments. If (a) the outstanding securities of the class then subject
to this Plan (the "outstanding shares")(1) are increased, decreased, exchanged
or converted as a result of a stock split, reverse stock split, stock dividend,
or the like or (2) are exchanged for or converted into cash, property or a
different number or kind of securities (or if cash, property or securities are
distributed in respect of the outstanding shares) as a result of a
reorganization, merger, consolidation, recapitalization, restructuring or
reclassification, or (b) substantially all of the property and assets of the
Corporation are sold, or (c) the holders of the outstanding shares receive an
extraordinary distribution in cash, property or securities, then, unless the
terms of such transaction shall otherwise provide, the Committee shall make
equitable, appropriate and proportionate adjustments in (x) the number and type
of shares or other securities or cash or other property that may be acquired
pursuant to Incentive Stock Options and other Awards previously granted under
this Plan, and (y) the maximum number and type of shares or other securities
that may be issued pursuant to Incentive Stock Options and other Awards
thereafter granted under this Plan, and (z) such other terms as necessarily are
affected by such event.
8. Amendment and Termination of Plan and Awards. The Board may amend or
terminate this Plan at any time and in any manner. No amendment or termination
of the Plan or change in or affecting any outstanding Award shall deprive the
recipient, without the consent of such recipient, of any of his or her material
rights or benefits under or with respect to the Award. Adjustments contemplated
by Section 7 shall not be deemed to constitute a change requiring such consent.
5.
<PAGE> 6
9. Effective Date of Plan. This Plan shall be effective as of September 7,
1993; provided, however, that no Common Shares may be issued under this Plan
until it has been approved by the holders of at least a majority of the voting
power of the Corporation.
10. Legal Issues.
(a) Compliance and Choice of Law; Severability. This Plan, the
granting and vesting of Awards under this Plan and the issuance and delivery of
shares of Common Stock and/or the payment of money under this Plan or under
Awards granted hereunder are subject to compliance with all applicable federal
and state laws, rules and regulations (including but not limited to state and
federal securities law and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Corporation, be necessary or advisable in connection therewith.
Any securities delivered under this Plan shall be subject to such restrictions
as the Corporation may deem necessary or desirable to assure compliance with
all applicable legal requirements. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the State of California. If any
provision shall be held by a court of competent jurisdiction to be invalid and
unenforceable, the remaining provisions of this Plan (subject to Section 10(b))
shall continue in effect.
(b) Plan Construction. It is the intent of the Corporation that this Plan
and Awards hereunder satisfy and be interpreted in a manner that in the case of
recipients who are or may be subject to Section 16 of the Exchange Act
("Section 16 Persons") satisfies the applicable requirements of Rule 16b-3 so
that such persons will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 of the Exchange Act and will not be subjected
to avoidable liability thereunder. If any provision of this Plan or of any
Award would otherwise frustrate or conflict with the intent expressed above,
that provision to the extent possible shall be interpreted and deemed amended
so as to avoid such conflict, but to the extent of any remaining irreconcilable
conflict with such intent as to such Section 16 Persons in the circumstances,
such provision shall be deemed void.
(c) Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed
to limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the Common
Shares, under any other plan or authority.
6.
<PAGE> 1
EXHIBIT 10.2
STOCK OPTION AGREEMENT
THIS AGREEMENT, dated as of ______________, 1998 is by and between
Financial Pacific Insurance Group, Inc., a Delaware corporation (the
"Corporation"), and _________________________ (the "Employee").
W I T N E S S E T H
WHEREAS, pursuant to its Stock Incentive Plan (the "Plan"), the
Corporation has granted to the Employee effective as of the date hereof (the
"Award Date") a non-qualified stock option to purchase all or any part of ____
authorized but unissued or treasury shares of Common Stock of the Corporation
upon the terms and conditions set forth herein and in the Plan.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.
2. Grant of Option. This Agreement evidences the Corporation's
grant to the Employee of the right and option to purchase, on the terms and
conditions set forth herein and in the Plan, all or any part of an aggregate of
___ shares of Common Stock at the price of $2,265.00 per share (the "Option"),
exercisable from time to time, subject to the provisions of this Agreement and
the Plan, prior to the close of business on the tenth anniversary of the Award
Date (the "Expiration Date").
3. Exercisability of Option. Subject to the provisions of Sections
6 and 7, the Option shall become exercisable in two equal annual installments
of ___ shares on the second and third anniversaries of the Award Date. Said
installment shall be cumulative and, following the third anniversary, the
Option may be exercised in whole or in part, from time to time, until its
expiration or earlier termination.
To the extent the Employee does not in any period purchase all or any
part of the shares to which the Employee is entitled, the Employee has the
right cumulatively thereafter to purchase any shares not so purchased and such
right shall continue until the Option terminates or expires.
4. Method of Exercise of Option. The Option shall be exercisable by
the delivery to the Corporation of a written notice stating the number of
shares to be purchased pursuant to the Option and accompanied by payment
made:
(a) in cash or by check payable to the order of the
Corporation;
(b) by exchange of Common Stock of the Corporation, then
having been owned by the Employee for at least six months, having a then fair
market value (as determined by the Committee) equal to such purchase price;
<PAGE> 2
(c) to the extent permitted by the Committee, by reduction in the
number of shares of Common Stock deliverable upon exercise by that number of
shares which have a then fair market value (as determined by the Committee)
equal to such purchase price; or
(d) in any combination of the consideration permitted by the
foregoing subsections;
Subject to such further limitations, rules and procedures as the Committee may
from time to time establish as any non-cash payment.
5. Employment. Nothing contained herein or in the Plan shall confer
upon the Employee any right with respect to the continuation of employment by
the Corporation or any subsidiary or interfere in any way with the right of the
Corporation or of any subsidiary at any time to terminate such employment.
6. Effect of Termination of Employment or Death; Change in Subsidiary
Status. The Option and all other rights hereunder, to the extent not exercised,
shall terminate and become null and void at such time as the Employee ceases to
be employed by either the Corporation or any subsidiary, except that:
(a) if the Employee terminates by reason of permanent and total
disability (as determined by the Committee), Employee may at any time within
a period of one year after such termination exercise the Option to the extent
the Option was exercisable at the date of such termination;
(b) if the Employee dies while in the employ of Corporation or any
subsidiary, or within one year after a termination described in subsection (a)
of this Section 6, or within three months after a termination described in
subsection (c) of this Section 6, then the Option may be exercised within a
period of one year after the Employee's date of death by the Employee's
beneficiary to the extent the Option was exercisable on the date of the
Employee's death (or such earlier termination);
(c) if the Employee terminates for any other reason, Employee may at
any time within a period of three months after such termination exercise the
Option to the extent the Option was exercisable at the date of such termination;
provided, however, that in no event may the Option be exercised by anyone under
this Section or otherwise after the Expiration Date.
If employee is employed by an entity which ceases in be a subsidiary,
such event shall be deemed for purposes of this Section 6 to be a termination
of Employee's employment described in subsection (c). Absence from work caused
by military service or authorized sick leave shall not be considered as a
termination of employment for purposes of this Section.
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<PAGE> 3
7. TERMINATION OF OPTION UNDER CERTAIN EVENTS. Notwithstanding the
provisions of Section 3 hereof, upon (i) the dissolution, liquidation or sale
of all or substantially all of the business, properties and assets of the
Corporation, (ii) any reorganization, merger or consolidation in which the
Corporation does not survive (iii) any reorganization, merger, consolidation or
exchange of securities in which the Corporation does survive and any of the
Corporation's stockholders have the opportunity to receive cash, securities of
another corporation and/or other property in exchange for their shares of
capital stock of the Corporation, or (iv) any acquisition of beneficial
ownership of more than 50% of the Corporation's then outstanding shares of
capital stock (each of the events described is clauses (i), (ii), (iii) and
(iv) is referred to herein individually as an "Extraordinary Event"), the
Option shall terminate. In such event, the Employee shall have the right until
10 days before the effective date of the Extraordinary Event to exercise, in
whole or in part, the Option, to the extent that the Option would be vested and
exercisable two years after the effective date of the Extraordinary Event.
8. NON-TRANSFERABILITY OF OPTION. During the Employee's lifetime,
this Option and any other rights hereunder may be exercised only by the
Employee of the Employee's duly appointed guardian or legal representative.
This Option and such rights shall not be sold, transferred, assigned, pledged,
hypothecated or otherwise disposed of in any way (whether by operation of law
or otherwise); provided, however, that nothing in this Section 8 shall prevent
transfers by will or by the applicable laws of descent and distribution or
pursuant to a "qualified domestic relations order" as defined by the Internal
Revenue Code or 1986, as amended.
9. NOTICES. Any notice to be given under the terms of this
Agreement shall be in writing and addressed to the Corporation at its principal
office, to the attention of the Corporate Secretary and the Employee at the
address given beneath the Employee's signature hereto, or at such other address
as either party may hereafter designate in writing to the other.
10. EMPLOYEE NOT A STOCKHOLDER. Neither the Employee nor any other
person entitled to exercise the Option shall have any of the rights or
privileges a stockholder of the Corporation as to any shares of Common Stock
not actually issued and delivered prior to delivery of the exercise price and
satisfaction of all other conditions precedent to the due exercise of the
Option and delivery of shares.
11. EFFECT OF AWARD AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of any successor or successors of the Corporation
except to the extent the Committee determines otherwise.
12. LAWS APPLICABLE TO CONSTRUCTION. The Option has been granted,
executed and delivered as of the day and year first above written, and the
interpretation, performance and enforcement of the Option and this Agreement
shall be governed by the laws of the State of California.
13. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee
represents and warrants that the Option is being acquired by the Employee in
good faith for the Employee's own personal account, for investment purposes
only, and not with a view to the
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<PAGE> 4
distribution, resale or other disposition thereof. The Employee agrees that the
Employee will exercise the Option with any then present intent to sell or
otherwise dispose of all or any part of the Common Stock acquired thereby. The
Employee acknowledges that the Corporation may issue Common Stock upon the
exercise of the Option without registering such Common Stock under the
Securities Act of 1933, as amended (the "Act"), on the basis of certain
alternative exemptions from such registration requirement. Accordingly, the
Employee agrees that the Employee's exercise of the Option may be conditioned
upon the Employee's delivery to the Corporation of an investment certificate
including such representations and undertakings as the Corporation may
reasonably require in order to assure the availability of such exemptions,
including a representation that the Employee is acquiring the Common Stock for
investment and not with a present intention of selling or otherwise disposing
thereof and an agreement by the Employee that the share certificate evidencing
the Common Stock may bear a legend indicating such non-registration under the
Act and the resulting restrictions on transfer.
14. PLAN. The Option and all rights of Employee thereunder are subject
to, and the Employee agrees to be bound by, all of the terms and conditions of
the provisions of the Plan, incorporated herein by this reference. The Employee
acknowledges receipt of a copy of the Plan, which is made a part hereof by this
reference, and agrees to be bound by the terms thereof. Unless otherwise
expressly provided in other Sections of this Agreement, provisions of the Plan
that confer discretionary authority on the Committee do not (and shall not be
deemed to) create any rights in the Employee unless such rights are expressly
set forth herein or are otherwise in the sole discretion of the Committee so
conferred by the appropriate action of the Committee under the Plan after the
date hereof.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Employee has
hereunto set Employee's hand.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By: ___________________________
Robert C. Goodell
President and Chief Executive Officer
EMPLOYEE
___________________________
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<PAGE> 1
EXHIBIT 10.3
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 6, 1996, is made and entered into among
Financial Pacific insurance Groups, Inc., a Delaware corporation. Financial
Pacific Insurance Company, a California corporation, and Financial Pacific
Insurance Agency, a California corporation (Financial Pacific Insurance Group,
Financial Pacific Insurance Company and Financial Pacific Insurance Agency are
hereinafter referred to collectively as "Companies" and singularly as
"Company"), and Robert C. Goodell ("Executive").
RECITALS:
A. Each of the Companies desires to employ the Executive as its
Chief Executive Officer.
B. The Executive desires to commit himself to serve the
Companies on the terms herein provided.
NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below the parties hereto agree as follows:
1. Employment.
(a) Subject to the provisions of Section 6, including Section 6(d)
which permits the Companies to terminate the Executive for any reason at any
time, the Companies shall employ the Executive and the Executive shall enter
the employ of the Companies, for the period set forth in this Section 1 unless
sooner terminated in accordance with the provisions of this Agreement, in the
positions (or comparable positions) set forth in Section 2 and upon the other
terms and conditions herein provided. The initial term of employment under this
Agreement (the "Initial Term") shall be for the period beginning on the date of
this Agreement and ending on February 6, 1997, unless earlier terminated as
provided in Section 6.
(b) At the expiration of the Initial Term and each anniversary
thereafter, the term of this Agreement shall automatically be extended for an
additional year ("Extension Term") unless any party shall have given written
notice to the other part at least 90 days prior to the end of the Initial Term
or the Extension Term, as the case may be, that it does not desire to extend
the term of this Agreement. If the Executive's employment term under this
Agreement is extended from an Extension Term, it shall thereafter or during any
Extension Term be terminable (other than upon expiration) only as provided in
Section 6. References herein to the "Term of Employment" of this Agreement
shall refer to both such Initial Term and any Extension Term.
2. Position and Duties.
(a) During the Term of Employment, the Executive shall serve in the
following positions:
(i) the Chief Executive Officer of each of the Companies and
shall have such duties, functions, responsibilities and authority as are
consistent with the Executive's position as the senior executive officer in
charge of the general management, business and affairs with the Companies, and
(ii) a Director of the Board of Directors of the Companies
(collectively, "Boards," singularly, "Board"); provided, however, the Executive
shall have no right to serve on the Boards and the stockholders of each Company
shall retain all rights to remove Executive from its Board at any time in
accordance with the Company's bylaws.
<PAGE> 2
(b) During the Term of Employment, the Executive shall be a
full-time employee of the Companies and shall devote substantially all of his
business time and attention to the performance of his duties to the Companies.
3. Employment contract Dated September 7, 1993 Superseded. This
Agreement supersedes the employment agreement made and entered into among M.L.
Oates Insurance Company, Property Managers Insurance Services and the
Executive.
4. Place of Performance. In connection with his employment during the
Term of Employment, the Executive shall be based at the principal executive
offices of the Companies located in Sacramento, California. Notwithstanding the
foregoing, Executive shall undertake normal business travel on behalf of the
Companies, the reasonable expenses of which shall be paid by the Companies.
5. Compensation and Related Matters.
(a) Annual Base Salary. The Executive shall receive a base salary
("Annual Base Salary") at a rate of $225,000 per annum for the Initial Term,
and thereafter at a rate to be negotiated between the Executive and the Boards,
but in no event less than $225,000 per annum.
The Annual Base Salary shall be payable in accordance with the
Company's normal payment practices but, in no event, shall such Annual Base
Salary be payable less frequently than monthly.
(b) Benefits. During the term of Employment, the Executive shall be
entitled to:
(i) reimbursement by the Companies of lease payments (at a
maximum of $800 per month) and maintenance, fuels, insurance and other
incidental expenses of a domestic luxury car:
(ii) participate in or receive benefits under any employee
benefit plan or other arrangement including, but not limited to, any medical,
dental, retirement, disability, life insurance, sick leave and vacation plans
or arrangements made available by the Companies to any of their employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans or arrangements; and
(iii) other benefits to be negotiated between the Boards and the
Executive.
(c) Bonus Compensation. In the absolute discretion of the Boards,
the Executive may receive a bonus in an amount up to 50% of his Annual Salary
("Bonus Compensation").
(d) Other Business Expenses. The Companies shall promptly reimburse
the Executive for all reasonable travel and other business expenses incurred by
the Executive in the performance of his duties under this Agreement.
(e) Vacation and Sick Time. The Executive shall be entitled to four
weeks vacation each calendar year during the Term of his Employment. The
Executive shall be entitled to receive two weeks sick leave each calendar year
during the term of his employment.
6. Termination. The Executive's employment hereunder may be terminated
by the Companies or the Executive, as applicable, under the following
circumstances:
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<PAGE> 3
(a) Death. The Executive's employment hereunder shall terminate upon his
death. In the case of the Executive's death, the Companies shall pay to the
Executive's beneficiaries or estate, as appropriate, (i) promptly after the
Executive's death, the unpaid Annual Basic Salary to which he is entitled
pursuant to subsection 5(a) through the date of his termination, and (ii) as
soon as practicable after the close of the Companies' fiscal year in which the
Executive's death occurs, a prorated portion of any unpaid Bonus Compensation
determined by the Boards. This subsection 6(a) shall not limit the entitlement
of the Executive's estate or beneficiaries to any death or other benefits then
available to the Executive under any life insurance or other benefit plan or
policy which is maintained by the Companies for the Executive's benefit.
(b) Disability.
(i) If the Companies determine in good faith that the Executive has
incurred a Disability (as defined below) during the Term of Employment, the
Companies may give the Executive written notice of their intention to terminate
the Executive's employment. In such event, the Executive's employment with the
Companies shall terminate effective on the 30th day after receipt of such
notice by the Executive, provided that within the 30 days after such receipt,
the Executive shall not have returned to full-time performance of his duties.
The Executive shall continue to receive his Annual Base Salary and benefits
until the date of termination. In the case of the Executive's Disability, the
Companies shall pay to the Executive (a) promptly after the Executive's
termination, the unpaid Annual Base Salary to which he is entitled pursuant to
subsection 5(a) through the Executive's termination, and (b) as soon as
practicable after the close of the fiscal year in which the Executive's
termination occurs, a prorated portion of any unpaid Bonus Compensation
determined by the Boards. In addition, the Companies shall pay the Executive
severance benefits as set forth in Section 7. This subjection 6(b) shall not
limit the entitlement of the Executive, his estate, or beneficiaries to any
disability or other benefits then available to the Executive under any
disability insurance or other benefit plan or policy which is maintained by the
Companies for the Executive's benefit.
(ii) For the purpose of this section "Disability" shall mean the
Executive's failure to perform his duties to the Companies on a full-time basis
for a total of 12 consecutive weeks or any 16 weeks during any 12-month period
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Companies and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(c) By the Companies. The Companies may terminate the Executive's
employment hereunder for any reason (with or without cause) upon 30 days
written notice. In the event the Companies terminate the Executive's
employment, the Companies shall pay to the Executive (i) promptly after the
Executive's termination, the unpaid Annual Base Salary to which he is entitled
pursuant to subsection 5(a) through the Executive's termination, and (ii) as
soon as practicable after the close of the fiscal year in which the Executive's
termination occurs, a prorated portion of any unpaid Bonus Compensation
determined by the Boards. In addition, the Companies shall pay the Executive
severance benefits as set forth in Section 7.
(d) Resignation. The Executive may resign his employment upon 30 days
written notice to the Companies. In the case of the Executive's resignation,
the Companies shall promptly pay to the Executive (or his representative) the
unpaid Annual Base Salary to which he is entitled pursuant to subsection 5(a)
through the date the Executive is terminated. The Executive shall be entitled
to no other compensation.
(e) Mutual Agreement. The Executive's employment may be terminated by
mutual agreement of the Executive and the Companies at any time.
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<PAGE> 4
7. Severance Benefits.
(a) Termination. If the Executive's employment shall be terminated
pursuant to Section 6(b) or 6(c) or if, pursuant to Section 1(b), the Companies
shall have given written notice to the Executive that they do not desire to
extend the term of this Agreement, the Companies shall pay the Executive
severance compensation which shall consist of monthly payment in an amount equal
to the Annual Base Salary, provided monthly, which payments shall commence on
or after the first day of the first full calendar month following such
termination and shall continue until the expiration of the last day of the 12th
full calendar month after the termination date (the "Severance Period"). In
addition, the Companies shall continue to provide the Executive and his
dependents with all medical and dental benefits provided pursuant to Section
5(b)(ii) and (without duplication and to the extent applicable) Section 5(d)
for the duration of the Severance Period.
(b) Survival. The expiration or termination of the Term of Employment
shall not impair the rights or obligations of any party hereto which shall have
accrued hereunder prior to such expiration.
(c) Mitigation of Damages. In the event of any termination of the
Executive's employment by the Companies or the Executive, the Executive shall
not be required to seek other employment to mitigate damages, and any income
earned by the Executive from other employment or self-employment shall not be
offset against any obligations of the Companies to the Executive under this
Agreement.
8. Resignation Agreement and General Release. The Executive has provided
the Companies with copies of the Resignation Agreement and General Release
between the Executive, Amwest Surety Insurance Company, Amwest Insurance Group,
Inc., Far West Insurance Company and their affiliates, officers, executives,
managers, employees, partners and agents dated June 2, 1993 which may limit the
businesses which Financial Pacific and the Executive may undertake.
9. Confidential Information; Nonsolicitation.
(a) During the Term of Employment and at all times thereafter, the
Executive agrees to hold in confidence and not disclose to any person or entity
or use for his own benefit, any and all information regarding the business
systems or strategies, advertising or promotions plans or programs, or
merchandising methods of the Companies or plans or proposals for development of
market areas or other business development or expansion concepts, ideas or
strategies of the Companies, or any financial, manufacturing or marketing data,
technique, process, formula, developmental or experimental work, work in
process, business methods, trade secrets (including, without limitation, any
customer list or lists of suppliers), or any other secret or confidential
information relating to the business plans, products, services, customers,
sales or business affairs of the Companies or its affiliates. Upon termination
of employment, the Executive shall deliver to the Companies all documents,
records, notebooks, work papers, and all similar repositories containing any of
the foregoing information, whether prepared by the Executive, the Companies or
anyone else. Without limiting the generality of the foregoing, the Executive
shall not disclose the customer list of the Companies or any list of suppliers
of the Companies, nor will be advise or aid anyone in doing business with
customers of the Companies or suppliers to the Companies or in replicating the
business methods or systems of the Companies.
(b) For a period ending 36 months after termination of employment,
Executive shall not solicit any employees of the Companies to become employed
by Executive or by any subsequent employer of Executive.
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<PAGE> 5
10. Disputes.
(a) Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and
upon written demand of any party to this Agreement, be finally determined and
settled by arbitration in Sacramento, California, in accordance with the rules
and procedures of the American Arbitration Association, and judgment upon the
award may be entered into any court having jurisdiction thereof.
(b) If any legal or any arbitration or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the successful prevailing party shall be entitled
to recover reasonable attorneys' fees and other costs incurred in that action
or proceeding, in addition to any other relief that may be granted.
11. Indemnification.
(a) Financial Pacific Insurance Company and Financial Pacific
Insurance Agency shall execute an indemnity agreement in the form attached as
Exhibit A.
(b) Financial Pacific Insurance Group shall execute an indemnity
agreement in the form attached as Exhibit B.
12. Binding on Successors. This Agreement shall be binding upon and
inure to the benefit of the Companies, the Executive and their respective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees, as applicable.
13. Governing Law. This Agreement is being made and executed and is
intended to be performed in the State of California and shall be governed,
construes, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
14. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
15. Notices. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
telex, telecopy, or certified or registered mail, postage prepaid and addressed
to the following address:
If to Financial Pacific
Insurance Group: Robert C. Goodell
Financial Pacific Insurance Group
8583 Elder Creek Road
Suite 100
Sacramento, CA 95828
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<PAGE> 6
With copies to: FinPac Partners
c/o Riordan, Lewis & Hadon
California Plaza, 29th Floor
300 South Grand Avenue
Los Angeles, California 90071
Attn.: Patrick C. Haden
If to Financial Pacific
Insurance Company: Robert C. Goodell
Financial Pacific Insurance Company
8583 Elder Creek Road
Suite 100
Sacramento, CA 95828
With copies to: FinPac Partners
c/o Riordan, Lewis & Hadon
California Plaza, 29th Floor
300 South Grand Avenue
Los Angeles, California 90071
Attn.: Patrick C. Haden
If to Financial Pacific
Insurance Agency: Robert C. Goodell
Financial Pacific Insurance Agency
8583 Elder Creek Road
Suite 100
Sacramento, CA 95828
With copies to: FinPac Partners
c/o Riordan, Lewis & Hadon
California Plaza, 29th Floor
300 South Grand Avenue
Los Angeles, California 90071
Attn.: Patrick C. Haden
If to the Executive: **
or at any other address any party shall have specified by notice in writing to
the other parties.
16. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
17. ENTIRE AGREEMENT. The terms of this Agreement are intended by the
parties to be the final expression of their agreement with respect to the
employment of the Executive by the Companies and may not be contradicted by
evidence of any prior or contemporaneous agreement. The parties further intend
that this Agreement shall constitute the complete and exclusive statement of
its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative or other legal proceeding to vary the terms of this
Agreement.
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<PAGE> 7
18. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, approved by the Boards and
signed by the Executive and the Companies. By an instrument in writing
similarly executed, the Executive of the Companies may waive
compliance by the other party or parties with any provision of this Agreement
that such other party was or is obligated to comply with or perform; provided,
however, that such waiver shall not operate as a waiver of, or estoppel with
respect to, any other or subsequent failure. No failure to exercise and no
delay in exercising any right, remedy or power hereunder shall preclude any
other further exercise of any other right, remedy or power provided herein or
by law or in equity.
19. No Effect on Other Contractual Rights. Notwithstanding Section 7, the
provisions Agreement, and any other payment provided for hereunder, shall not
reduce any amounts otherwise payable to the Executive under any other agreement
between the Executive and the Companies, or in any way diminish the Executive's
right under any employee benefit plan, program or arrangement of the Companies
to which he may be entitled as an employee of the Companies.
20. No Inconsistent Action. The parties hereto shall not voluntarily
undertake or fail to undertake any action or course of action inconsistent with
the provisions or essential intent of this Agreement. Furthermore, it is the
intent of the parties hereto to act in a fair and reasonable manner with
respect to the interpretation and application of the provisions of this
Agreement.
21. Medical Exam. During each year of the Term of Employment, Executive
shall obtain a physical examination at the expense of the Companies and cause
the examining physician to provide a detailed written report of such
examination, which report Executive shall provide to the Board not later than
March 31 of each year.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
EXECUTIVE
/s/ ROBERT C. GOODELL
------------------------------
ROBERT C. GOODELL
8538 Elder Creek Road
Suite 100
Sacramento, CA 95828
FINANCIAL PACIFIC INSURANCE GROUP, INC.
a Delaware Corporation
By: /s/ ROBERT C. GOODELL
----------------------------
<PAGE> 8
FINANCIAL PACIFIC INSURANCE COMPANY,
a California Corporation
By: [SIG]
--------------------------------
FINANCIAL PACIFIC INSURANCE AGENCY,
a California Corporation
By: [SIG]
--------------------------------
8
<PAGE> 9
[CELERITY PARTNERS LETTERHEAD]
July 30, 1997
Mr. Robert C. Goodell, President
Financial Pacific Insurance Group, Inc.
P.O. Box 292220
Sacramento, CA 95829-2220 PERSONAL & CONFIDENTIAL
RE: FINANCIAL PACIFIC INSURANCE GROUP, INC.
Bob:
This will confirm our understanding with respect to the following two
compensation issues:
1. Accelerated vesting: All management optionholders shall gain two years of
vesting in the event of a sale of the company; and
2. Robert Goodell's annual base salary shall be increased to $250,000,
effective July 1, 1997.
Call me if you have questions or need additional information.
Best regards,
/s/ STEPHEN E. ADAMSON
Stephen E. Adamson
cc: Patrick C. Haden
<PAGE> 1
EXHIBIT 10.4
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 13, 1997, is made and entered into among
Financial Pacific Insurance Group, Inc. a Delaware corporation ("Financial
Pacific"), Financial Pacific Insurance Company (FPIC), and Financial Pacific
Insurance Agency (FPIA), a California corporation (Financial Pacific, FPIC and
FPIA are hereinafter referred to collectively as "Companies") and Robert T.
Kingsley ("Executive").
RECITALS
A. Executive currently serves as Executive Vice President and Chief
Operating Officer of FPIC and President of FPIA. Executive's salary is paid by
FPIA, but his duties are split between FPIA and FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be terminated
by the Companies or Executive, as applicable, under the following circumstances.
(a) Death: The Executive's employment hereunder shall terminate
upon his death. In the case of Executive's death, the Companies shall pay
Executive's beneficiaries or estate, as appropriate, the unpaid Annual Base
Salary to which he is entitled, through the date of his termination. This
subsection shall not limit the entitlement of the Executive's estate or
beneficiaries to any death or other benefits then available to Executive under
any life insurance or other benefit plan or policy which is maintained by the
Companies for Executive's benefit.
(b) By the Companies: Companies may terminate Executive's
employment hereunder for any reason, (with or without cause) upon 30 days
written notice. In the event that Companies terminate Executive's employment,
the Companies shall pay to Executive the unpaid Annual Base Salary to which he
is entitled through the termination date. In addition, the Companies shall pay
Executive severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment upon 30
days written notice to the Companies. Upon Executive's resignation, the
Companies shall promptly pay to Executive (or his designated representative) the
unpaid Annual Base Salary and any other unpaid benefits (vacation, sick, bonus,
pension, business expenses, etc.) to which the Executive is entitled through
Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be terminated
by mutual agreement of Executive and the Companies at any time. If Executive is
terminated by mutual agreement, the severance benefits in Section 2 will apply.
1
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated pursuant
to Section 1(b) or (d), above the Company shall pay Executive severance
compensation which shall consist of a lump sum payment representing 1/2 of
Executive's then current Annual Base Salary and any other unpaid benefits
(vacation, sick, bonus, pension, business expenses, etc.)
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not be
required to seek other employment to mitigate damages, and any income earned by
Executive from other employment or self-employment shall not be offset against
any obligations of the Companies to the Executive under this agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement shall, at the election and
upon written demand of any party to this Agreement, be finally determined and
settled by arbitration in Sacramento, California, in accordance with the rules
and procedures of the American Arbitration Association. The judgment as
determined through arbitration may be entered in any court having jurisdiction
thereof.
(b) If any legal action, arbitration, or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
(4) Binding on Successors: This Agreement shall be binding upon and
inure to the benefit of the Companies, Executive, and their perspective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
(6) Severability: The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
2
<PAGE> 3
(7) Notices: Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by hard,
telex, telecopy, or certified or registered mail, postage prepaid and addressed
to the following address:
Robert T. Kingsley Financial Pacific Insurance Company
** Attn.: Robert C. Goodell
P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses inherence this
Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ ROBERT T. KINGSLEY /s/ ROBERT C. GOODELL
- ------------------------------------- -------------------------------------
Robert T. Kingsley Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.5
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated November 14, 1997, is made and entered into among
Financial Pacific Insurance Group, Inc. a Delaware corporation ("Financial
Pacific"), and Financial Pacific Insurance Company (FPIC), a California
corporation (Financial Pacific, and FPIC are hereinafter referred to
collectively as "Companies") and Edward J. Paoletti ("Executive").
RECITALS
A. Executive currently serves as Vice President of Underwriting.
Executive's salary is paid by FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be terminated by
the Companies or Executive, as applicable, under the following circumstances.
(a) Death: The Executive's employment hereunder shall terminate upon
his death. In the case of Executive's death, the Companies shall pay Executive's
beneficiaries or estate, as appropriate, the unpaid Annual Base Salary to which
he is entitled, through the date of his termination. This subsection shall not
limit the entitlement of the Executive's estate or beneficiaries to any death or
other benefits then available to Executive under any life insurance or other
benefit plan or policy which is maintained by the Companies for Executive's
benefit.
(b) By the Companies: Companies may terminate Executive's employment
hereunder for any reason, (with or without cause) upon 30 days written notice.
In the event that Companies terminate Executive's employment, the Companies
shall pay to Executive the unpaid Annual Base Salary to which he is entitled
through the termination date. In addition, the Companies shall pay Executive
severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment upon 30 days
written notice to the Companies. Upon Executive's resignation, the Companies
shall promptly pay to Executive (or his designated representative) the unpaid
Annual Base Salary and any other unpaid benefits (vacation, sick, bonus,
pension, business expenses, etc.) to which the Executive is entitled through
Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be terminated by
mutual agreement of Executive and the Companies at any time. If Executive is
terminated by mutual agreement, the severance benefits in Section 2 will apply.
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated pursuant to
Section l(b) or (d), above the Company shall pay Executive severance
compensation which shall consist of a lump sum payment representing 36 weeks of
Executive's then current base salary and any other unpaid benefits (vacation,
sick, bonus, pension, business expenses, etc.)
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not be
required to seek other employment to mitigate damages, and any income earned by
Executive from other employment or self-employment shall not be offset against
any obligations of the Companies to the Executive under this agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in connection
with, or in relation to this Agreement shall, at the election and upon written
demand of any party to this Agreement, be finally determined and settled by
arbitration in Sacramento, California, in accordance with the rules and
procedures of the American Arbitration Association. The judgment as determined
through arbitration may be entered in any court having jurisdiction thereof.
(b) If any legal action, arbitration, or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
(4) Binding on Successors: This Agreement shall be binding upon and inure
to the benefit of the Companies, Executive, and their perspective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
(6) Severability: The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
2
<PAGE> 3
(7) Notices: Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by hard,
telex, telecopy, or certified or registered mail, postage prepaid and addressed
to the following address:
Edward J. Paoletti Financial Pacific Insurance Company
** Attn.: Robert C. Goodell
P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses inherence this
Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ EDWARD J. PAOLETTI /s/ ROBERT C. GOODELL
- -------------------------- -----------------------------------------
Edward J. Paoletti Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
Exhibit 10.6
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 14, 1997, is made and entered into among
Financial Pacific Insurance Group, Inc. a Delaware corporation ("Financial
Pacific"), and Financial Pacific Insurance Company (FPIC), a California
corporation (Financial Pacific, and FPIC are hereinafter referred to
collectively as "Companies") and Wallace G. Rascher ("Executive").
RECITALS
A. Executive currently serves as Vice President of Marketing of FPIC.
Executive's salary is paid by FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be terminated
by the Companies or Executive, as applicable, under the following circumstances.
(a) Death: The Executive's employment hereunder shall terminate
upon his death. In the case of Executive's death, the Companies shall pay
Executive's beneficiaries or estate, as appropriate, the unpaid Annual Base
Salary to which he is entitled, through the date of his termination. This
subsection shall not limit the entitlement of the Executive's estate or
beneficiaries to any death or other benefits then available to Executive under
any life insurance or other benefit plan or policy which is maintained by the
Companies for Executive's benefit.
(b) By the Companies: Companies may terminate Executive's
employment hereunder for any reason, (with or without cause) upon 30 days
written notice. In the event that Companies terminate Executive's employment,
the Companies shall pay to Executive the unpaid Annual Base Salary to which he
is entitled through the termination date. In addition, the Companies shall pay
Executive severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment upon 30
days written notice to the Companies. Upon Executive's resignation, the
Companies shall promptly pay to Executive (or his designated representative)
the unpaid Annual Base Salary and any other unpaid benefits (vacation, sick,
bonus, pension, business expenses, etc.) to which the Executive is entitled
through Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be terminated
by mutual agreement of Executive and the Companies at any time. If Executive is
terminated by mutual agreement, the severance benefits in Section 2 will apply.
1
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated pursuant
to Section 1(b) or (d), above the Company shall pay Executive severance
compensation which shall consist of a lump sum payment representing 1/2 of
Executive's then current Annual Base Salary and any other unpaid benefits
(vacation, sick, bonus, pension, business expenses, etc.)
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not
be required to seek other employment to mitigate damages, and any income earned
by Executive from other employment or self-employment shall not be offset
against any obligations of the Companies to the Executive under this agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in connection
with, or in relation this Agreement shall, at the election and upon written
demand of any party to this Agreement, be finally determined and settled by
arbitration in Sacramento, California, in accordance with the rules and
procedures of the American Arbitration Association. The judgment as determined
through arbitration may be entered in any court having jurisdiction thereof.
(b) If any legal action, arbitration, or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
(4) Binding on Successors: This Agreement shall be binding upon and inure
to the benefit of the Companies, Executive, and their perspective successors,
assigns, personal and legal representatives, executors, administrators, heirs,
distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
(6) Severability: The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
2
<PAGE> 3
(7) Notices. Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
hand, telex, telecopy, or certified or registered mail, postage prepaid and
addressed to the following address:
Wallace G. Rascher Financial Pacific Insurance Company
Attn.: Robert C. Goodell
** P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses inherence
this Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ WALLACE G. RASCHER /s/ ROBERT C. GOODELL
- ---------------------- ---------------------
Wallace G. Rascher Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
Exhibit 10.7
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 14, 1997, is made and entered into among
Financial Pacific Insurance Group, Inc. a Delaware corporation ("Financial
Pacific"), and Financial Pacific Insurance Company (FPIC), a California
corporation (Financial Pacific, and FPIC are hereinafter referred to
collectively as "Companies") and Timothy N. Blaede ("Executive").
RECITALS
A. Executive currently serves as Vice President of Information
Services. Executive's salary is paid by FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be
terminated by the Companies or Executive, as applicable, under the following
circumstances.
(a) Death: The Executive's employment hereunder shall
terminate upon his death. In the case of Executive's death, the Companies shall
pay Executive's beneficiaries or estate, as appropriate, the unpaid Annual Base
Salary to which he is entitled, through the date of his termination. This
subsection shall not limit the entitlement of the Executive's estate or
beneficiaries to any death or other benefits then available to Executive under
any life insurance or other benefit plan or policy which is maintained by the
Companies for Executive's benefit.
(b) By the Companies: Companies may terminate Executive's
employment hereunder for any reason, (with or without cause) upon 30 days
written notice. In the event that Companies terminate Executive's employment,
the Companies shall pay to Executive the unpaid Annual Base Salary to which he
is entitled through the termination date. In addition, the Companies shall pay
Executive severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment upon
30 days written notice to the Companies. Upon Executive's resignation, the
Companies shall promptly pay to Executive (or his designated representative)
the unpaid Annual Base Salary and any other unpaid benefits (vacation, sick,
bonus, pension, business expenses, etc.) to which the Executive is entitled
through Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be
terminated by mutual agreement of Executive and the Companies at any time. If
Executive is terminated by mutual agreement, the severance benefits in Section
2 will apply.
1
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated
pursuant to Section 1(b) or (d), above the Company shall pay Executive
severance compensation which shall consist of a lump sum payment representing
1/2 of Executive's then current Annual Base Salary and any other unpaid
benefits (vacation, sick, bonus, pension, business expenses, etc.).
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not
be required to seek other employment to mitigate damages, and any income earned
by Executive from other employment or self-employment shall not be offset
against any obligations of the Companies to the Executive under this agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement shall, at the election and
upon written demand of any party to this Agreement, be finally determined and
settled by arbitration in Sacramento, California, in accordance with the rules
and procedures of the American Arbitration Association. The judgment as
determined through arbitration may be entered in any court having jurisdiction
thereof.
(b) If any legal action, arbitration, or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief that may be granted.
(4) Binding on Successors: This Agreement shall be binding upon and
inure to the benefit of the Companies, Executive, and their perspective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
(6) Severability: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
2
<PAGE> 3
(7) Notices: Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
hand, telex, telecopy, or certified or registered mail, postage prepaid and
addressed to the following address:
Timothy N. Blaede Financial Pacific Insurance Company
** Attn: Robert C. Goodell
P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses
inherence this Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ Timothy N. Blaede /s/ Robert C. Goodell
- ---------------------- ------------------------------
Timothy N. Blaede Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.8
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated November 14, 1997, is made and entered into among
Financial Pacific Insurance Group, Inc. a Delaware corporation ("Financial
Pacific"), and Financial Pacific Insurance Company (FPIC), a California
corporation (Financial Pacific, and FPIC are hereinafter referred to
collectively as "Companies") and John Hollingshead ("Executive").
RECITALS
A. Executive currently serves as General Counsel of FPIC.
Executive's salary is paid by FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be
terminated by the Companies or Executive, as applicable, under the following
circumstances.
(a) Death: The Executive's employment hereunder shall
terminate upon his death. In the case of Executive's death, the Companies shall
pay Executive's beneficiaries or estate, as appropriate, the unpaid Annual Base
Salary to which he is entitled, through the date of his termination. This
subsection shall not limit the entitlement of the Executive's estate or
beneficiaries to any death or other benefits then available to Executive under
any life insurance or other benefit plan or policy which is maintained by the
Companies for Executive's benefit.
(b) By the Companies: Companies may terminate
Executive's employment hereunder for any reason, (with or without cause) upon 30
days written notice. In the event that Companies terminate Executive's
employment, the Companies shall pay to Executive the unpaid Annual Base Salary
to which he is entitled through the termination date. In addition, the Companies
shall pay Executive severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment
upon 30 days written notice to the Companies. Upon Executive's resignation, the
Companies shall promptly pay to Executive (or his designated representative) the
unpaid Annual Base Salary and any other unpaid benefits (vacation, sick, bonus,
pension, business expenses, etc.) to which the Executive is entitled through
Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be
terminated by mutual agreement of Executive and the Companies at any time. If
Executive is terminated by mutual agreement, the severance benefits in Section 2
will apply.
1
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated
pursuant to Section 1(b) or (d), above the Company shall pay Executive severance
compensation which shall consist of a lump sum payment representing 1/2 of
Executive's then current annual base salary and any other unpaid benefits
(vacation, sick, bonus, pension, business expenses, etc.)
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not be
required to seek other employment to mitigate damages, and any income earned by
Executive from other employment or self-employment shall not be offset against
any obligations of the Companies to the Executive under this agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement shall, at the election and
upon written demand of any party to this Agreement, be finally determined and
settled by arbitration in Sacramento, California, in accordance with the rules
and procedures of the American Arbitration Association. The judgment as
determined through arbitration may be entered in any court having jurisdiction
thereof.
(b) If any legal action, arbitration, or other proceeding is
brought for the enforcement of the Agreement, or because of any alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
the Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
(4) Binding on Successors: This Agreement shall be binding upon and
inure to the benefit of the Companies, Executive, and their perspective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
(6) Severability: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
2
<PAGE> 3
(7) Notices: Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by hand,
telex, telecopy, or certified or registered mail, postage prepaid and addressed
to the following address:
John Hollingshead Financial Pacific Insurance Company
** Attn.: Robert C. Goodell
P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses
inherence this Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ John Hollingshead /s/ Robert C. Goodell
- --------------------- ---------------------------------------
John Hollingshead Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.9
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated February 14, 1997, is made and entered into
among Financial Pacific Insurance Group, Inc. a Delaware corporation
("Financial Pacific"), and Financial Pacific Insurance Company (FPIC), a
California corporation (Financial Pacific, and FPIC are hereinafter referred to
collectively as "Companies") and Artur A. Terner ("Executive").
RECITALS
A. Executive currently serves as Assistant Vice President and Controller.
Executive's salary is paid by FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be terminated by
the Companies or Executive, as applicable, under the following circumstances.
(a) Death: The Executive's employment hereunder shall terminate upon
his death. In the case of Executive's death, the Companies shall pay Executive's
beneficiaries or estate, as appropriate, the unpaid Annual Base Salary to which
he is entitled, through the date of his termination. This subsection shall not
limit the entitlement of the Executive's estate or beneficiaries to any death or
other benefits then available to Executive under any life insurance or other
benefit plan or policy which is maintained by the Companies for Executive's
benefit.
(b) By the Companies: Companies may terminate Executive's employment
hereunder for any reason, (with or without cause) upon 30 days written notice.
In the event that Companies terminate Executive's employment, the Companies
shall pay to Executive the unpaid Annual Base Salary to which he is entitled
through the termination date. In addition, the Companies shall pay Executive
severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment upon 30 days
written notice to the Companies. Upon Executive's resignation, the Companies
shall promptly pay to Executive (or his designated representative) the unpaid
Annual Base Salary and any other unpaid benefits (vacation, sick, bonus,
pension, business expenses, etc.) to which the Executive is entitled through
Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be terminated by
mutual agreement of Executive and the Companies at any time. If Executive is
terminated by mutual agreement, the severance benefits in Section 2 will apply.
1
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated
pursuant to Section 1(b) or (d), above the Company shall pay Executive
severance compensation which shall consist of a lump sum payment representing
1/2 of Executive's then current Annual Base Salary and any other unpaid
benefits (vacation, sick, bonus, pension, business expenses, etc.)
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not
be required to seek other employment to mitigate damages, and any income
earned by Executive from other employment or self-employment shall not be
offset against any obligations of the Companies to the Executive under this
agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement shall, at the election and
upon written demand of any party to this Agreement, be finally determined and
settled by arbitration in Sacramento, California, in accordance with the rules
and procedures of the American Arbitration Association. The judgment as
determined through arbitration may be entered in any court having jurisdiction
thereof.
(b) If any legal action, arbitration, or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief that may be
granted.
(4) Binding on Successors: This Agreement shall be binding upon and
inure to the benefit of the Companies, Executive, and their perspective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principles
thereof.
(6) Severability: The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect.
2
<PAGE> 3
(7) Notices: Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or refusal
of receipt) and shall be in writing and delivered personally or sent by hard,
telex, telecopy, or certified or registered mail, postage prepaid and addressed
to the following address:
Artur A. Terner Financial Pacific Insurance Company
** Attn: Robert C. Goodell
P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses inherence this
Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ Artur A. Terner /s/ Robert C. Goodell
- -------------------------------- -----------------------------------
Artur A. Terner Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
Exhibit 10.10
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated January 1, 1998, is made and entered into among
Financial Pacific Insurance Group, Inc., a Delaware corporation ("Financial
Pacific"), and Financial Pacific Insurance Company (FPIC), a California
corporation (Financial Pacific, and FPIC are hereinafter referred to
collectively as "Companies") and Chuck Wardlaw ("Executive").
RECITALS
A. Executive currently serves as Vice President of Claims. Executive's
salary is paid by FPIC.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties hereby agree as follows:
(1) Termination: The Executive's employment hereunder may be terminated
by the Companies or Executive, as applicable, under the following circumstances.
(a) Death: The Executive's employment hereunder shall terminate upon
his death. In the case of Executive's death, the Companies shall pay Executive's
beneficiaries or estate, as appropriate, the unpaid Annual Base Salary to which
he is entitled, through the date of his termination. This subsection shall not
limit the entitlement of the Executive's estate or beneficiaries to any death or
other benefits then available to Executive under any life insurance or other
benefit plan or policy which is maintained by the Companies for Executive's
benefit.
(b) By the Companies: Companies may terminate Executive's employment
hereunder for any reason, (with or without cause) upon 30 days written notice.
In the event that Companies terminate Executive's employment, the Companies
shall pay to Executive the unpaid Annual Base Salary to which he is entitled
through the termination date. In addition, the Companies shall pay Executive
severance benefits as set forth in Section 2.
(c) Resignation: The Executive may resign his employment upon 30 days
written notice to the Companies. Upon Executive's resignation, the Companies
shall promptly pay to Executive (or his designated representative) the unpaid
Annual Base Salary and any other unpaid benefits (vacation, sick, bonus,
pension, business expenses, etc.) to which the Executive is entitled through
Executive's termination date. Executive shall be entitled to no other
compensation.
(d) Mutual Agreement: The Executive's employment may be terminated by
mutual agreement of Executive and the Companies at any time. If Executive is
terminated by mutual agreement, the severance benefits in Section 2 will apply.
1
<PAGE> 2
(2) Severance Benefits
(a) Termination: The Executive's employment is terminated
pursuant to Section 1(b) or (d), above the Company shall pay Executive severance
compensation which shall consist of a lump sum payment representing 1/2 of
Executive's then current Annual Base Salary and any other unpaid benefits
(vacation, sick, bonus, pension, business expenses, etc.)
(b) Mitigation of Damages: In the event of any termination of
Executive's employment by the Companies or the Executive, Executive shall not be
required to seek other employment to mitigate damages, and any income earned by
Executive from other employment or self-employment shall not be offset against
any obligations of the Companies to the Executive under this agreement.
(3) Disputes
(a) Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement shall, at the election and
upon written demand of any party to this Agreement, be finally determined and
settled by arbitration in Sacramento, California, in accordance with the rules
and procedures of the American Arbitration Association. The judgment as
determined through arbitration may be entered in any court having jurisdiction
thereof.
(b) If any legal action, arbitration, or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief that may be granted.
(4) Binding on Successors: This Agreement shall be binding upon and
inure to the benefit of the Companies, Executive, and their perspective
successors, assigns, personal and legal representatives, executors,
administrators, heirs, distributes, devisees, and legatees, as applicable.
(5) Governing Law: This Agreement is being made, executed, and is
intended to be performed in the State of California and shall be governed,
construed, interpreted and enforced in accordance with the substantive laws of
the State of California, without regard to the conflict of laws principle
thereof.
(6) Severability: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
2
<PAGE> 3
(7) Notices: Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
hard, telex, telecopy, or certified or registered mail, postage prepaid and
addressed to the following address:
Chuck Wardlaw Financial Pacific Insurance Company
** Attn.: Robert C. Goodell
P.O. Box 292220
Sacramento, CA 95829-2220
IN WITNESS WHEREOF, the parties have executed put addresses inherence
this Agreement as of above written.
EXECUTIVE FINANCIAL PACIFIC INSURANCE CO.
/s/ Chuck Wardlaw /s/ Robert C. Goodell
- ----------------- ---------------------------------------
Chuck Wardlaw Robert C. Goodell
President & Chief Executive Officer
3
<PAGE> 1
Exhibit 10.11
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH HAVE BEEN
REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION BY
THE REGISTRANT AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT.
[Execution Copy]
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement is made as of September 7,
1993 by and among Financial Pacific Insurance Group, Inc., a Delaware
corporation (the "Corporation"), Robert C. Goodell ("RCG") and Suzanne M.
Goodell ("SMG"). RCG and SMG are collectively referred to herein as ("Goodell").
RECITALS
A. On the date hereof, immediately prior to the transactions
referred to below, RCG owns 100% of the outstanding shares of the common stock,
$.001 par value (the "Common Stock"), of the Corporation, consisting of 682,284
shares (the "Initial Shares").
B. The parties listed on Schedule 1 attached hereto (the
"Purchasers") propose to purchase from the Corporation, and the Corporation
proposes to sell to the Purchasers, an aggregate of 3,650,001 shares of the
Corporation's Series A Convertible Preferred Stock , $.001 par value (the
"Series A Stock"), pursuant to a Series A Convertible Preferred Stock Purchase
Agreement of even date herewith by and among the Corporation and the Purchasers
(the "Purchase Agreement").
C. RCG, SMG and the trustees of their respective Individual
Retirement Accounts propose to purchase from the Corporation, and the
Corporation proposes to sell to such persons, an aggregate of 500,000 additional
shares of Common Stock (the "New Shares") on the terms and conditions set forth
in this Agreement. The New Shares consist of the following (and any shares
issued in exchange for or in connection with the following):
Number of
Record Holder Shares
------------- ------
79,000
California Central Trust Bank Corporation,
as Trustee #1060000539 FBO Robert C.
Goodell ("RCG Trustee")
California Central Trust Bank Corporation, 20,500
as Trustee #1060000539 FBO Suzanne M.
Goodell ("SMG Trustee")
Robert C. Goodell 200,000
Robert C. Goodell and Suzanne M. Goodell 200,300
<PAGE> 2
As used hereafter in this Agreement, the term "Restricted Shares" shall mean
the Initial Shares and the New Shares.
D. The Purchasers, the holders of the Common Stock and the
Corporation are entering into a Stockholders Agreement of even date herewith
(the "Stockholders Agreement"). The term "Stockholders" as used herein has the
meaning as provided from time to time in the Stockholders Agreement.
E. Goodell believes that the consummation of the transactions
contemplated by the Purchase Agreement will be of financial benefit to the
Corporation and accordingly assumes certain duties toward and confers certain
benefits upon the Purchasers under this Agreement in satisfaction of one of the
Purchasers' closing conditions under the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein, the parties agree as follows:
1. Repurchase Option Upon Failure to Satisfy Performance Standards.
(a) Performance Standards. The parties hereby agree upon
the performance standard for the annual consolidated net income of the
Corporation and its subsidiaries, excluding any extraordinary or nonrecurring
gains or losses (net of taxes) (the "Target Annual Net Income"), to be
determined in accordance with generally accepted accounting principles ("GAAP")
consistently applied, as set forth below:
<TABLE>
<CAPTION>
Target Annual Cumulative
Year Net Income Net Income
---- ------------- -----------
<S> <C> <C>
January 1, 1994 to December 31, 1994 $ 1,119,000 $1,119,000
January 1, 1995 to December 31, 1995 1,460,000 2,579,000
January 1, 1996 to December 31, 1996 2,124,000 4,703,000
January 1, 1997 to December 31, 1997 2,744,000 7,447,000
January 1, 1998 to December 31, 1998 3,698,000 11,145,000
</TABLE>
However, in the event the Board of Directors of the Corporation (the
"Board") elects to determine a more conservative investment policy for the
Corporation and its insurance subsidiary than is in effect on the date hereof,
then the Target Annual Net Income, as set forth above, shall be adjusted as the
Board and RCG shall reasonably agree in good faith to account for the resulting
change in investment income. In addition, if the Corporation conducts a public
offering of its Common Stock that would require the automatic conversion of the
outstanding shares of Series A Stock into Common Stock pursuant to the
Certificate of Designations of Series A Convertible Preferred Stock of the
Corporation, then
2.
<PAGE> 3
the Target Annual Net Income shall be adjusted as the Board and RCG shall
reasonably agree in good faith to account for the resulting change in investment
income.
(b) Annual Designation of Exempt Shares. The parties hereby agree that
up to 20% of the original Initial Shares shall be eligible to be converted into
shares exempt from the repurchase option described in subparagraph (c) below
("Exempt Shares") each calendar year; provided, however, that all of the Initial
Shares shall be converted into Exempt Shares upon the consolidation or merger of
the Corporation with or into another corporation, the sale or conveyance of all
or substantially all of the assets of the Corporation or a sale of all or
substantially all of the capital stock of the Corporation (a "Sale
Transaction"). After each calendar year end, upon the receipt of the
Corporation's audited consolidated financial statements, the Board shall
determine the percentage of the Target Annual Net Income achieved by the
Corporation for such calendar year. For each calendar year, if the Corporation
achieves:
(i) 100% or more of the Target Annual Net Income for such calendar
year, then the entire eligible percentage of the Initial Shares shall
become Exempt Shares;
(ii) less than 80% of the Target Annual Net Income for such
calendar year, then no Initial Shares shall become Exempt Shares;
(iii) 80% of the Target Annual Net Income for such calendar year,
then 80% of the Initial Shares shall become Exempt Shares; and
(iv) greater than 80%, but less than 100%, of the Target Annual
Net Income for such calendar year, then a pro rata portion of the
eligible percentage of Initial Shares shall become Exempt Shares;
provided, however, that if the Corporation's cumulative net income on a
consolidated basis, excluding any extraordinary or nonrecurring gains or losses
(net of taxes), determined in accordance with GAAP consistently applied, from
January 1, 1994 to the end of such calendar year is equal to or greater than the
amount of Cumulative Net Income set forth above, then the portion of any
eligible Initial Shares which were not converted into Exempt Shares in any prior
calendar year shall be converted into Exempt Shares. Those Initial Shares that
have become Exempt Shares pursuant to this subparagraph (b) shall remain Exempt
Shares regardless of the future performance of the Corporation. Notwithstanding
the foregoing, if RCG is employed by the Corporation on December 31, 2001, then
all of the Initial Shares on such date shall be converted into Exempt Shares.
Upon any Date of Determination, as hereinafter defined, the performance
standards set forth in this subparagraph (b) shall be applied to the most
recently completed calendar quarter and in such a manner as to give RCG the
benefit of any partial year's
3.
<PAGE> 4
performance by the Corporation, and such performance standards shall be prorated
accordingly. For purposes of this Section 2, the term "Determination Date" shall
mean the first date as of which any of the following occurs; (a) the termination
of RCG's employment with the Corporation for any reason, (b) a Sale Transaction
or (c) December 31, 1998.
(c) Repurchase Upon Determination Date. As of the Determination Date,
the Corporation shall have the right to repurchase for cancellation all Initial
Shares that have not been converted into Exempt Shares, as follows:
(i) Corporation's Repurchase Option. The Corporation shall have
the option (the "Corporation's Repurchase Option") to purchase for a
period of 60 days after the Determination Date any or all of the
Initial Shares at the Repurchase Price (as hereinafter defined). Should
the Corporation fail to purchase any or all of the Initial Shares which
it is entitled to purchase pursuant to the Corporation's Repurchase
Option, the balance of the Initial Shares shall become Exempt Shares.
The Corporation's Repurchase Option may not be assigned by the
Corporation, and all Initial Shares repurchased shall be cancelled.
(ii) Purchase Price. The purchase price ("Repurchase Price") for
any Initial Shares to be purchased pursuant to the Corporation's
Repurchase Option shall be $.01 per Incentive Share (as adjusted for
Recapitalizations, as hereinafter defined).
(iii) Exercise of Repurchase Option. The Corporation's Repurchase
Option shall be exercised by the Corporation by delivery (a) within the
60 day period specified in clause (i) to Goodell of a written notice
specifying the number of Initial Shares to be purchased and (b) within
the same 60 day period, a check in the amount of the Repurchase Price,
calculated as provided in clause (iii), for all Initial Shares to be
purchased by the Corporation.
(iv) Payment by Goodell for Exempt Shares. Goodell shall, on the
Determination Date, either (i) pay the Corporation $1.00 times the
number of Exempt Shares (as adjusted for Recapitalizations) on such
date (the "Cash Amount") or (ii) sell to the Corporation for
cancellation at a price of $.01 per share (as adjusted for
Recapitalizations) the number of Exempt Shares equal in value to the
Cash Amount.
2. Repurchase Option Upon Termination.
(a) Corporation's Repurchase Option. In the event that RCG's
employment by the Corporation terminates for any reason on or before December
31, 1998,
4.
<PAGE> 5
the Corporation shall have the option (the "Corporation's Repurchase Option") to
purchase for cancellation for a period of 60 days after the date of such
termination (the "Termination Date") any or all of the Restricted Shares
(including but not limited to any Exempt Shares) at the Restricted Share
Repurchase Price (as hereinafter defined). Should the Corporation fail to
purchase any or all of the Restricted Shares which it is entitled to purchase
pursuant to the Corporation's Repurchase Option, the Corporation shall promptly
give written notice (the "Repurchase Notice") to the other stockholders of the
Corporation (the "Other Stockholders") specifying the number of Restricted
Shares not purchased by the Corporation.
(b) Other Stockholders' Repurchase Option. Within 30 days after
delivery of the Repurchase Notice, the Other Stockholders may elect to purchase
(the "Other Stockholders' Repurchase Option") the Restricted Shares not
purchased by the Corporation pursuant to the Corporation's Repurchase Option
(the "Remaining Shares"). Should the aggregate number of shares that the Other
Stockholders elect to purchase exceed the number of Remaining Shares the Other
Stockholders are entitled to purchase, each Other Stockholder electing to
purchase shall be entitled to purchase such proportion of the Remaining Shares
as the number of shares of Common Stock held by such Other Stockholder
(determined on an as-converted as to the Purchasers) bears to the aggregate
number of shares of Common Stock (determined on an as-converted basis) held by
all Other Stockholders electing to purchase. The Secretary of the Corporation
shall promptly give notice to each Other Stockholder of the number of Remaining
Shares which such Other Stockholder may purchase.
(c) Purchase Price. The Corporation's Repurchase Option pursuant to
Section 1 shall first be applied for the repurchase of Restricted Shares. The
purchase price ("Restricted Share Repurchase Price") for any remaining
Restricted Shares to be purchased pursuant to the Corporation's Repurchase
Option or the Other Stockholders' Repurchase Option set forth in this Section 2
shall equal (i) for New Shares and Restricted Shares that have become Exempt
Shares (A) $1.00 per Restricted Share (as adjusted for Recapitalizations) if the
Termination Date is on or before September 7, 1994 and (B) the book value (as
hereinafter defined) per Restricted Share if the Termination Date is after
September 7, 1994 but on or before December 31, 1998; and (ii) for Restricted
Shares that are then Incentive Shares, $.01 per Restricted Share (as adjusted
for Recapitalizations). The book value of each Restricted Share shall equal the
price per share originally paid plus the net income or minus the net loss of the
Corporation and its subsidiaries on a consolidated basis, determined in
accordance with GAAP consistently applied, and calculated from the date hereof
to the end of the fiscal quarter immediately preceding the fiscal quarter in
which the Termination Date occurs. In computing net income or net loss for
purposes of the preceding sentence, there shall be excluded the amortization of
intangibles.
(d) Exercise of Repurchase Options. The Corporation's Repurchase Option
shall be exercised by the Corporation by delivery (a) within the 60 day period
specified in subparagraph (a) to Goodell of a written notice specifying the
number of Restricted Shares to be purchased and (b) within the same 60 day
period, a check in the
5.
<PAGE> 6
amount of the Restricted Share Repurchase Price, calculated as provided in
subparagraph (c) for all Restricted Shares to be purchased by the Corporation.
The Other Stockholders' Repurchase Option shall be exercised by the Other
Stockholders by delivery (a) within the 30 day period specified in subparagraph
(b) to Goodell of a written notice specifying the number of Remaining Shares to
be purchased and (b) within the same 30 day period, a check in the amount of the
Restricted Share Repurchase Price, calculated as provided in subparagraph (c),
for all Remaining Shares to be purchased by the Other Stockholders.
3. Put Option. In the event of death of RCG, his estate shall have the right,
at its option (the "Put Option"), to require the Corporation to purchase in the
manner and on the terms set forth in this Section 3 any Restricted Shares not
repurchased by the Corporation or the Other Stockholders pursuant to Section 2.
The Purchase Price for the Restricted Shares which the Corporation is required
to purchase upon the exercise of the Put Option ( the "Put Price") shall be the
same as the Restricted Share Repurchase Price pursuant to Section 2(c) hereof,
provided, however, that the Corporation shall not be obligated to repurchase
Restricted Shares in a number that would cause the payment to be made for such
Restricted Shares to exceed the proceeds of the key man life insurance required
under the terms of Section 5.2(k) of the Purchase Agreement, less any portion
thereof applied to repay Marvin L. Oates pursuant to the terms of the Note to be
issued by the Corporation to Mr. Oates. Notwithstanding the foregoing, the date
upon which the Corporation is required to make payment of the Put Price shall be
delayed to the extent that and for so long as the Corporation lacks sufficient
legally available funds to pay the Put Price or is otherwise prohibited under
Delaware or California law from making such payment.
4. Escrow. As security for the faithful performance of the terms of this
Agreement and to insure the availability for delivery of any Initial Shares upon
exercise of the repurchase options herein provided for, Goodell agrees to
deliver to and deposit with the Secretary of the Corporation, or such other
person designated by the Corporation ("Escrow Agent"), as Escrow Agent in this
transaction, two Stock Assignments duly endorsed (with date and number of shares
blank) in the form attached hereto as Exhibit A, together with the certificate
or certificates evidencing the Initial Shares. Said documents are to held by the
Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow
Instructions of the Corporation and Goodell set forth in Exhibit B attached
hereto and incorporated by this reference.
5. Restrictions on Transfer of Restricted Shares. The Restricted Shares shall
be subject to the restrictions on transfer set forth in that certain
Stockholders Agreement dated as of September 7, 1993 among the Corporation,
Goodell and the other stockholders named therein (the "Stockholders Agreement").
Each qualified transferee of Restricted Shares must, prior to the acknowledgment
and acceptance of such transfer by the Corporation, agree to take and hold such
Restricted Shares subject to the terms and conditions of the Stockholders
Agreement.
6.
<PAGE> 7
6. RIGHTS AS STOCKHOLDER. Subject to compliance with the provisions
of this Agreement, Goodell shall exercise all rights and privileges of the
registered holder of the Restricted Shares and shall be entitled to receive any
dividend or other distribution thereon.
7. NO CONTRACT OF EMPLOYMENT. Goodell acknowledges and agrees that
this Agreement shall not be construed to give RCG any right to be retained in
the employ of the Corporation or any subsidiary thereof, and that the right and
power of the Corporation or any subsidiary to dismiss or discharge RCG (with or
without cause) is strictly reserved.
8. RECLASSIFICATION, REORGANIZATION, ACQUISITION OF STOCK,ETC. In the
event of any reclassification, reorganization, recapitalization, stock split,
stock dividend, combination of shares, or any other change in the capital
structure of the Corporation (a "Recapitalization"), all shares of Common Stock
obtained as the result thereof by Goodell in addition to, in exchange for or in
respect of the Restricted Shares shall be deemed Restricted Shares and shall be
subject to this Agreement. Goodell's ownership interest shall be appropriately
adjusted in a manner consistent with the Certificate of Designations of Series A
Convertible Preferred Stock of the Corporation and the Warrants.
9. SHARES HELD BY IRA TRUSTEES. The Subscription Agreements pursuant
to which the shares of Common stock held by RCG Trustee and SMG Trustee were
issued provide that such shares shall be subject to the terms of this
Agreement. RCG shall cause RCG Trustee to comply with the provisions of this
Agreement, including the obligation to sell the shares of Common Stock held by
RCG Trustee as provided in this Agreement. SMG shall cause SMG Trustee to
comply with the provisions of this Agreement, including the obligation to sell
the shares of Common Stock held by SMG Trustee as provided in this Agreement.
10. THIRD PARTY BENEFICIARIES. The Other Stockholders shall be third
party beneficiaries of this Agreement.
11. MISCELLANEOUS.
(a) FURTHER ASSURANCES. Each party hereto agrees to perform any
further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent if this Agreement.
(b) BINDING AGREEMENT. This Agreement shall bind and inure to
the benefit of the successors and assigns of the Corporation and the personal
representatives, heirs and legatees of Goodell.
(c) NOTICES. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be deemed given upon
personal delivery or, if mailed, upon the expiration of 48 hours after mailing
by any form of United States mail
7.
<PAGE> 8
requiring a return receipt, addressed (i) to Goodell at the address set forth
on the signature page hereof, (ii) to Financial Pacific Insurance Group, Inc.,
8583 Elder Creek Road, Suite 100, Sacramento, California 95828, Attention:
President, and (iii) if to an Other Stockholder, at the address shown on
SCHEDULE 1 attached hereto. A party may change its address by giving written
notice to the other parties setting forth the new address for the giving of
notices pursuant to this Agreement.
(d) AMENDMENTS. This Agreement may be amended at any time by
the written agreement and consent of the parties hereto.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(f) DISPUTES. In the event of any dispute among the parties
arising out of this Agreement, the prevailing party shall be entitled to
recover from the nonprevailing party the reasonable expenses of the prevailing
party, including, without limitation, reasonable attorneys' fees.
(g) ENTIRE AGREEMENT. This Agreement, including the agreements
referred to herein, constitute the entire agreement and understand among the
parties pertaining to the subject matter hereof and supersedes any and all
prior agreements, whether written or oral, relating thereto.
(h) HEADINGS. Introductory headings at the beginning of each
section of this Agreement are solely for the convenience of the parties and
shall not be deemed to be a limitation upon or description of the contents of
any such section.
8.
<PAGE> 9
(i) Counterparts. This Agreement may be executed in two or
more counterparts, all of which, when taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
FINANCIAL PACIFIC INSURANCE
GROUP, INC.
By: /s/ Karen Oldenkamp
---------------------------------
Karen Oldenkamp, Secretary
/s/ Robert C. Goodell
--------------------------------------
Robert C. Goodell
Address:
**
/s/ Suzanne M. Goodell
--------------------------------------
Suzanne M. Goodell
Address:
**
9.
<PAGE> 1
EXHIBIT 10.12
EXECUTION
NOTE AND WARRANT PURCHASE AGREEMENT
NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement") dated the
28th day of December, 1995, by and among Financial Pacific Insurance Group,
Inc., a Delaware corporation (the "Corporation"), and each of the persons
severally listed on the Schedule of Purchasers attached hereto (the "Schedule of
Purchasers") - The persons listed on the Schedule of Purchasers are herein
referred to collectively as the "Purchasers" and individually as a "Purchaser".
W I T N E S S E T H:
SECTION 1. Authorization of Notes and Warrants. The Corporation has
authorized the issue and sale of (a) $5,000,000 aggregate principal amount of
its 12% Senior Notes due January 1, 2001 (the "Notes", such term to include all
Notes issued in substitution therefor pursuant to Section 13), to be
substantially in the form of Exhibit A, (b) Common Stock Purchase Warrants (the
"Warrants", such terms to include any such warrants issued in substitution
therefor), to be substantially in the form of Exhibit B, for the purchase of up
to 1,505.4 shares (subject to adjustment) of the Corporation's Common Stock, par
value $.001 per share (the "Common Stock"), at a purchase price equal to the
Warrant Purchase Price (as defined in the Warrants), at any time or from time to
time prior to 5:00 p.m., eastern time, on January 1, 2004 (provided, however,
that if any exercise of any Warrant would result in a change in "control" of the
Corporation, as defined in Section 1215(b) of the California Insurance Code,
then such exercise shall be delayed until such time as the approval of the
California Department of Insurance is obtained).
SECTION 2. Sale and Purchase of Notes and Warrants. The Corporation
will issue and sell to the Purchasers and, subject to the terms and conditions
hereof, the Purchasers will purchase from the Corporation, at the Closing
provided for in Section 3, Notes in the principal amount specified opposite the
name of each Purchaser in the Schedule of Purchasers and Warrants for the
purchase of the number of shares of Common Stock specified opposite the name of
each Purchaser in the Schedule of Purchasers at the aggregate purchase price of
100% of the aggregate principal amount of such Notes.
SECTION 3. Closing. (a) The closing of the sale of Notes and
Warrants to the Purchasers shall take place at the offices of McCarter &
English, Four Gateway Center, 100 Mulberry Street, Newark, New Jersey 07102, at
10:00 a.m., eastern time, on December 28, 1995 or on such other business day
thereafter as may be agreed upon by the Corporation and the Purchasers (the
"Closing Date"). At the Closing the Corporation shall deliver to
<PAGE> 2
the Purchasers (i) the Notes to be sold to each Purchaser, in each case in the
form of a single Note dated the Closing Date and registered in the name of such
Purchaser, and (ii) the Warrants to be purchased by each Purchaser, in each case
in the form of a single Warrant, dated the Closing Date and registered in the
name of such Purchaser, against delivery by the Purchasers of immediately
available funds in the aggregate amount of the purchase price therefor. If at
the Closing the Corporation shall fail to tender such Notes or Warrants to the
Purchasers as specified in this Section 3, or any of the conditions specified in
Section 6 shall not have been fulfilled or waived, the Purchasers shall, at
their election, be relieved of all further obligations hereunder, without
thereby waiving any other rights the Purchasers may have by reason of such
failure or such nonfulfillment.
(b) The Purchasers shall have the right, in the event that
the Closing shall not be held by [January 15, 1996], and if such failure to
close shall be attributable to any cause or event other than a failure by any
Purchaser to perform an action required to be performed by it pursuant to this
Agreement, to terminate this Agreement on written notice to the Corporation.
SECTION 4. Representations and Warranties of the Corporation. The
Corporation represents and warrants that:
4.1 Bring Down. All representations and warranties set
forth in the Stock Purchase Agreements dated September 7, 1993 and as of
December 30, 1994 (the "Purchase Agreements") are complete and correct as of the
date hereof as applied to the transactions contemplated under the Purchase
Agreement and to the transactions contemplated by this Agreement, except (i) as
affected by the closings of the transactions under the Purchase Agreements and
changes in the ordinary course of business since the dates thereof, and (ii)
that the Corporation's subsidiary, Financial Pacific Insurance Company, is not
in compliance with the rate filing requirements of the California Department of
Insurance.
4.2 Organization; Capital Stock. The Corporation is a corporation
duly organized and existing and in good standing under the laws of the State of
Delaware and has the corporate power to carry on its business as it is now being
conducted and as it is contemplated to be conducted. The authorized capital
stock of the Corporation consists of 10,000 shares of common stock (the "Common
Stock"), and 5,000 shares of Series A Convertible Preferred Stock (the
"Preferred Stock"). There are 1232.284 shares of Common Stock and 4,400.001
shares of Preferred stock issued and outstanding which, together, are the only
shares of capital stock of the Corporation issued and outstanding on the date
hereof. All of the issued and outstanding Common Stock and Preferred Stock of
the Corporation is duly authorized, validly
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<PAGE> 3
issued, fully paid and non-assessable. The Common Stock and the Preferred Stock
is owned of record and beneficially as set forth below:
<TABLE>
<S> <C>
Common Stock
Robert C. Goodell 1,182.284
David B. Rogers 50
Preferred Stock
FinPac Partners 1,466.667
St. Paul Fire and
Marine Insurance Company 1,466.667
The Firemark Global
Insurance Fund, L.P. 1,466,667
</TABLE>
Those persons and entities listed above shall herein be referred to as the
"Stockholders". All the issued and outstanding Common Stock and Preferred Stock
of the Corporation has been issued and sold in conformity with or under
exemption from the requirements of the Securities Act of 1933, as amended, and
all other applicable federal and state laws relating to the issuance and sale of
securities which are applicable to the corporation or any holder of Common Stock
or Preferred Stock. To the knowledge of the Corporation, the Stockholders own
their respective shares of Common Stock and Preferred Stock free and clear of
any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority, charge or other
security interest or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any capital lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of any
of the foregoing) (each, a "Lien"). Except as set forth on Schedule 4.2 and/or
as set forth in the Stockholders Agreement dated as of September 7, 1993, as
amended on December 28, 1995 (the "Stockholders Agreement"), there are no
authorized, outstanding or existing:
(a) proxies, voting trusts or other agreements or understandings
with respect to the voting of any capital stock of the Corporation;
(b) securities convertible into or exchangeable for any capital
stock of the Corporation;
(c) options, warrants or other rights to purchase or subscribe for
any capital stock of the Corporation, or securities
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<PAGE> 4
convertible into or exchangeable for any capital stock of the Corporation;
(d) pre-emptive rights or rights of first refusal of any holder
of capital stock, or agreements of any kind relating to the issuance of any
capital stock of the Corporation, any such convertible or exchangeable
securities or any such options, warrants or rights; or
(e) stockholders' or similar agreements with respect to the
voting and/or transfer of capital stock, or agreements of any kind that may
obligate the Corporation to issue or purchase any of its securities.
4.3 Financial Statements; Undisclosed Liabilities. (a)
Beginning with the fiscal year which began January 1, 1993, each of the
Corporation and its Subsidiaries have kept proper books of record and account in
accordance with generally accepted accounting principles ("GAAP"). The
consolidated balance sheets of the Corporation and its Subsidiaries as of
December 31, 1993 and December 31, 1994, and the related consolidated statements
of income, stockholders equity and cash flows for the fiscal years then ended,
all of which have been certified by the Corporation's independent certified
public accountants, copies of which have been delivered to Purchaser, have been
prepared in accordance with GAAP consistently applied, and present fairly the
financial position of the Corporation and its Subsidiaries as of such dates and
the results of their operations for such periods. The Corporation has also
delivered to Purchasers copies of all audit or review comments and reports
thereon or in respect thereof which were received by the Corporation or any such
Subsidiary from its independent certified public accountants since the date of
incorporation of the Corporation. The Consolidated Balance Sheet of the
Corporation and Subsidiaries dated December 31, 1994 is herein called the
"Consolidated Balance Sheet," and December 31, 1994 is herein called the
"Balance Sheet Date."
(b) Except as set forth on Schedule 4.5, as of the date
hereof the Corporation does not have any liability of any nature (matured or
unmatured, fixed contingent or otherwise) which is, individually or in the
aggregate, material to the Corporation and its Subsidiaries on a consolidated
basis, and was not reflected on the Consolidated Balance Sheet.
4.4 Taxes. All income, gross receipts, ad valorem, sales,
use, franchise, property employment and other tax returns required to be filed
by the Corporation or any Subsidiary in any jurisdiction have in fact been filed
and are true and correct, and all taxes, assessments, fees and other
governmental charges upon the Corporation or any Subsidiary of the Corporation,
or upon any of their respective properties, income
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<PAGE> 5
or franchises, which are due and payable have been paid. The provisions for
taxes on the books of the Corporation and each Subsidiary are adequate for all
open years, and for its current fiscal period. Neither the Corporation nor any
Subsidiary has granted or agreed to any extension of the period of limitations
with respect to any open tax year.
4.5 Brokers and Finders. The Corporation has not incurred
any obligation or commitment to any person which could give rise to a claim for
any finder's, broker's or other middleman's commission or compensation in
respect of the transactions contemplated by this Agreement.
4.6 Use of Proceeds. The proceeds to the Corporation from
the issuance and sale of the Notes and Warrants shall be invested in the surplus
of Financial Pacific Insurance Company, Inc., the wholly-owned subsidiary of the
Corporation.
4.7 Intercompany Transactions. Except for (i) Director
fees, (ii) Mr. Goodell's salary, (iii) the reimbursement of Mr. Goodell's travel
expenses, and (iv) the reimbursement of the Directors' travel expenses, there
have been no fees charged since January 1, 1993 by any stockholder, director,
officer or affiliate of the Corporation to the Corporation or by the Corporation
to any stockholder, director, officer or affiliate of the Corporation, for
management, computer, telephone or other services, and no space, facilities,
property or assets, personnel and services have been provided to any
stockholder, director, officer or affiliate of the Corporation by the
Corporation or to the Corporation by any stockholder, director, officer or
affiliate of the Corporation (except salaries, directors fees and reimbursements
in the ordinary course of business), and (ii) there are no other contracts and
transactions between the Corporation and any stockholder, director, officer or
affiliate since the date of incorporation of the Corporation.
4.8 Disclosure. No representation or warranty by the
Corporation contained herein, nor any information, document, statement,
certificate or schedule furnished or to be furnished to Purchasers in connection
herewith or with the transactions contemplated hereby, contains, or will on the
Closing Date contain, any untrue statement of a material fact or omits, or will
on the Closing Date omit, to state a material fact necessary to make the
statements contained therein not misleading. Any projections furnished by the
Corporation to the Purchasers were made in good faith, have a reasonable basis
and were based on reasonable and valid assumptions as at the date that such
projections were furnished to Purchasers. The Corporation has disclosed to the
Purchasers all material information relating to the Corporation and its
Subsidiaries and their respective business and operations, and has supplied to
the Purchasers all
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<PAGE> 6
information and documents requested by the Purchasers in document requests lists
previously furnished to the Corporation.
SECTION 5. Representations and Warranties of Purchasers. Each
Purchaser represents and warrants to the Corporation, individually and not
jointly, and only as to itself, that:
5.1 Organization; Corporate Power. If applicable, it is a
corporation, limited partnership or limited liability company, as the case may
be, duly organized and existing and in good standing under the laws of its state
of organization and has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
5.2 Due Authorization. This Agreement has been duly
authorized by all necessary action of such Purchaser. Neither this Agreement nor
any of the transactions provided for herein violates any provision of such
Purchaser's Certificate of Incorporation or Bylaws, Certificate of Limited
Partnership or Partnership Agreement, Certificate of Formation or Operating
Agreement, as the case may be, or any agreement by which such Purchaser or any
of its properties is bound. This Agreement will, when duly executed and
delivered, be binding on such Purchaser, and enforceable against such Purchaser
in accordance with its terms.
5.3 Consents. Except for the consent of the Insurance
Department of the State of California, no consent, approval or authorization of,
or filing, registration or qualification with, any governmental authority or
other person on the part of the Purchasers is required in connection with the
execution, delivery and performance of this Agreement or the purchase of the
Notes and Warrants.
5.4 Investment Intent, etc. It has carefully reviewed the
representations concerning the Corporation contained in this Agreement; it is
experienced in evaluating and investing in companies engaged in businesses
similar to that of the Corporation; it understands that this investment involves
substantial risks; it or its representative has made detailed inquiry concerning
the Corporation, its proposed business and services, its officers and its
personnel; the officers of the Corporation have made available to it any and all
written information it has requested; the officers of the Corporation have
answered to its satisfaction all inquiries made by it; in making this investment
it has relied upon information made available to it by the Corporation; and it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of investment in the Corporation and
it is able to bear the economic risk of that
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<PAGE> 7
investment. Such Purchaser is acquiring the Notes and Warrants for investment
for its own account and not with the view to, or for resale in connection with,
any distribution thereof. It understands that the Notes and Warrants, and the
shares of Common Stock issuable upon exercise of the Warrants, have not been
registered under the Securities Act of 1933 nor qualified under the California
Securities Law by reason of specified exemptions therefrom which depend upon,
among other things, the bona fide nature of its investment intent as expressed
herein. It acknowledges that the Notes and shares of Common Stock issuable upon
exercise of the Warrants must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. It has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, which generally permits limited resale of
securities purchased in a private placement subject to the satisfaction of
certain conditions.
SECTION 6. Conditions Precedent to Obligations of Purchasers. The
obligations of the Purchasers under this Agreement are subject to and
conditioned upon the satisfaction at or prior to the Closing of each of the
following conditions:
6.1 Representations; Performance. The representations and
warranties of the Corporation contained in this Agreement and in each other
document being executed by the Corporation in connection herewith (the
"Ancillary Documents") W shall be true and correct in all material respects at
and as of the date hereof, and (ii) shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though made on
and as of the Closing Date. The Corporation shall have duly performed and
complied in all material respects with all agreements and conditions required by
this Agreement and each of the Ancillary Documents to be performed or complied
with by it prior to or on the Closing Date. The Corporation shall have delivered
to the Purchasers a certificate, dated the Closing Date and signed by duly
authorized officers of the Corporation to the foregoing effect and with respect
to incumbency of officers and such other matters as the Purchasers may
reasonably request.
6.2 Corporate Proceedings. (a) All corporate and other
proceedings of the Corporation in connection with this Agreement and the
Ancillary Documents and the transactions contemplated hereby and thereby, and
all documents and instruments incident thereto, shall be reasonably satisfactory
in substance and form to the Purchasers and its counsel, and the Purchasers and
its counsel shall have received all such documents and instruments, or copies
thereof, certified if requested, as may be reasonably requested.
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<PAGE> 8
(b) Waiver of Preemptive Rights. Each stockholder of the
Corporation who is not participating in this transaction shall have duly and
validly waived his preemptive rights under the Stockholders Agreement insofar as
such rights are applicable to this transaction.
6.3 Consents. All consents needed for the execution, delivery and
performance of this Agreement and each Ancillary Document shall have been
obtained.
6.4 Intentionally omitted.
6.5 certified Documents. The Purchasers shall have received copies
of (1) the Certificate of Incorporation of the Corporation, as amended to date,
certified by the Secretary of State of the State of Delaware, and (2) the Bylaws
of the Corporation, as amended to date, certified by an appropriate officer of
the Corporation.
6.6 Legal Proceedings. There shall be no law, rule or regulation
and no order shall have been entered and not vacated by a court or
administrative agency of competent jurisdiction in any litigation, which (i)
enjoins, restrains, makes illegal or prohibits consummation of the transactions
contemplated hereby, (ii) requires separation of a significant portion of the
assets or business of the Corporation or any Subsidiary after the Closing or
(iii) restricts or interferes with, in any material way, the operation of the
Corporation or any Subsidiary or their respective businesses or assets after the
Closing, materially adversely affects the financial condition, results of
operations, properties, assets, business or prospects of the Corporation or any
Subsidiary; and there shall be no litigation pending before a court or
administrative agency of competent jurisdiction, or threatened, seeking to do,
or which, if successful, would have the effect of, any of the foregoing.
6.7 Due Diligence. The Purchasers shall have completed their "due
diligence" investigation of the properties, business, prospects, profits and
financial condition of the Corporation and its Subsidiaries, and the information
acquired by the Purchasers as a result of or in connection therewith shall be
satisfactory to the Purchasers in their sole discretion.
SECTION 7. Conditions Precedent to Obligations of Corporation. The
obligations of the Corporation to deliver the Notes and the Warrants on the
Closing Date are subject to and conditioned upon the satisfaction at or prior to
the Closing of each of the following conditions:
7.1 Representations; Performance. The representations and
warranties of the Purchasers contained in this Agreement (i) shall be true and
correct in all material
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respects at and as of the date hereof and (ii) shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
made at and as of such time. The Purchasers shall have duly performed and
complied in all material respects with all agreements and conditions required by
this Agreement to be performed or complied with by it prior to or on the Closing
Date. The Purchasers shall have delivered to the Corporation a certificate,
dated the Closing Date and signed by a duly authorized officer, to the foregoing
effect.
7.2 Proceedings. All proceedings of the Purchasers in connection
with this Agreement and the transactions contemplated hereby and thereby, and
all documents and instruments incident thereto, shall be reasonably satisfactory
in substance and form to the Corporation, and its counsel, and the Corporation
and its counsel shall have received all such documents and instruments, or
copies thereof, certified if requested, as may be reasonably requested.
7.3 Consents. All consents needed for the execution, delivery and
performance of this Agreement shall have been obtained.
SECTION 8. Prepayment of Notes.
8.1 Required Payments on Notes.
(a) Commencing on January 1, 1996, interest only shall be payable
on the Notes and shall be paid in semiannual installments commencing on July 1,
1996, and on every January 1 and July 1 thereafter, or, if such date is not a
business day, on the next business day thereafter, to and including January 1,
2001 (the "Maturity Date"). In the event that the California Department of
Insurance fails to approve any dividends proposed to be paid by Financial
Pacific Insurance Company to the Corporation and, due to that fact, the
Corporation is unable to make any portion of an interest payment, or up to two
entire interest payments in any one calendar year, the Corporation shall, upon
written notice of such an event to the Purchasers, be entitled to apply the
amount of that unpaid interest to the principal of the Notes as of the date due,
and shall enter into an allonge to the Notes to that effect which shall be
satisfactory in all respects to the Purchasers, provided that the Corporation
shall be entitled to exercise this postponement of interest only once during the
term of this Agreement.
(b) On the Maturity Date, the Corporation shall pay the entire
principal amount then outstanding on the Notes together with any accrued
interest thereon.
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(c) No partial prepayment of the Notes pursuant to section 8.2
shall relieve the Corporation from its obligation to make the required payments
on the Notes provided for in this section 8.1.
8.2. Optional Prepayments of Notes. At any time or from
time to time, the corporation may, at its option, prepay all or any part (in
integral multiples of $1,000) of the Notes, each such prepayment to be made at
the principal amount of the Notes so prepaid.
8.3 Allocation of Partial Prepayments. In the case of each
partial prepayment, the principal amount to be prepaid shall be allocated among
all of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amount thereof not theretofore
called for prepayment, with adjustments, to the extent practicable, to
compensate for any prior prepayments not made exactly in such proportion.
8.4 Maturity; Surrender, etc. In the case of each
prepayment of the Notes, the principal amount of each Note to be prepaid shall
mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date. From and
after such date, unless the Corporation shall fail to pay such principal amount
when so due and payable, together with the interest as aforesaid, interest on
such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Corporation and canceled and shall not be reissued.
8.5 Acquisition of Notes. The Corporation will not, and
will not permit any Subsidiary or Affiliate to, purchase, redeem or otherwise
acquire any Note except upon the payment or prepayment thereof in accordance
with the terms hereof and of such Note.
SECTION 9. Covenants of the Corporation. The Corporation covenants
and agrees that:
9.1 Purchase Agreement. All of the covenants, agreements,
conditions and other terms set forth in the Purchase Agreements have been
performed or complied with and the Corporation shall continue to perform or
comply with them, as the case may be, for so long as the Notes remain
outstanding, provided that in the event any of the purchasers under the
Purchase Agreements ceases to own the stock sold pursuant to the Purchase
Agreements or the Purchase Agreements or any of the terms thereof become
inoperative in any way, the Corporation agrees to enter into an amendment hereto
which amendment shall contain such covenants, agreements, conditions and other
terms
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<PAGE> 11
set forth in the Purchase Agreements as the Purchasers shall, in their sole
discretion, deem prudent.
9.2 Affirmative Covenants.
(a) Public Announcements. The Corporation shall not, and it shall
not permit any officer, director, employee or agent to, make any public
announcement, other than announcements approved by the Purchasers and made by
the Corporation to its own employees, officers, directors or other personnel, in
respect of this Agreement or the transactions contemplated hereby without the
prior written consent of the Purchasers, provided that the corporation may make
such an announcement to the extent it is required by law and in the event that
it promptly notifies the Purchasers of the circumstances of such announcement.
(b) Further Actions. (i) The Corporation agrees to use all
reasonable good faith efforts to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated
hereby on the Closing Date.
(ii) The Corporation will, as promptly as practicable, file or
supply, or cause to be filed or supplied, all applications, notifications and
information required to be filed or supplied by the Corporation pursuant to
applicable law in connection with this Agreement, the issuance and sale of the
Notes and Warrants pursuant to this Agreement and the consummation of the other
transactions contemplated hereby and thereby.
(iii) The Corporation, as promptly as practicable, will use its
best efforts to obtain, or cause to be obtained, all consents (including,
without limitation, all consents, approvals, authorizations, waivers, permits,
grants, franchises, concessions agreements, licenses, exemptions or orders of
registration, certificates, declarations or filings with, or reports or notices
with or to any governmental authority and any consent required under any
contract) necessary to be obtained in order to consummate the issuance and sale
of the Notes and Warrants pursuant to this Agreement and the consummation of the
other transactions contemplated hereby and thereby.
(iv) At all times prior to the Closing, the Corporation shall
promptly notify the Purchasers in writing of any fact, condition, event or
occurrence that will or may result in the failure of any of the conditions
contained in Section 6 to be satisfied, promptly upon becoming aware of the
same.
(c) Further Assurances. Following the Closing, the Corporation
shall from time-to-time, execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as shall be
necessary, or otherwise reasonably requested by the Purchasers, to confirm and
assure the
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<PAGE> 12
rights and obligations provided for in this Agreement and render effective the
consummation of the transactions contemplated hereby and thereby.
(d) Maintenance of Existence, etc. The Corporation will at all
times do or cause to be done, and will cause each of its officers and employees
to do, all things necessary to maintain, preserve and renew its corporate
existence and the corporate existence of its Subsidiaries and all necessary
licenses, permits, franchises and other governmental authorizations necessary to
own and operate its properties and carry on its business, and comply with, and
cause each Subsidiary to comply with, all laws applicable to the Corporation or
any Subsidiary, the violation of which would have a material adverse effect on
the financial condition, operations or prospects of the Corporation or such
Subsidiary.
(e) Payment of Taxes. The Corporation will at all times duly pay
and discharge, and cause each Subsidiary duly and promptly to pay and discharge,
as the same become due and payable, all taxes, assessments and governmental and
other charges, levies or claims levied or imposed; provided, that nothing
contained in this paragraph shall require the Corporation or any such Subsidiary
to pay or discharge, or cause to be paid and discharged, any such tax,
assessment, charge, levy or claim so long as the Corporation or such Subsidiary
in good faith shall contest the validity thereof and shall set aside on its
books adequate reserves with respect thereto.
(f) Warrant Purchase Price. The Corporation shall deliver to each
of the Purchasers a calculation of the Warrant Purchase Price (as such term is
defined in the Warrants) on or before the date ten days after the delivery of
the Corporation's 1995 audited financial statements to the Corporation.
9.3 Negative Covenants.
(a) Dividends. The Corporation will not, at any time prior to the
Closing Date or at any time during which any of the Notes remain outstanding (A)
pay any dividends of any kind on any shares in its capital of any class or
series, (B) make any payments on account of the purchase or other acquisition or
redemption or other retirement of any shares in its capital of any class or
series or any warrants or options to purchase any such shares, or (C) make any
other distributions of any kind in respect of any shares in its capital of any
class or series or in respect of any warrants or options. The parties hereto
affirm that nothing in this Agreement shall be deemed to prohibit or otherwise
limit the payment of dividends by any Subsidiary to the Corporation.
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(b) Sale of Stock of Subsidiaries. At any time prior to the Closing
Date, the Corporation will not, and will not permit any Subsidiary to, sell,
assign, transfer or otherwise dispose of (except to the Corporation or one or
more wholly-owned Subsidiaries) any shares of capital stock of any class or
series of any Subsidiary, or any other security of, or any funded indebtedness
owing to it by, any such Subsidiary.
(c) Certain Actions. The Corporation will not, at any time prior to
the Closing Date, take any action or omit to take any action, which action or
omission would result in a breach of any of the representations and warranties
of the Corporation set forth in Section 4.
(d) No Solicitation. The Corporation will not, at any time prior to
the Closing Date, (i) solicit any inquiries or proposals for, or enter into any
discussions with respect to, the acquisition of any capital stock or assets of
the Corporation, or (ii) furnish or cause to be furnished any non-public
information concerning the Corporation to any person (other than the Purchasers
and their agents and representatives), other than in the ordinary course of
business or pursuant to applicable law.
(e) Debt. The Corporation will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or
otherwise become or remain directly or indirectly liable with respect to any
indebtedness other than the indebtedness evidenced by the Notes, intercompany
indebtedness, Permitted Indebtedness as set forth on Schedule 9.2(e) hereto and
accounts payable and other liabilities and obligations arising in the ordinary
course of the Corporation's business, consistent with past practice.
(f) Liens. The Corporation will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or permit to exist
any Lien on or with respect to any property or asset of the Corporation or any
Subsidiary, whether now owned or hereafter acquired, or any income or profits
therefrom, except for liens for taxes not yet due and payable or being contested
in good faith, mechanics liens and purchase money liens.
(g) Consolidated Net Worth. The Corporation will not at any time
permit Consolidated Net Worth to be less than $7,000,000. Consolidated Net Worth
shall mean at any date, the excess of (a) the total assets of the Corporation
and its Subsidiaries appearing on a consolidated balance sheet of the
Corporation and its Subsidiaries prepared in accordance with GAAP, after
eliminating all intercompany transactions and unrealized capital gains on
investments, over (b) the total liabilities of the Corporation and its
Subsidiaries, on a consolidated basis, after eliminating all intercompany
transactions.
-13-
<PAGE> 14
(h) Debt Service Coverage. The Corporation shall maintain at all
times a Debt Service Coverage Ratio of at least 5 to 1. "Debt Service Coverage
Ratio" shall mean the ratio of Operating Cash Flow to scheduled principal and
interest payments on the Notes, where "Operating Cash Flow" shall mean, for any
period, the sum of net income, interest expense, depreciation and amortization
minus extraordinary non-cash income.
SECTION 10. Covenants of the Purchasers. The Purchasers covenant
and agree that:
10.1 Public Announcements. The Purchasers shall not, and they shall
not permit any officer, employee or agent to, make any public announcement,
other than announcements approved by the Corporation and made by the Purchasers
to their own employees, officers, or other personnel, in respect of this
Agreement or the transactions contemplated hereby without the prior written
consent of the Corporation, provided that the Purchasers may make such an
announcement to the extent they are required by law and in the event that they
promptly notify the Corporation of the circumstances of such announcement.
SECTION 11. Registration Rights The parties hereto agree that
shares of Common Stock issuable upon exercise of the Warrants shall constitute
"Registrable securities" for purposes of the registration rights provisions
contained in Section 6 of the Stockholders Agreement, the terms of which are
incorporated by reference into this Agreement. In the event that any of the
parties hereto ceases to be a party to the Stockholders Agreement, or Section 6
of the Stockholders Agreement or any of the terms thereof terminate or become
inoperative in any way, the Corporation agrees to enter into an amendment hereto
which amendment shall afford to the Purchasers the identical registration rights
which are currently afforded to the parties to the Stockholders Agreement.
SECTION 12. Registration, Transfer and Substitution of Notes.
12.1 Note Register: Ownership of Notes. The Corporation will keep
at its principal office a register in which the Corporation will provide for the
registration of Notes and the registration of transfers of Notes. The
Corporation may treat the person in whose name any Note is registered on such
register as the owner thereof for the purpose of receiving payment of the
principal of and the premium, if any, and interest on such Note and for all
other purposes, whether or not such Note shall be overdue, and the Corporation
shall not be affected by any notice to the contrary.
12.2 Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for
-14-
<PAGE> 15
exchange to the Corporation at its principal office, the Corporation at its
expense will execute and deliver in exchange therefor a new Note or Notes in
denominations, as requested by the holder or transferee, which aggregate the
unpaid principal amount of such surrendered Note. Each such new Note shall be
registered in the name of such person as such holder or transferee may request,
shall be dated so that there will be no loss of interest on such surrendered
Note and shall be otherwise of like tenor.
12.3 Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
any Note and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Corporation may determine
(or, in the case of any Note held by a Purchaser or a Purchaser's nominee or
another institutional investor, of an indemnity agreement from you or such other
holder reasonably satisfactory to the Corporation), or in the case of any such
mutilation, upon the surrender of such Note for cancellation to the Corporation
at its principal office, the Corporation at its expense will execute and
deliver, in lieu thereof, a new Note of the same class and of like tenor, dated
so that there will be no loss of interest on such lost, stolen, destroyed or
mutilated Note. Any Note in lieu of which any such new Note has been executed
and delivered by the Corporation shall not be deemed to be an outstanding Note
for any purpose hereof.
SECTION 13. Events of Default and Acceleration. If any of the
following conditions or events ("Events of Default") shall occur and be
continuing:
(a) if the Corporation shall default in the payment of any
principal or interest an a Note for a period of ten (10) days beyond the date
that the same becomes due and payable, whether at maturity or at a date fixed
for payment or by declaration or otherwise (provided, however, that no Event of
Default shall occur by reason of this subsection 13(a) under the circumstances
described in the last sentence of Section 8.1(a)); or
(b) if the Corporation shall default in the performance of or
compliance with any term contained herein, in the Notes or the Warrants; or
(c) if any representation or warranty made in writing by or on
behalf of the Corporation herein or in any instrument furnished in compliance
with or in reference hereto or otherwise in connection with the transactions
contemplated hereby shall prove to have been false or incorrect in any material
respect on the date as of which made; or
-15-
<PAGE> 16
(d) if the Corporation or any Subsidiary shall be in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or interest on any indebtedness for borrowed money which is outstanding
in a principal amount of at least $100,000 (other than the Notes) or in the
performance of or compliance with any term of any evidence of any such
indebtedness or of any mortgage, indenture or other agreement relating thereto
and, as a result thereof, such indebtedness shall have become due and payable
before its stated maturity or before its regularly scheduled dates of payment,
and such default, event or condition shall continue for more than the period of
grace, if any, specified therein and shall not have been waived pursuant
thereto; or
(e) if the Corporation or any Subsidiary shall (i) be generally not
paying its debts as they become due, (ii) file, or consent by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) be
adjudicated an insolvent or be liquidated, or (vi) take corporate action for the
purpose of any of the foregoing; or
(f) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Corporation or any
Subsidiary, a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of the Corporation or any Subsidiary,
or if any such petition shall be filed against the Corporation or any Subsidiary
and such petition shall not be dismissed within 30 days; or
(g) if a final judgment which, with other outstanding final
judgments against the Corporation and the Subsidiaries (other than judgments
covered by insurance and/or judgments against insurance policies issued by any
Subsidiary), exceeds $50,000 shall be entered against the Corporation or any
Subsidiary and if, within 60 days after entry thereof, such judgment shall not
have been discharged or execution thereof stayed pending appeal, or if, within
60 days after the expiration of any such stay, such judgment shall not have been
discharged; or
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<PAGE> 17
(h) if the Corporation's and/or any Subsidiary's authorization to
engage in the business of insurance is revoked or suspended for more than ten
(10) days by the California Department of Insurance;
then, (x) upon the occurrence of any Event of Default described in subdivision
(e) or (f) of this section 13 (other than such an Event of Default described in
subdivision (e)(i) or described in subdivision (e)(vi) by virtue of the
reference in subdivision (e)(vi) to subdivision (e)(i)), the unpaid principal
amount of and accrued interest on the Notes shall automatically become due and
payable, or (y) upon the occurrence of any other Event of Default, any holder or
holders (other than the Corporation or any Subsidiary or Affiliate) of 33% or
more in principal amount of the Notes at the time outstanding (excluding any
Notes directly or indirectly owned by the Corporation or any Subsidiary or
Affiliate) may at any time (unless all defaults shall theretofore have been
remedied) at its or their option, by written notice or notices to the
Corporation, declare all the Notes to be due and payable, whereupon the same
shall forthwith mature and become due and payable, together with interest
accrued thereon, all without presentment, demand, protest or notice, which are
hereby waived.
At any time after the principal of, and interest accrued on, all of
the Notes are declared due and payable, the holders of not less than 75% in
principal amount of the Notes then outstanding (excluding any Notes directly or
indirectly owned by the Corporation or any Subsidiary or Affiliate), by written
notice to the Corporation, may rescind and annul any such declaration and its
consequences if (A) the Corporation has paid all over-due interest on the Notes,
the principal of on any Notes, which have become due otherwise than by reason of
such declaration, and interest on such overdue principal and (to the extent
permitted by applicable law) any overdue interest in respect of the Notes at a
rate per annum equal to 1% per annum in excess of the interest rate otherwise in
effect on the Notes, (B) all Events of Default, other than non-payment of
amounts which have become due solely by reason of such declaration, and all
conditions and events which constitute Events of Default have been cured or
waived, and (C) no judgment or decree has been entered for the payment of any
monies due pursuant hereto or to the Notes; but no such rescission and annulment
shall extend to or affect any subsequent Event of Default or impair any right
consequent thereon.
SECTION 14. Remedies on Default, etc. In case any Event of Default
shall occur and be continuing, the holder of any Note at the time outstanding
may proceed to protect and enforce the rights available to such holder at law,
in equity, by statute or otherwise, whether for the specific performance of any
agreement contained herein or in such Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in
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<PAGE> 18
aid of the exercise of any power granted hereby or thereby or by law or
otherwise. In case of a default in the payment of any principal of or premium,
if any, or interest on any Note, the Corporation will pay to the holder thereof
such further amount as shall be sufficient to cover the cost and expenses of
collection, including, without limitation (to the extent permitted by applicable
law), reasonable attorneys' fees, expenses and disbursements. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred
hereby upon any holder of any Note or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity by statute or otherwise.
SECTION 15. Survival; Indemnification.
(a) Survival. The warranties and representations of the parties
hereto shall be deemed to have been relied upon, notwithstanding any
investigation made by or on behalf of any party. Such warranties and
representations shall survive the execution and delivery of this Agreement and
the delivery of any consideration without limitation as to time.
(b) Indemnification by Corporation. From and after the Closing, the
Corporation covenants and agrees to defend, indemnify and hold harmless the
Purchasers, their officers, directors, employees, agents and controlling persons
and the Corporation (collectively, the "Purchaser Indemnitee") from and against,
and pay or reimburse the Purchaser Indemnitee for, any and all claims,
liabilities, obligations, losses, fines, costs, royalties, proceedings,
deficiencies or damages (whether absolute, accrued, conditional or otherwise and
whether or not resulting from third party claims), including, but not limited
to, out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same or in
asserting any of their respective rights hereunder, resulting from or arising
out of:
(i) any inaccuracy of any representation or warranty made by the
Corporation herein or in connection herewith or therewith;
(ii) any failure of the Corporation to perform any covenant or
agreement hereunder or fulfill any other obligation in respect hereof;
(iii) any claim by any person for any finder's, broker's or other
middleman's commission or compensation in respect of the transactions
contemplated by this Agreement; and
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<PAGE> 19
(iv) any claim by any person caused by or arising out of or
allegedly caused by or arising out of this Agreement and the transactions
contemplated hereby.
SECTION 16. Entire Agreement; Amendments. This Agreement (and the
Schedules and Exhibits hereto) are intended by the parties as the final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein or
therein with respect to the securities sold pursuant hereto. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter hereof and thereof. No term, covenant, agreement
or condition of this Agreement may be amended, or compliance therewith waived
(either generally or in a particular instance and either retroactively or
prospectively), unless agreed to in writing by Purchasers and the Corporation.
SECTION 17. Notices. All notices required or permitted hereunder
shall be in writing and shall be sufficiently given if: (a) hand delivered (in
which case the notice shall be effective upon delivery); (b) telecopied,
provided that in such case a copy of such notice shall be concurrently sent by
registered or certified mail, return receipt requested, postage prepaid (in
which case the notice shall be effective two days following dispatch); (c)
delivered by Express Mail, Federal Express or other nationally recognized
overnight courier service (in which case the notice shall be effective one
business day following dispatch); or (d) delivered or mailed by registered or
certified mail, return receipt requested, postage prepaid (in which case the
notice shall be effective three days following dispatch), to the parties at the
following addresses and/or telecopier numbers, or to such other address or
number as a party shall specify by written notice to the others in accordance
with this Section 12.
If to the Corporation:
Financial Pacific Insurance Group, Inc.
8583 Elder Creek Road
Suite 100
Sacramento, California
Attn: Robert C. Goodell, CEO
Telecopier No.: (916) 387-0854
with a copy to:
Riordan & McKinzie
California Plaza, 29th floor
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<PAGE> 20
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Janis B. Salin, Esq.
Telecopier No.: (213) 229-8550
If to Purchasers:
Firemark Advisors, Inc.
67 Park Place
Morristown, New Jersey 07960
Attn: Michael Morrissey
Telecopier No.: 201-538-0484
with a copy to:
McCarter & English
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07101-0652
Attn: David F. Broderick, Esq.
Telecopier No.: 201-624-7070
FINPAC PARTNERS,
c/o Riordan, Lewis & Haden
300 S. Grand Avenue, 29th Flr.
Los Angeles, California 90071-3155
Attn: Patrick C. Haden, Esq.
Telecopier No.: 213-229-8597
with a copy to:
Riordan & McKinzie
California Plaza, 29th floor
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Janis B. Salin, Esq.
Telecopier No.: (213) 229-8550
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
385 Washington Street
St. Paul, Minnesota 55102-1396
Attn: Richard Pfeiffer, Vice President
with a copy to:
-20-
<PAGE> 21
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
385 Washington Street
St. Paul, Minnesota 55102
Attn: Corporate Secretary
CELERITY FINPAC, LLC
c/o Celerity Partners, LLC
11111 Santa Monica Boulevard
Suite 1127
Los Angeles, California 90025
Attn: Stephen E. Adamson
with a copy to:
Celerity Partners, LLC
5215 North O'Connor Blvd.,
Suite 2500
Irvine, Texas 75039
Attn: Gerald K. Beckman
SECTION 18. Sections and Counterparts. The section headings
contained in this Agreement are for reference purposes only and shall not affect
the interpretation of this Agreement. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same agreement.
SECTION 19. Governing Law. This Agreement shall be governed by the
laws of the State of Delaware.
SECTION 20. Expenses. Whether or not the transaction contemplated
hereby shall be consummated, the Corporation shall pay all fees, costs and
expenses in connection with such transaction and in connection with any
amendments or waivers (whether or not the same become effective) under or in
respect hereof, including, without limitation, the fees and disbursements of the
Purchasers' counsel provided that the Corporation shall not be obligated to pay
fees of the Purchasers (including counsel fees) in excess of $50,000.
SECTION 21. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, successors, assigns, executors, administrators and personal
representatives. No party may assign its rights under this Agreement without the
written consent of the other parties, except that Purchasers may assign its
rights and delegate its obligations to any partner or Subsidiary of Purchasers,
or any Subsidiary thereof.
SECTION 22. No Recourse to General Partner of Purchasers. The
Corporation agrees that it shall have recourse
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<PAGE> 22
only to the assets of Purchasers with respect to any breach or claimed breach of
this Agreement and that any general partner of any Purchaser which is a general
or limited partnership shall have no liability with respect thereto.
-22-
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By: /s/ ROBERT C. GOODELL
------------------------------------------
Name: Robert C. Goodell
Title: President and CEO
THE FIREMARK GLOBAL INSURANCE FUND, L.P.
By: Firemark Advisors, Inc.
General Partner
By:
------------------------------------------
Name:
Title:
FINPAC PARTNERS
By:
------------------------------------------
Name:
Title:
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By:
------------------------------------------
Name:
Title:
CELERITY FINPAC, LLC
By:
------------------------------------------
Name:
Title:
-22-
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By:
------------------------------------------
Name:
Title:
THE FIREMARK GLOBAL INSURANCE FUND, L.P.
By: Firemark Advisors, Inc.
General Partner
By: /s/ MICHAEL J. MORRISSEY
------------------------------------------
Name: M. J. Morrissey
Title: Chairman and CEO
FINPAC PARTNERS
By:
------------------------------------------
Name:
Title:
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By:
------------------------------------------
Name:
Title:
CELERITY FINPAC, LLC
By:
------------------------------------------
Name:
Title:
-22-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By:
------------------------------------------
Name:
Title:
THE FIREMARK GLOBAL INSURANCE FUND, L.P.
By: Firemark Advisors, Inc.
General Partner
By:
------------------------------------------
Name:
Title:
FINPAC PARTNERS
By: /s/ PATRICK C. HADEN
------------------------------------------
Name: Patrick C. Haden
Title: General Partner
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By:
------------------------------------------
Name:
Title:
CELERITY FINPAC, LLC
By:
------------------------------------------
Name:
Title:
-22-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By:
------------------------------------------
Name:
Title:
THE FIREMARK GLOBAL INSURANCE FUND, L.P.
By: Firemark Advisors, Inc.
General Partner
By:
------------------------------------------
Name:
Title:
FINPAC PARTNERS
By:
------------------------------------------
Name:
Title:
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By: /s/ RICHARD G. PFEIFFER
------------------------------------------
Name: Richard G. Pfeiffer
Title: Vice President
CELERITY FINPAC, LLC
By:
------------------------------------------
Name:
Title:
-22-
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives as of the day and year
first above written.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By:
------------------------------------------
Name:
Title:
THE FIREMARK GLOBAL INSURANCE FUND, L.P.
By: Firemark Advisors, Inc.
General Partner
By:
------------------------------------------
Name:
Title:
FINPAC PARTNERS
By:
------------------------------------------
Name:
Title:
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By:
------------------------------------------
Name:
Title:
CELERITY FINPAC, LLC
By: /s/ STEPHEN E. ADAMSON
------------------------------------------
Name: Stephen E. Adamson
Title: [not legible]
-22-
<PAGE> 28
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Principal Amount
Notes or of Notes or
Name of Purchaser Warrant Number of Shares
- ----------------- ------- ----------------
<S> <C> <C>
FIREMARK GLOBAL INSURANCE FUND, L.P. Senior $1,500,000.00
Notes
(1) In the case of all payments
on account of the Notes:
By crediting in the form of Warrant #451.62
bank wire transfer of Federal
or other immediately available
funds, providing sufficient
information to identify the
source of the transfer, and
the amount of interest
and/or principal, to Firemark
Global Insurance Fund, L.P.
Account No. ______________ (1) at:
(2) In the case of all notices:
THE FIREMARK GLOBAL INSURANCE
FUND, L.P.,
c/o Firemark Advisors, Inc.
1776 On The Green
67 Park Place, 6th Flr.
Morristown, NJ 07960
Attn: Michael Morrissey
</TABLE>
- -------------
(1) All purchasers, please provide this information.
<PAGE> 29
<TABLE>
<CAPTION>
Principal Amount
Notes or of Notes or
Name of Purchaser Warrant Number of Shares
- ----------------- ------- ----------------
<S> <C> <C>
FINPAC PARTNERS Senior $1,500,000.00
Notes
(1) In the case of all payments on account
of the Notes:
By mailing Warrant #451.62
funds, providing sufficient
information to identify the
source of the transfer, and
the amount of interest
and/or principal, to FinPac
Partners at the address set forth below.
(2) In the case of all notices:
FINPAC PARTNERS,
c/o Riordan, Lewis & Haden
300 S. Grand Avenue, 29th Flr.
Los Angeles, California 90071-3155
</TABLE>
-2-
<PAGE> 30
<TABLE>
<CAPTION>
Principal Amount
Notes or of Notes or
Name of Purchaser Warrant Number of Shares
- ----------------- ------- ----------------
<S> <C> <C>
ST. PAUL FIRE AND MARINE Senior $1,500,000.00
INSURANCE COMPANY Notes
(1) In the case of all payments on account
of the Notes:
By crediting in the form of Warrant #451.62
bank wire transfer of Federal or other
immediately available funds, providing sufficient
information to identify the source of the
transfer, and the amount of interest and/or
principal, to St. Paul Fire and Marine Insurance
Company, Account No. ____________________ at:
(2) In the case of all notices:
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
385 Washington Street
St. Paul, Minnesota 55102-1396
</TABLE>
-3-
<PAGE> 31
<TABLE>
<CAPTION>
Principal Amount
Notes or of Notes or
Name of Purchaser Warrant Number of Shares
- ----------------- ------- ----------------
<S> <C> <C>
CELERITY FINPAC, LLC Senior $ 500,000.00
Notes
(1) In the case of all payments on account
of the Notes:
By crediting in the form of Warrant #150.54
bank wire transfer of Federal or other
immediately available funds, providing
sufficient information to identify the source
of the transfer, and the amount of interest
and/or principal, to Celerity FinPac, LLC
Account No. _________________ at:
Nations Bank of Texas, N.A.
5201 North O'Connor Blvd.,
Irvine, Texas 75039
ABA # 111000025
For the account of Celerity FinPac, LLC
(2) In the case of all notices:
c/o Celerity Partners, LLC
5215 North O'Connor Blvd., Suite 2500
Irvine, Texas 75039
Attn: Stephen E. Adamson
</TABLE>
-4-
<PAGE> 32
EXHIBIT A
Senior Note due January 1, 2001
R- Sacramento, California
$ December 28, 1995
FINANCIAL PACIFIC INSURANCE GROUP, INC. (the "Corporation"), a
Delaware corporation, for value received, hereby promises to pay to
___________________ or registered assigns, the principal amount of $___________
on January 1, 2001 with interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid balance of such principal amount at the rate
of 12% per annum from the date hereof, payable semi-annually on each July 1 and
January 1 after the date hereof, until such unpaid balance shall become due and
payable (whether at maturity or at a date fixed for prepayment or by declaration
or otherwise), and interest on any overdue principal (including any overdue
prepayment of principal) and (to the extent permitted by applicable law) on any
overdue interest, at the rate of l4% per annum until paid, payable semi-annually
as aforesaid or, at the option of the registered holder hereof, on demand.
Payments of principal and interest on this Note shall be made in lawful money of
the United States of America as provided in the Schedule of Purchasers to the
Note and Warrant Purchase Agreement referred to below.
This Note is one of the Corporation's Senior Notes due January 1,
2001, originally issued in the aggregate principal amount of $5,000,000 pursuant
to the Note and Warrant Purchase Agreement (the "Note and Warrant Purchase
Agreement"), dated as of December 28, 1995, among the Corporation and each of
the Purchasers listed therein. The registered holder of this Note is entitled to
the benefits of such Note and Warrant Purchase Agreement and may enforce the
agreements of the Corporation contained therein and exercise the remedies
provided for thereby or otherwise available in respect thereof.
This Note is a registered Note and, as provided in such Note and
Warrant Purchase Agreement, is transferable only upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed, by the registered holder hereof or his attorney duly
authorized in writing. The Corporation may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Corporation shall not be affected by any notice
to the contrary.
<PAGE> 33
This Note is subject to prepayment, in whole or in part, in certain
cases, all as specified in such Note and Warrant Purchase Agreement.
In case an Event of Default (as defined in the Note and Warrant
Purchase Agreement) shall occur and be continuing, the unpaid balance of the
principal of this Note may be declared and become due and payable in the manner
and with the effect provided in such Note and Warrant Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By
-----------------------------------------
Title:
-2-
<PAGE> 34
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
Warrant No. 1-A December 28, 1995
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, and permitted assigns
(the "Holder"), is entitled to purchase on the terms and conditions contained
herein from Financial Pacific Insurance Group, Inc., a Delaware corporation (the
"Corporation"), shares (subject to adjustment as set forth in Sections 4
and 5 below, the "Warrant Shares") of the Corporation's Common Stock, $.001 par
value per share (the "Common Stock"), at the Warrant Purchase Price (subject to
adjustment as set forth in Section 4 below) at any time on or after the date
hereof, subject to Section 1.2, and prior to January 1, 2004 (the Exercise
Period"), on surrender to the Corporation at its principal office at 8583 Elder
Creek Road, Suite 100, Sacramento, California 95828 (or at such other location
as the Corporation may advise Holder in writing) of this warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and signed
and upon payment in cash or by certified or cashier's check of the Warrant
Purchase Price for the appropriate number of Warrant Shares for which this
Warrant is being exercised, as determined in accordance with the provisions
hereof. In lieu of paying cash upon exercise of this Warrant, the Holder may
elect to either (i) make a cashless exercise, in which event the Holder will be
entitled to receive the Warrant Shares minus the number of shares of Common
Stock valued based on the Current Market Value (as defined below) equal to the
Warrant Purchase Price, or (ii) cancel indebtedness of the Corporation to the
Holder in an equivalent face amount.
The "Warrant Purchase Price" shall equal 1.4 times the per share
book value of the Corporation's Common Stock on a fully diluted basis, without
giving effect to the issuance of the Senior Notes, as set forth on the audited
financial statements of the corporation dated December 31, 1995, prepared in
accordance with GAAP, consistently applied. The Warrant Purchase Price is
subject to adjustment pursuant to Section 4 hereof.
This Warrant is subject to the following terms and conditions:
<PAGE> 35
1. Exercise; Issuance of Certificates; Payment;
Definition.
1.1 Optional Exercise. Subject to Section 1.2 hereof and
to the limitations on exercise set forth in Section 2 hereof, this Warrant is
exercisable at the option of the Holder, from time to time during the Exercise
Period, for all or any part of the Warrant Shares. The Corporation agrees that
the Warrant Shares purchased under this Warrant shall be and are deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares. Subject to the provisions of Section 2,
certificates for shares of Common Stock so purchased shall be delivered to the
Holder within a reasonable time after this Warrant has been exercised, and, in
case of a purchase of less than all the Warrant Shares, the Corporation shall
cancel this Warrant and, within a reasonable period of time, shall execute and
deliver to the Holder a new Warrant of like tenor for the balance of the Warrant
Shares. Each stock certificate so delivered shall be registered in the name of
the Holder or such other name as shall be designated thereby, subject to the
limitations contained in Section 2.
1.2 Mandatory Exercise. Notwithstanding any provision
herein to the contrary, this Warrant must be exercised by the Holder, if at all,
upon the effective date of a registration statement filed pursuant to the
Securities Act of 1933, as amended (other than a registration relating solely to
a transaction under Rule 145 under such Act or any successor thereto, or an
employee benefit plan of the Corporation), in connection with the sale of the
Corporation's Common Stock in a firm commitment, underwritten public offering
with gross proceeds to be received by the Corporation which equal or exceed
$10,000,000 and a public offering price of the Common Stock of not less than
$5,000 per share (as adjusted for stock splits, dividends or other
recapitalization transactions) (an "Initial Public Offering"). The Corporation
shall give the Holder not less than 15 days notice of the expected date of the
effectiveness of such registration statement. Not later than the effective date,
the Holder shall give the Corporation notice to the effect that (i) the Holder
does not elect to exercise this Warrant, (ii) the Holder elects to make a cash
exercise of this Warrant (which notice shall be accompanied by the payment of
the Warrant Purchase Price) or (iii) the Holder elects to make a cashless
exercise of this Warrant as provided in the first paragraph hereof. If the
Holder does not give any notice to the Corporation, the Holder shall be deemed
to have elected to make a cashless exercise of this Warrant.
-2-
<PAGE> 36
1.3 Definitions. As used herein, the following terms shall have the
following meanings:
"Current Market Value" per share of Common Stock means (i) if an
Initial Public Offering of the Common Stock has taken place, the price at the
close of the market on the first day of trading of such Common Stock following
the effectiveness of a registration statement for the Common Stock and (ii) if
no Initial Public Offering has taken place, the Fair Market Value of the Common
Stock based upon the Fair Market Value of 100% of the corporation if sold as a
going concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of Common Stock do not constitute a majority
or controlling interest in the Corporation and assuming the exercise of all
warrants, convertible securities, options or other rights to subscribe for or
purchase any additional shares of Common Stock or securities convertible or
exchangeable into Common Stock.
"Fair Market Value" shall mean the value obtainable upon a sale in
an arm's length transaction to an unaffiliated third party under usual and
normal circumstances, with neither the buyer nor the seller under any compulsion
to act, with equity to both, as determined by the Board in good faith; provided,
however, that if the Holder shall dispute the Fair Market Value as determined by
the Board, the Holder may undertake to have the Holder and the Corporation
retain an Independent Expert. The determination of Fair Market value by the
Independent Expert shall be final, binding and conclusive on the Corporation and
the Holder. All costs and expenses of the Independent Expert shall be borne by
the Holder, unless the determination of Fair Market Value by the Independent
Expert is more than 5% more favorable to the Corporation than the Fair Market
Value determined by the Board, in which event the cost of the Independent Expert
shall be shared equally by the Holder and the Corporation, or more than 10% more
favorable to the Corporation than the Fair Market Value determined by the Board,
in which event the cost of the Independent Expert shall be borne solely by the
Corporation.
"Independent Expert" shall mean an investment banking firm
reasonably agreeable to the Corporation and the Holder who does not (and whose
affiliates do not) have a financial interest in the Corporation or any of its
stockholders.
2. Limitation on Transfer and Exercise. Notwithstanding the
provisions of Section 1, the Corporation shall not be required to deliver any
certificate for shares of Common Stock upon exercise of this Warrant except in
accordance with the provisions, and subject to the limitations, of Sections 8
and 9 hereof.
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<PAGE> 37
3. Due Authorization and Issuance; Reservation of Issuance. The
Corporation covenants and agrees that all shares of Common Stock which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
shares of the Common Stock of the Corporation, free from all preemptive rights
of any stockholder and free of all taxes, liens and charges with respect to the
issue thereof. The Corporation further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Corporation will at all times have authorized and reserved, for the purpose of
issue or transfer upon exercise of this Warrant, a sufficient number of
authorized but unissued shares of Common Stock, or other securities and
property, when and as required to provide for the exercise of this Warrant.
4. Adjustments to Warrant Purchase Price. The Warrant Purchase
Price shall be subject to adjustment from time to time as hereinafter provided
(such price, or the price as last adjusted, also being referred to herein as the
"Warrant Purchase Price"). Upon each adjustment of the Warrant Purchase Price,
the Holder shall thereafter be entitled to purchase, at the Warrant Purchase
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Warrant Purchase Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment, and dividing the product thereof by the Warrant Purchase
Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Corporation
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares by way of stock split, stock dividend or similar event,
the Warrant Purchase Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares by way of reverse
stock split or similar event, the Warrant Purchase Price in effect immediately
prior to such combination shall be proportionately increased.
4.2 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Corporation, any consolidation or merger of the Corporation with another
entity, or the sale of all or substantially all of the Corporation's assets to
another entity shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis
-4-
<PAGE> 38
and the terms and conditions specified in this Warrant and in lieu of the shares
of Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Warrant Purchase
Price and of the number of shares of Common Stock purchasable and receivable
upon the exercise of this warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument, executed and mailed or delivered to the Holder at the
last address thereof appearing on the books of the Corporation, the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
4.3 Issuance of Certain Additional Shares. If the Corporation shall
sell or issue to any person any shares of Common Stock or any securities,
options, warrants or rights entitling any person to subscribe for, purchase,
convert or exchange into shares of Common Stock (other than (i) sales or
issuances to officers or employees of, or consultants or advisors to, the
Corporation pursuant to any stock incentive plan or arrangement approved by the
Corporation's Board of Directors and (ii) shares issued upon the conversion of
shares of Series A Convertible Preferred Stock) at a price per share of Common
Stock, or having an exercise price per share of Common Stock, as the case may
be, that is less than the Current Market Value of Common Stock on the date of
issuance (such shares being referred to as the "Below Market Shares") , the
Warrant Purchase Price shall be adjusted on and after the date of such sale or
issuance by multiplying the Warrant Purchase Price by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on such date
plus the number of shares of Common Stock that the aggregate purchase price or
exercise price of such Below Market Shares would purchase at the Current Market
Value, and of which the denominator shall be the number of shares of Common
Stock outstanding on such date plus the number of Below Market Shares. The
adjustment to the Warrant Purchase Price set forth above shall be made
successively whenever a sale or
-5-
<PAGE> 39
issuance of Below Market Shares occurs; provided, however, that, if any such
options, warrants or rights expire without the issuance of shares of Common
Stock, then the Warrant Purchase Price shall again be adjusted to equal the
Warrant Purchase Price in effect had such issuance of Below Market Shares not
occurred.
4.4 Notice of Adjustment. Upon any adjustment of the Warrant
Purchase Price and/or number of Warrant Shares, then and in each such case the
Corporation shall give written notice thereof, by first class mail, postage
prepaid, addressed to the Holder at the address thereof as shown on the books of
the Corporation. The notice shall state the Warrant Purchase Price and/or number
of Warrant Shares resulting from such adjustment, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
5. Issue Tax. The issuance of shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder for any
issue tax in respect thereof, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any shares of Common Stock in a name other than
that of the then Holder of this Warrant.
6. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of this Warrant or of any shares of Common
Stock issued or issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise hereof.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this warrant shall be construed as conferring upon the Holder the
right to vote or to consent or to receive notice as a stockholder in respect of
meetings of stockholders for the election of Directors of the Corporation or any
other matter or any rights whatsoever as a stockholder of the Corporation. No
dividends or interest shall be payable or accrued in respect of this Warrant or
the shares of Common Stock purchasable hereunder until, and only to the extent
that, this Warrant shall have been exercised. No provisions hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of such Holder for the Warrant Purchase Price or as a
stockholder of the Corporation, whether such liability is asserted by the
Corporation or by its creditors.
8. Restrictions on Transferability of Securities; Compliance with
Securities Act.
8.1 Restrictions on Transferability. The Warrant and the
Common Stock issuable hereunder shall not be transferable
-6-
<PAGE> 40
except upon the conditions specified in this Section 8, which conditions are
intended to insure compliance with the provisions of the Securities Act of 1933,
as amended (the "Securities Act") Each holder of this Warrant or the Common
Stock issuable hereunder will cause any proposed transferee of the Warrant or
such Common Stock to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section A.
8.2 Transfers Not Subject to Restrictions. Subject to Section 9
hereof, the Holder may sell, assign or transfer this Warrant to an affiliate, or
to his parents, the parents of his spouse, his spouse or issue or adopted
children, or to a trust established for the benefit of his parents, the parents
of his spouse, his spouse, issue, adopted children, or himself, or dispose of
them under his will.
8.3 Restrictive Legend. Each certificate representing (a) this
Warrant, (b) the shares of Common Stock or other securities issued upon exercise
of the Warrant and (c) any other securities issued in respect of such shares of
Common Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event (collectively, the "Restricted Securities") ,
shall (unless otherwise permitted by the provisions of Section 8.4 below or
unless such securities have been registered under the Securities Act) be
imprinted with the following legend, in addition to any legend required under
applicable state securities laws:
THIS WARRANT AND THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
Upon request of a holder of such a certificate, the Corporation
shall remove the foregoing legend therefrom or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Corporation shall have received either the opinion referred to in Section 8.4(a)
or the "no-action" letter referred to in Section 8.4(b) to the effect that any
transfer by such holder of the securities evidenced by such certificate will
be exempt from the registration and/or qualification requirements of, and that
such legend is not required in order to establish compliance with, the
Securities Act, and if applicable, any state securities laws under which
transfer restrictions on such securities had been previously imposed.
-7-
<PAGE> 41
8.4 Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities by acceptance thereof agrees to
comply in all respects with the provisions of this Section 8.4. Prior to any
proposed transfer of any Restricted Securities, the holder thereof shall give
written notice to the Corporation of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail, and shall be accompanied by either (a)
an unqualified written legal opinion addressed to the Corporation from counsel
who shall be reasonably satisfactory to the Corporation, which opinion shall be
reasonably satisfactory in form and substance to the Corporation's counsel, to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act and any applicable state
securities laws, or (b) a "no-action" letter from the Securities and Exchange
Commission (and any necessary state securities administrator) to the effect that
the distribution of such securities without registration will not result in a
recommendation by the staff of the Commission (or such administrators) that
action be taken with respect thereto, whereupon the holder of such Restricted
Securities shall be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the holder to the
Corporation. Each certificate evidencing the Restricted Securities transferred
as above provided shall bear the appropriate restrictive legend set forth in
Section 8.4 above.
8.5 Required Approvals. Notwithstanding anything to the
contrary contained herein, if any exercise of this warrant would result in a
change in "control" of the Corporation, as defined in Section 1215(b) of the
California Insurance Code, then such exercise shall be delayed until such time
as the approval of the California Department of Insurance is obtained.
9. Transferability of Warrant. Each qualified transferee of this
Warrant must, prior to the acknowledgment and acceptance of such transfer by the
Corporation, agree to take and hold this Warrant subject to the provisions
specified herein. Any such permitted transfers may be made without charge to the
Holder (except for transfer taxes), at the office or agency of the Corporation
referred to in the first paragraph of this Warrant, by the Holder or by its duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. Rights and Obligations Survive Exercise of Warrant. The rights
and obligations of the Corporation, of the Holder and of the holder of shares of
Common Stock issued upon exercise of this Warrant contained in Sections 8, 9 and
10 shall survive the exercise of this Warrant.
-8-
<PAGE> 42
11. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request or other document required or
permitted to be given or delivered to the record Holder or the Corporation shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such Holder at its address as shown on the books of the Corporation or
to the Corporation at the address indicated therefor in the first paragraph of
this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Corporation by merger, consolidation or
acquisition of all or substantially all of the Corporation's assets, and all of
the obligations of the Corporation relating to the Common Stock issuable upon
the exercise of this Warrant shall survive such merger, consolidation or
acquisition and all of the covenants and agreements of the Corporation shall
inure to the benefit of the permitted successors and assigns of the Holder.
14. Descriptive Headings; Governing Law. The descriptive headings
of the several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of Delaware without regard to conflicts of laws principles
thereof.
15. Lost Warrant or Certificates. The Corporation represents and
warrants to the Holder that upon receipt of evidence reasonably satisfactory to
the Corporation of the loss, theft, destruction or mutilation of this Warrant or
certificate evidencing shares of Common Stock issued on exercise hereof and, in
the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Corporation, or in the case of any such
mutilation upon surrender and cancellation of such Warrant or stock certificate,
the Corporation will make and deliver a new Warrant or stock certificate, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
16. Expiration of Warrant. Subject to Section 1.2 hereof, this
Warrant shall expire and shall no longer be exercisable on or after January 1,
2004.
17. Note and Warrant Purchase Agreement. This Warrant is one of the
Common Stock Purchase Warrants (the "Warrants", such term to include all
Warrants in substitution therefor) originally authorized for issuance pursuant
to the Note and Warrant Purchase
-9-
<PAGE> 43
Agreement (the "Note and Warrant Purchase Agreement"), dated as of December 28,
1995, between the Corporation and certain institutional investors, copies of
which are on file at the principal office of the Corporation in Sacramento,
California. The holder of this Warrant is entitled to the benefits of the Note
and Warrant Purchase Agreement and may enforce the agreements of the Corporation
contained therein, all in accordance with the terms thereof. Certain terms used
in this Warrant not otherwise defined herein shall have the respective meanings
specified in the Note and Warrant Purchase Agreement.
18. Stockholders Agreement. All Common Stock or other securities
issuable upon exercise of this warrant shall be subject to all of the provisions
of and shall be entitled to the benefits of the Stockholders Agreement dated as
of September 7, 1993 by and among the Corporation and the stockholders of the
Corporation as of such date (the "Stockholders Agreement"). Upon such exercise,
the holder of the Common Stock or other securities issuable hereunder shall
become a "Stockholder" under such Agreement, as the Stockholders Agreement may
have been modified, supplemented or amended prior to the date of such exercise.
The provisions of this Section 19 shall not apply if the Stockholders Agreement
has been terminated, either by agreement of the parties thereto or by its own
terms, prior to the date of such exercise.
19. Certain Events. In the event of the dissolution, liquidation or
winding up of the Corporation, the rights to purchase Warrant Shares evidenced
by this Warrant shall terminate and expire and the Holder of this Warrant shall
be entitled to receive from the Corporation, after payment of all debts,
obligations and liabilities of the Corporation and after payment of any
liquidation preference on any class of capital stock of the Corporation having a
preference as to such payments over the holders of Common Stock, payment in an
amount equal to the product of (a) the amount by which the liquidating payment
per share of Common Stock exceeds the Exercise Price, multiplied by (b) the
number of shares of Common Stock purchasable pursuant to this Warrant.
IN WITNESS WHEREOF, the Corporation has caused this warrant to be
duly executed and issued by the officer or officers thereunto duly authorized as
of this 28th day of December, 1995.
FINANCIAL PACIFIC INSURANCE GROUP, INC.,
a Delaware corporation
By:
------------------------------------------
Robert C. Goodell, President
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<PAGE> 44
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To the Corporation:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder,
__________________________________________________________________ (___________)
of the number of shares of Common Stock purchasable under this warrant and
herewith makes payment of _____________________________________________________
Dollars ($_________) therefor, and requests that a certificate(s) for such
shares be issued in the name of, and delivered to, ____________________________
_______________________________________________________________________________
_________________________________, whose address is ___________________________
_______________________________________________________________________________
____________________________________________________________.
The undersigned represents that it is acquiring such shares of Common
Stock for its own account for investment purposes only and not with a view to or
for sale in connection with any distribution thereof.
DATED:________________
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
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<PAGE> 45
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________ hereby
sells, assigns and transfers unto:
Name:_________________________________
Address:______________________________
______________________________
the right to purchase Common Stock represented by this Warrant to the extent of
_________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________________________________,
attorney, to transfer the same on the books of the Corporation with full power
of substitution in the premises.
Dated:___________________
__________________________________________________
(Signature)
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<PAGE> 1
EXHIBIT 10.13
Senior Note due January 1, 2001
Sacramento, California
December 28, 1995
FINANCIAL PACIFIC INSURANCE GROUP, INC. (the "Corporation"), a
Delaware corporation, for value received, hereby promises to pay to ________
___________________________ or registered assigns, the principal amount of
$1,500,000.00 on January 1, 2001 with interest (computed on the basis of a
360-day year of twelve 30-day months) on the unpaid balance of such principal
amount at the rate of 12% per annum from the date hereof, payable semi-annually
on each July 1 and January 1 after the date hereof, until such unpaid balance
shall become due and payable (whether at maturity or at a date fixed for
prepayment or by declaration or otherwise), and interest on any overdue
principal (including any overdue prepayment of principal) and (to the extent
permitted by applicable law) on any overdue interest, at the rate of 14% per
annum until paid, payable semi-annually as aforesaid or, at the option of the
registered holder hereof, on demand. Payments of principal and interest on this
Note shall be made in lawful money of the United States of America as provided
in the Schedule of Purchasers to the Note and Warrant Purchase Agreement
referred to below.
This Note is one of the Corporation's Senior Notes due January 1,
2001, originally issued in the aggregate principal amount of $5,000,000 pursuant
to the Note and Warrant Purchase Agreement (the "Note and Warrant Purchase
Agreement"), dated as of December 28, 1995, among the Corporation and each of
the Purchasers listed therein. The registered holder of this Note is entitled to
the benefits of such Note and Warrant Purchase Agreement and may enforce the
agreements of the Corporation contained therein and exercise the remedies
provided for thereby or otherwise available in respect thereof.
This Note is a registered Note and, as provided in such Note and
Warrant Purchase Agreement, is transferable only upon surrender of this Note for
registration of transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed, by the registered holder hereof or his attorney duly
authorized in writing. The Corporation may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Corporation shall not be affected by any notice
to the contrary.
This Note is subject to prepayment, in whole or in part, in certain
cases, all as specified in such Note and Warrant Purchase Agreement.
In case an Event of Default (as defined in the Note and warrant
Purchase Agreement) shall occur and be continuing, the unpaid balance of the
principal of this Note may be declared and
<PAGE> 2
become due and payable in the manner and with the effect provided in such Note
and Warrant Purchase Agreement.
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By
------------------------------------------
Title:
-2-
<PAGE> 1
EXHIBIT 10.14
THIS WARRANT AND THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
Warrant No. 1 December 28, 1995
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, _________________________
__________ and permitted assigns (the "Holder"), is entitled to purchase on the
terms and conditions contained herein from Financial Pacific Insurance Group,
Inc., a Delaware corporation (the "Corporation"), ______ shares (subject to
adjustment as set forth in sections 4 and 5 below, the "Warrant Shares") of the
Corporation's Common Stock, $.001 par value per share (the "Common Stock"), at
the Warrant Purchase Price (subject to adjustment as set forth in Section 4
below) at any time on or after the date hereof, subject to Section 1.2, and
prior to January 1, 2004 (the "Exercise Period"), on surrender to the
Corporation at its principal office at 8583 Elder Creek Road, Suite 100,
Sacramento, California 95828 (or at such other location as the Corporation may
advise Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by certified or cashier's check of the Warrant Purchase Price for the
appropriate number of Warrant Shares for which this Warrant is being exercised,
as determined in accordance with the provisions hereof. In lieu of paying cash
upon exercise of this Warrant, the Holder may elect to either (i) make a
cashless exercise, in which event the Holder will be entitled to receive the
Warrant Shares minus the number of shares of Common Stock valued based on the
Current Market Value (as defined below) equal to the Warrant Purchase Price, or
(ii) cancel indebtedness of the Corporation to the Holder in an equivalent face
amount.
The "Warrant Purchase Price" shall equal 1.4 times the per share
book value of the Corporation's Common Stock as set forth on the audited
financial statements of the Corporation dated December 31, 1995, prepared in
accordance with GAAP, consistently applied. The Warrant Purchase Price is
subject to adjustment pursuant to Section 4 hereof.
This Warrant is subject to the following terms and conditions:
<PAGE> 2
1. Exercise; Issuance of Certificates; Payment; Definition.
1.1 Optional Exercise. Subject to Section 1.2 hereof and
to the limitations on exercise set forth in Section 2 hereof, this Warrant is
exercisable at the option of the Holder, from time to time during the Exercise
Period, for all or any part of the Warrant Shares. The Corporation agrees that
the Warrant Shares purchased under this Warrant shall be and are deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such shares. Subject to the provisions of Section 2,
certificates for shares of Common Stock so purchased shall be delivered to the
Holder within a reasonable time after this Warrant has been exercised, and, in
case of a purchase of less than all the Warrant Shares, the Corporation shall
cancel this Warrant and, within a reasonable period of time, shall execute and
deliver to the Holder a new Warrant of like tenor for the balance of the
Warrant Shares. Each stock certificate so delivered shall be registered in the
name of the Holder or such other name as shall be designated thereby, subject to
the limitations contained in Section 2.
1.2 Mandatory Exercise. Notwithstanding any provision
herein to the contrary, this Warrant must be exercised by the Holder, if at all,
upon the effective date of a registration statement filed pursuant to the
Securities Act of 1933, as amended (other than a registration relating solely to
a transaction under Rule 145 under such Act or any successor thereto, or an
employee benefit plan of the Corporation), in connection with the sale of the
Corporation's Common Stock in a firm commitment, underwritten public offering
with gross proceeds to be received by the Corporation which equal or exceed
$10,000,000 and a public offering price of the Common Stock of not less than
$5,000 per share (as adjusted for stock splits, dividends or other
recapitalization transactions) (an "Initial Public Offering"). The Corporation
shall give the Holder not less than 15 days notice of the expected date of the
effectiveness of such registration statement. Not later than the effective date,
the Holder shall give the Corporation notice to the effect that (i) the Holder
does not elect to exercise this Warrant, (ii) the Holder elects to make a cash
exercise of this Warrant (which notice shall be accompanied by the payment of
the Warrant Purchase Price) or (iii) the Holder elects to make a cashless
exercise of this Warrant as provided in the first paragraph hereof. If the
Holder does not give any notice to the Corporation, the Holder shall be deemed
to have elected to make a cashless exercise of this Warrant.
1.3 Definitions. As used herein, the following terms shall
have the following meanings:
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<PAGE> 3
"Current Market Value" per share of Common Stock means (i) if an
Initial Public Offering of the Common Stock has taken place, the price at the
close of the market on the first day of trading of such Common Stock following
the effectiveness of a registration statement for the Common Stock and (ii) if
no Initial Public Offering has taken place, the Fair Market Value of the Common
Stock based upon the Fair Market Value of 100% of the Corporation if sold as a
going concern and without regard to any discount for the lack of liquidity or on
the basis that the relevant shares of Common Stock do not constitute a majority
or controlling interest in the Corporation and assuming the exercise of all
warrants, convertible securities, options or other rights to subscribe for or
purchase any additional shares of Common Stock or securities convertible or
exchangeable into Common Stock.
"Fair Market Value" shall mean the value obtainable upon a sale in
an arm's length transaction to an unaffiliated third party under usual and
normal circumstances, with neither the buyer nor the seller under any compulsion
to act, with equity to both, as determined by the Board in good faith; provided,
however, that if the Holder shall dispute the Fair Market Value as determined by
the Board, the Holder may undertake to have the Holder and the Corporation
retain an Independent Expert. The determination of Fair Market Value by the
Independent Expert shall be final, binding and conclusive on the Corporation and
the Holder. All costs and expenses of the Independent Expert shall be borne by
the Holder, unless the determination of Fair Market Value by the Independent
Expert is more than 5% more favorable to the Corporation than the Fair Market
value determined by the Board, in which event the cost of the Independent Expert
shall be shared equally by the Holder and the Corporation, or more than 10% more
favorable to the Corporation than the Fair Market Value determined by the Board,
in which event the cost of the Independent Expert shall be borne solely by the
Corporation.
"Independent Expert" shall mean an investment banking firm
reasonably agreeable to the Corporation and the Holder who does not (and whose
affiliates do not) have a financial interest in the Corporation or any of its
stockholders.
2. Limitation on Transfer and Exercise. Notwithstanding the
provisions of Section 1, the Corporation shall not be required to deliver any
certificate for shares of Common Stock upon exercise of this Warrant except in
accordance with the provisions, and subject to the limitations, of Sections 8
and 9 hereof.
3. Due Authorization and Issuance; Reservation of Issuance. The
Corporation covenants and agrees that all shares of Common Stock which may be
issued upon the exercise of the rights represented by this W arrant will, upon
issuance, be duly
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<PAGE> 4
authorized, validly issued, fully paid and nonassessable shares of the Common
Stock of the Corporation, free from all preemptive rights of any stockholder and
free of all taxes, liens and charges with respect to the issue thereof. The
Corporation further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Corporation will at all
times have authorized and reserved, for the purpose of issue or transfer upon
exercise of this Warrant, a sufficient number of authorized but unissued shares
of Common Stock, or other securities and property, when and as required to
provide for the exercise of this Warrant.
4. Adjustments to Warrant Purchase Price. The Warrant Purchase
Price shall be subject to adjustment from time to time as hereinafter provided
(such price, or the price as last adjusted, also being referred to herein as the
"Warrant Purchase Price"). Upon each adjustment of the Warrant Purchase Price,
the Holder shall thereafter be entitled to purchase, at the Warrant Purchase
Price resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Warrant Purchase Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment, and dividing the product thereof by the Warrant Purchase
Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Corporation
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares by way of stock split, stock dividend or similar event,
the Warrant Purchase Price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares by way of reverse
stock split or similar event, the Warrant Purchase Price in effect immediately
prior to such combination shall be proportionately increased.
4.2 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification of the capital stock of
the Corporation, any consolidation or merger of the Corporation with another
entity, or the sale of all or substantially all of the Corporation's assets to
another entity shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the Holder shall thereafter have the right to purchase and
receive upon the basis and the terms and conditions specified in this Warrant
and in lieu of the shares of Common Stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as
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<PAGE> 5
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby had such reorganization,
reclassification, consolidation, merger or sale not taken place and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Warrant Purchase
Price and of the number of shares of Common Stock purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument, executed and mailed or delivered to the Holder at the
last address thereof appearing on the books of the Corporation, the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
4.3 Issuance of Certain Additional Shares. If the Corporation shall
sell or issue to any person any shares of Common Stock or any securities,
options, warrants or rights entitling any person to subscribe for, purchase,
convert or exchange into shares of Common Stock (other than (i) sales or
issuances to officers or employees of, or consultants or advisors to, the
Corporation pursuant to any stock incentive plan or arrangement approved by the
Corporation's Board of Directors and (ii) shares issued upon the conversion of
shares of Series A Convertible Preferred Stock) at a price per share of Common
Stock, or having an exercise price per share of Common Stock, as the case may
be, that is less than the Current Market Value of Common Stock on the date of
issuance (such shares being referred to as the "Below Market Shares"), the
Warrant Purchase Price shall be adjusted on and after the date of such sale or
issuance by multiplying the Warrant Purchase Price by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on such date
plus the number of shares of Common Stock that the aggregate purchase price or
exercise price of such Below Market Shares would purchase at the Current Market
Value, and of which the denominator shall be the number of shares of Common
Stock outstanding on such date plus the number of Below Market Shares. The
adjustment to the Warrant Purchase Price set forth above shall be made
successively whenever a sale or issuance of Below Market Shares occurs;
provided, however, that, if any such options, warrants or rights expire without
the issuance of shares of Common Stock, then the Warrant Purchase
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<PAGE> 6
Price shall again be adjusted to equal the Warrant Purchase Price in effect had
such issuance of Below Market Shares not occurred.
4.4 Notice of Adjustment. Upon any adjustment of the Warrant
Purchase Price and/or number of Warrant Shares, then and in each such case the
Corporation shall give written notice thereof, by first class mail, postage
prepaid, addressed to the Holder at the address thereof as shown on the books of
the Corporation. The notice shall state the Warrant Purchase Price and/or number
of Warrant Shares resulting from such adjustment, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
5. Issue Tax. The issuance of shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder for any
issue tax in respect thereof, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any shares of Common Stock in a name other than
that of the then Holder of this Warrant.
6. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of this Warrant or of any shares of Common
Stock issued or issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise hereof.
7. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder the
right to vote or to consent or to receive notice as a stockholder in respect of
meetings of stockholders for the election of Directors of the Corporation or any
other matter or any rights whatsoever as a stockholder of the Corporation. No
dividends or interest shall be payable or accrued in respect of this Warrant or
the shares of Common Stock purchasable hereunder until, and only to the extent
that, this Warrant shall have been exercised. No provisions hereof, in the
absence of affirmative action by the Holder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of such Holder for the Warrant Purchase Price or as a
stockholder of the Corporation, whether such liability is asserted by the
Corporation or by its creditors.
8. Restrictions on Transferability of Securities; Compliance with
Securities Act.
8.1 Restrictions on Transferability. The Warrant and the Common
Stock issuable hereunder shall not be transferable except upon the conditions
specified in this Section 8, which conditions are intended to insure compliance
with the provisions of the Securities Act of 1933, as amended (the "Securities
Act").
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<PAGE> 7
Each holder of this Warrant or the Common Stock issuable hereunder will cause
any proposed transferee of the Warrant or such Common Stock to agree to take and
hold such securities subject to the provisions and upon the conditions specified
in Section 8.
8.2 Transfers Not Subject to Restrictions. Subject to Section 9
hereof, the Holder may sell, assign or transfer this Warrant to an affiliate, or
to his parents, the parents of his spouse, his spouse or issue or adopted
children, or to a trust established for the benefit of his parents, the parents
of his spouse, his spouse, issue, adopted children, or himself, or dispose of
them under his will.
8.3 Restrictive Legend. Each certificate representing (a) this
Warrant, (b) the shares of Common Stock or other securities issued upon exercise
of the Warrant and (c) any other securities issued in respect of such shares of
Common Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event (collectively, the "Restricted Securities"),
shall (unless otherwise permitted by the provisions of Section 8.4 below or
unless such securities have been registered under the Securities Act) be
imprinted with the following legend, in addition to any legend required under
applicable state securities laws:
THIS WARRANT AND THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
Upon request of a holder of such a certificate, the Corporation
shall remove the foregoing legend therefrom or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request, the
Corporation shall have received either the opinion referred to in Section 8.4(a)
or the "no-action" letter referred to in Section 8.4(b) to the effect that any
transfer by such holder of the securities evidenced by such certificate will be
exempt from the registration and/or qualification requirements of, and that such
legend is not required in order to establish compliance with, the Securities
Act, and if applicable, any state securities laws under which transfer
restrictions on such securities had been previously imposed.
8.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of
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<PAGE> 8
this Section 8.4. Prior to any proposed transfer of any Restricted Securities,
the holder thereof shall give written notice to the Corporation of such holder's
intention to effect such transfer. Each such notice shall describe the manner
and circumstances of the proposed transfer in sufficient detail, and shall be
accompanied by either (a) an unqualified written legal opinion addressed to the
Corporation from counsel who shall be reasonably satisfactory to the
Corporation, which opinion shall be reasonably satisfactory in form and
substance to the Corporation's counsel, to the effect that the proposed transfer
of the Restricted Securities may be effected without registration under the
Securities Act and any applicable state securities laws, or (b) a "no-action"
letter from the Securities and Exchange Commission (and any necessary state
securities administrator) to the effect that the distribution of such securities
without registration will not result in a recommendation by the staff of the
Commission (or such administrators) that action be taken with respect thereto,
whereupon the holder of such Restricted Securities shall be entitled to transfer
such Restricted Securities in accordance with the terms of the notice delivered
by the holder to the Corporation. Each certificate evidencing. the Restricted
Securities transferred as above provided shall bear the appropriate restrictive
legend set forth in Section 8.4 above.
8.5 Required Approvals. Notwithstanding anything to the contrary
contained herein, if any exercise of this Warrant would result in a change in
"control" of the Corporation, as defined in Section 1215(b) of the, California
Insurance Code, then such exercise shall be delayed until such time as the
approval of the California Department of Insurance is obtained.
9. Transferability of Warrant. Each qualified transferee of this
Warrant must, prior to the acknowledgment and acceptance of such transfer by the
Corporation, agree to take and hold this Warrant subject to the provisions
specified herein. Any such permitted transfers may be made without charge to the
Holder (except for transfer taxes) , at the office or agency of the Corporation
referred to in the first paragraph of this Warrant, by the Holder or by its duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. Rights and Obligations Survive Exercise of Warrant. The rights
and obligations of the Corporation, of the Holder and of the holder of shares of
Common Stock issued upon exercise of this Warrant contained in Sections 8, 9 and
10 shall survive the exercise of this Warrant.
11. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
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<PAGE> 9
12. Notices. Any notice, request or other document required or
permitted to be given or delivered to the record Holder or the Corporation shall
be delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such Holder at its address as shown on the books of the Corporation or
to the Corporation at the address indicated therefor in the first paragraph of
this Warrant.
13. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Corporation by merger, consolidation or
acquisition of all or substantially all of the Corporation's assets, and all of
the obligations of the Corporation relating to the Common Stock issuable upon
the exercise of this Warrant shall survive such merger, consolidation or
acquisition and all of the covenants and agreements of the Corporation shall
inure to the benefit of the permitted successors and assigns of the Holder.
14. Descriptive Headings; Governing Law. The descriptive headings
of the several paragraphs of this Warrant are inserted for convenience only and
do not constitute a part of this Warrant. This Warrant shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of Delaware without regard to conflicts of laws principles
thereof.
15. Lost Warrant or Certificates. The Corporation represents and
warrants to the Holder that upon receipt of evidence reasonably satisfactory to
the Corporation of the loss, theft, destruction or mutilation of this Warrant or
certificate evidencing shares of Common Stock issued on exercise hereof and, in
the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Corporation, or in the case of any such
mutilation upon surrender and cancellation of such Warrant or stock certificate,
the Corporation will make and deliver a new Warrant or stock certificate, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
16. Expiration of Warrant. Subject to Section 1.2 hereof, this
warrant shall expire and shall no longer be exercisable on or after January 1,
2004.
17. Note and Warrant Purchase Agreement. This Warrant is one of the
Common Stock Purchase Warrants (the "Warrants", such term to include all
Warrants in substitution therefor) originally authorized for issuance pursuant
to the Note and Warrant Purchase Agreement (the "Note and Warrant Purchase
Agreement"), dated as of December 28, 1995, between the Corporation and certain
institutional investors, copies of which are on file at the principal office of
the Corporation in Sacramento, California. The holder of this Warrant is
entitled to the benefits of the
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<PAGE> 10
Note and Warrant Purchase Agreement and may enforce the agreements of the
Corporation contained therein, all in accordance with the terms thereof. Certain
terms used in this Warrant not otherwise defined herein shall have the
respective meanings specified in the Note and Warrant Purchase Agreement.
18. Stockholders Agreement. All Common Stock or other securities
issuable upon exercise of this Warrant shall be subject to all of the provisions
of and shall be entitled to the benefits of the Stockholders Agreement dated as
of September 7, 1993 by and among the Corporation and the stockholders of the
Corporation as of such date (the "Stockholders Agreement"). Upon such exercise,
the holder of the Common Stock or other securities issuable hereunder shall
become a "Stockholder" under such Agreement, as the Stockholders Agreement may
have been modified, supplemented or amended prior to the date of such exercise.
The provisions of this Section 19 shall not apply if the Stockholders Agreement
has been terminated, either by agreement of the parties thereto or by its own
terms, prior to the date of such exercise.
19. Certain Events. In the event of the dissolution, liquidation or
winding up of the Corporation, the rights to purchase Warrant Shares evidenced
by this Warrant shall terminate and expire and the Holder of this Warrant shall
be entitled to receive from the Corporation, after payment of all debts,
obligations and liabilities of the Corporation and after payment of any
liquidation preference on any class of capital stock of the Corporation having a
preference as to such payments over the holders of Common Stock, payment in an
amount equal to the product of (a) the amount by which the liquidating payment
per share of Common Stock exceeds the Exercise Price, multiplied by (b) the
number of shares of Common Stock purchasable pursuant to this Warrant.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
duly executed and issued by the officer or officers thereunto duly authorized as
of this 28th day of December, 1995.
FINANCIAL PACIFIC INSURANCE GROUP, INC.,
a Delaware Corporation
By: /s/
------------------------------------------
President
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<PAGE> 11
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To the Corporation:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder,
__________________________________________________________________ (___________)
of the number of shares of Common Stock purchasable under this warrant and
herewith makes payment of _____________________________________________________
Dollars ($_________) therefor, and requests that a certificate(s) for such
shares be issued in the name of, and delivered to, ____________________________
_______________________________________________________________________________
_________________________________, whose address is ___________________________
_______________________________________________________________________________
____________________________________________________________.
The undersigned represents that it is acquiring such shares of Common
Stock for its own account for investment purposes only and not with a view to or
for sale in connection with any distribution thereof.
DATED:________________
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
Address:
__________________________________________________
__________________________________________________
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<PAGE> 12
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________________________ hereby
sells, assigns and transfers unto:
Name:______________________________
Address:___________________________
___________________________
the right to purchase Common Stock represented by this Warrant to the extent of
__________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________________________________,
attorney, to transfer the same on the books of the Corporation with full power
of substitution in the premises.
Dated:___________________
________________________________________
(Signature)
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<PAGE> 1
EXHIBIT 10.15
THIS WARRANT AND THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
Warrant No. 1 September 7, 1993
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, ______________ and permitted
assigns (the "Holder"), is entitled to purchase on the terms and conditions
contained herein from Financial Pacific Insurance Group, Inc., a Delaware
corporation (the "Corporation"), ________ shares (subject to adjustment as set
forth in Sections 4 and 5 below, the "Warrant Shares") of the Corporation's
Common Stock, $.001 par value per share (the "Common Stock"), at the price of
$1.00 per Warrant Share so purchased (subject to adjustment as set forth in
Section 4 below, the "Warrant Purchase Price") at any time on or after the date
hereof, subject to Section 1.2, and prior to September 7, 2003 (the "Exercise
Period"), on surrender to the Corporation at its principal office at 8583 Elder
Creek Road, Suite 100, Sacramento, California 95828 (or at such other location
as the Corporation may advise Holder in writing) of this Warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and
signed and upon payment in cash or by certified or cashier's check of the
Warrant Purchase Price for the appropriate number of Warrant Shares for which
this Warrant is being exercised, as determined in accordance with the
provisions hereof. In lieu of paying cash upon exercise of this Warrant, the
Holder may elect to make a cashless exercise, in which event the Holder will be
entitled to receive the Warrant Shares minus the number of shares of Common
Stock valued based on the Current Market Value (as defined below) equal to the
Warrant Purchase Price.
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment; Definition.
1.1 Optional Exercise. Subject to Section 1.2 hereof and to the
limitations on exercise set forth in Section 2 hereof, this Warrant is
exercisable at the option of the Holder, from time to time during the Exercise
Period, for all or any part of the Warrant Shares. The Corporation agrees that
the Warrant Shares purchased under this Warrant shall be and are deemed to be
issued to the Holder as the record owner of such
<PAGE> 2
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares. Subject to the provisions of
Section 2, certificates for shares of Common Stock so purchased shall be
delivered to the Holder within a reasonable time after this Warrant has been
exercised, and, in case of a purchase of less than all the Warrant Shares, the
Corporation shall cancel this Warrant and, within a reasonable period of time,
shall execute and deliver to the Holder a new Warrant of like tenor for the
balance of the Warrant Shares. Each stock certificate so delivered shall be
registered in the name of the Holder or such other name as shall be designated
thereby, subject to the limitations contained in Section 2.
1.2 Mandatory Exercise. Notwithstanding any provision herein to the
contrary, this Warrant must be exercised by the Holder, if at all, upon the
effective date of a registration statement filed pursuant to the Securities Act
of 1933, as amended (other than a registration relating solely to a transaction
under Rule 145 under such Act or any successor thereto, or an employee benefit
plan of the Corporation), in connection with the sale of the Corporation's
Common Stock in a firm commitment, underwritten public offering with gross
proceeds to be received by the Corporation which equal or exceed $10,000,000
and a public offering price of the Common Stock of not less than $5.00 per
share (as adjusted for stock splits, dividends or other recapitalization
transactions) (an "Initial Public Offering"). The Corporation shall give the
Holder not less than 15 days notice of the expected date of the effectiveness
of such registration statement. Not later than the effective date, the Holder
shall give the Corporation notice to the effect that (i) the Holder does not
elect to exercise this Warrant, (ii) the Holder elects to make a cash exercise
of this Warrant (which notice shall be accompanied by the payment of the
Warrant Purchase Price) or (iii) the Holder elects to make a cashless exercise
of this Warrant as provided in the first paragraph hereof. If the Holder does
not give any notice to the Corporation, the Holder shall be deemed to have
elected to make a cashless exercise of this Warrant.
1.3 Definitions. As used herein, the following terms shall have the
following meanings:
"Current Market Value" per share of Common Stock means (i) if an
Initial Public Offering of the Common Stock has taken place, the price at the
close of the market on the first day of trading of such Common Stock following
the effectiveness of a registration statement for the Common Stock and (ii) if
no Initial Public Offering has taken place, the Fair Market Value of the Common
Stock based upon the Fair Market Value of 100% of the Corporation if sold as a
going concern and without regard to any discount for the lack of liquidity or
on the basis that the relevant shares of Common Stock do not constitute a
majority or controlling interest in the Corporation and assuming the exercise
of all warrants, convertible securities, options or other rights to subscribe
for or purchase any additional shares of Common Stock or securities convertible
or exchangeable into Common Stock.
2.
<PAGE> 3
"Fair Market Value" shall mean the value obtainable upon a sale in an
arm's length transaction to an unaffiliated third party under usual and normal
circumstances, with neither the buyer nor the seller under any compulsion to
act, with equity to both, as determined by the Board in good faith; provided,
however, that if the Holder shall dispute the Fair Market Value as determined
by the Board, the Holder may undertake to have the Holder and the Corporation
retain an Independent Expert. The determination of Fair Market Value by the
Independent Expert shall be final, binding and conclusive on the Corporation
and the Holder. All costs and expenses of the Independent Expert shall be borne
by the Holder, unless the determination of Fair Market Value by the Independent
Expert is more than 5% more favorable to the Corporation than the Fair Market
Value determined by the Board, in which event the cost of the Independent
Expert shall be shared equally by the Holder and the Corporation, or more than
10% more favorable to the Corporation than the Fair Market Value determined by
the Board, in which event the cost of the Independent Expert shall be borne
solely by the Corporation.
"Independent Expert" shall mean an investment banking firm reasonably
agreeable to the Corporation and the Holder who does not (and whose affiliates
do not) have a financial interest in the Corporation or any of its stockholders.
2. Limitation on Transfer and Exercise. Notwithstanding the provisions
of Section 1, the Corporation shall not be required to deliver any certificate
for shares of Common Stock upon exercise of this Warrant except in accordance
with the provisions, and subject to the limitations, of Section 9 and 10 hereof.
3. Due Authorization and Issuance; Reservation of Issuance. The
Corporation covenants and agrees that all shares of Common Stock which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
shares of the Common Stock of the Corporation, free from all preemptive rights
of any stockholder and free of all taxes, liens and charges with respect to the
issue thereof. The Corporation further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised,
the Corporation will at all times have authorized and reserved, for the purpose
of issue or transfer upon exercise of this Warrant, a sufficient number of
authorized but unissued shares of Common Stock, or other securities and
property, when and as required to provide for the exercise of this Warrant.
4. Warrant Purchase Price. The Warrant Purchase Price shall be subject
to adjustment from time to time as hereinafter provided (such price, or the
price as last adjusted, also being referred to herein as the "Warrant Purchase
Price"). Upon each adjustment of the Warrant Purchase Price, the Holder shall
thereafter be entitled to purchase, at the Warrant Purchase Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Warrant Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
3.
<PAGE> 4
adjustment, and dividing the product thereof by the Warrant Purchase Price
resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares of Common Stock
into a greater number of shares by way of stock split, stock dividend or
similar event, the Warrant Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares by way of reverse stock split or similar event, the Warrant Purchase
Price in effect immediately prior to such combination shall be proportionately
increased.
4.2 Reorganization, Reclassification, Consolidation,
Merger or Sale. If any capital reorganization or reclassification of the
capital stock of the Corporation, any consolidation or merger of the
Corporation with another entity, or the sale of all or substantially all of the
Corporation's assets to another entity shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provisions shall be made whereby the Holder shall thereafter have
the right to purchase and receive upon the basis and the terms and conditions
specified in this Warrant and in lieu of the shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for the number of shares of Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustments of the Warrant Purchase Price and of the
number of shares of Common Stock purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument, executed and mailed or delivered to the Holder at the
last address thereof appearing on the books of the Corporation, the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
4.3 Issuance of Certain Additional Shares. If the
Corporation shall sell or issue to any person any shares of Common Stock or any
options, warrants or rights entitling any person to subscribe for, purchase or
convert or, exchange shares of Common Stock (other than (i) sales or issuances
to officers or employees of, or consultants or advisors to, the Corporation
pursuant to any stock incentive plan or arrangement approved by the
<PAGE> 5
Corporation's Board of Directors and (ii) shares issued upon the conversion of
shares of Series A Convertible Preferred Stock) at a price per share of Common
Stock, or having an exercise price per share of Common Stock, as the case may
be, that is less than the Current Market Value of Common Stock on the date of
issuance (such shares being referred to as the "Below Market Shares"), the
Warrant Purchase Price shall be adjusted on and after the date of such sale or
issuance by multiplying the Warrant Purchase Price by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on such
date plus the number of shares of Common Stock that the aggregate purchase
price or exercise price of such Below Market Shares would purchase at the
Current Market Value, and of which the denominator shall be the number of
shares of Common Stock outstanding on such date plus the number of Below Market
Shares. The adjustment to the Warrant Purchase Price set forth above shall be
made successively whenever a sale or issuance of Below Market Shares occurs;
provided, however, that, if any such options, warrants or rights expire without
the issuance of shares of Common Stock, then the Warrant Purchase Price shall
again be adjusted to equal the Warrant Purchase Price in effect had such
issuance of Below Market Shares not occurred.
4.4 Notice of Adjustment. Upon any adjustment of the Warrant
Purchase Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to the Holder
at the address thereof as shown on the books of the Corporation. The notice
shall state the Warrant Purchase Price resulting from such adjustment and the
revised number of Warrant Shares purchasable hereunder, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
5. Warrant Shares. Reference is hereby made to that certain
Restricted Stock Agreement dated as of September 7, 1993, between the
Corporation and Robert C. Goodell (the "Restricted Stock Agreement"), as in
effect on the date hereof and without regard to any amendments adverse to the
Holder made without the consent of the Holder. In the event that, pursuant to
the Restricted Stock Agreement, the Corporation repurchases the Initial Shares
(as defined in the Restricted Stock Agreement) from Robert C. Goodell pursuant
to Section 1 of the Restricted Stock Agreement, the number of Warrant Shares
purchasable hereunder by the Holder shall be reduced as provided in this
Section 5. If all of the original Initial Shares are repurchased under Section
1 of the Restricted Stock Agreement, the number of Warrant Shares purchasable
hereunder by the Holder shall be reduced to 89,360, as adjusted as otherwise
provided herein. If some but less than all of the original Initial Shares are
repurchased under Section 1 of the Restricted Stock Agreement, the number of
Warrant Shares purchasable hereunder by the Holder shall be the number between
103,810 and 89,360 reduced in proportion to the percentage of the original
Initial Shares so repurchased. Upon any adjustment of the number of Warrant
Shares, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to the Holder at the
address thereof as shown on the books of the Corporation. The notice shall
state the revised number of Warrant Shares, setting forth in
5.
<PAGE> 6
reasonable detail the method of calculation and the facts upon which such
calculation is based.
6. Issue Tax. The issuance of shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the Holder for any issue tax in
respect thereof, provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any shares of Common Stock in a name other than that of the
then Holder of this Warrant.
7. Closing of Books. The Corporation will at no time close its transfer
books against the transfer of this Warrant or of any shares of Common Stock
issued or issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise hereof.
8. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder the
right to vote or to consent or to receive notice as a stockholder in respect of
meetings of stockholders for the election of Directors of the Corporation or
any other matter or any rights whatsoever as a stockholder of the
Corporation. No dividends or interest shall be payable or accrued in respect
of this Warrant or the shares of Common Stock purchasable hereunder until, and
only to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the Holder to purchase shares
of Common Stock, and no mere enumeration herein of the rights or privileges of
the Holder, shall give rise to any liability of such Holder for the Warrant
Purchase Price or as a stockholder of the Corporation, whether such liability
is asserted by the Corporation or by its creditors.
9. Restrictions on Transferability of Securities; Compliance with
Securities Act.
9.1 Restrictions on Transferability. The Warrant and the Common
Stock issuable hereunder shall not be transferable except upon the conditions
specified in this Section 9, which conditions are intended to insure compliance
with the provisions of the Securities Act of 1933, as amended (the "Securities
Act"). Each holder of this Warrant or the Common Stock issuable hereunder will
cause any proposed transferee of the Warrant or such Common Stock to agree to
take and hold such securities subject to the provisions and upon the conditions
specified in this Section 9.
9.2 Transfers Not Subject to Restrictions. Subject to Section 10
hereof, the Holder may sell, assign or transfer this Warrant to his parents,
the parents of his spouse, his spouse or issue or adopted children, or to a
trust established for the benefit of his parents, the parents of his spouse,
his spouse, issue, adopted children, or himself, or dispose of them under his
will.
6.
<PAGE> 7
9.3 Restrictive Legend. Each certificate representing (a) this
Warrant, (b) the shares of Common Stock or other securities issued upon
exercise of the Warrant and (c) any other securities issued in respect of such
shares of Common Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event (collectively the "Restrictive
Securities"), shall (unless otherwise permitted by the provisions of Section
9.4 below or unless such securities have been registered under the Securities
Act) be imprinted with the following legend, in addition to any legend required
under applicable state securities laws:
THIS WARRANT AND THE SHARES OF COMMON STOCK REPRESENTED HEREBY HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES
MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Upon request of a holder of such a certificate, the Corporation shall
remove the foregoing legend therefrom or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Corporation
shall have received either the opinion referred to in Section 9.4(a) or the
"no-action" letter referred to in Section 9.4(b) to the effect that any
transfer by such holder of the securities evidenced by such certificate will be
exempt from the registration and/or qualification requirements of, and that
such legend is not required in order to establish compliance with, the
Securities Act, and if applicable, any state securities laws under which
transfer restrictions on such securities had been previously imposed.
9.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in
all respects with the provisions of this Section 9.4. Prior to any proposed
transfer of any Restricted Securities, the holder thereof shall give written
notice to the Corporation of such holder's intention to effect such transfer.
Each such notice shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and shall be accompanied by either (a) an
unqualified written legal opinion addressed to the Corporation from counsel who
shall be reasonably satisfactory to the Corporation, which opinion shall be
reasonably satisfactory in form and substance to the Corporation's counsel, to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act and any applicable state
securities laws, or (b) a "no-action" letter from the Securities and Exchange
Commission (and any necessary state securities administrator) to the effect
that the distribution of such securities without registration will not result in
a recommendation by the
7.
<PAGE> 8
staff of the Commission (or such administrators) that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Corporation. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 9.4 above.
10. Transferability of Warrant. Each qualified transferee of this
Warrant must, prior to the acknowledgement and acceptance of such transfer by
the Corporation, agree to take and hold this Warrant subject to the provisions
specified herein. Any such permitted transfers may be made without charge to
the Holder (except for transfer taxes), at the office or agency of the
Corporation referred to in the first paragraph of this Warrant, by the Holder
or by its duly authorized attorney, upon surrender of this Warrant properly
endorsed.
11. Rights and Obligations Survive Exercise of Warrant. The rights and
obligations of the Corporation, of the Holder and of the holder of shares of
Common Stock issued upon exercise of this Warrant contained in Section 8, 9 and
10 shall survive the exercise of this Warrant.
12. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request or other document required or permitted
to be given or delivered to the record Holder or the Corporation shall be
delivered, or shall be sent by certified or registered mail, postage prepaid,
to each such Holder at its address as shown on the books of the Corporation or
to the Corporation at the address indicated therefor in the first paragraph of
this Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Corporation by merger, consolidation or acquisition
of all or substantially all of the Corporation's assets, and all of the
obligations of the Corporation relating to the Common Stock issuable upon the
exercise of this Warrant shall survive such merger, consolidation or
acquisition and all of the covenants and agreements of the Corporation shall
inure to the benefit of the permitted successors and assigns of the Holder.
15. Descriptive Headings; Governing Law. The descriptive headings of the
several paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of Delaware without regard to conflicts of laws principles
thereof.
16. Lost Warrant or Certificates. The Corporation represents and
warrants to the Holder that upon receipt of evidence reasonably satisfactory to
the Corporation of the
8.
<PAGE> 9
loss, theft, destruction or mutilation of this Warrant or certificate
evidencing shares of Common Stock issued on exercise hereof and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Corporation, or in the case of any such mutilation upon
surrender and cancellation of such Warrant or stock certificate, the Corporation
will make and deliver a new Warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
17. Expiration of Warrant. Subject to Section 1.2 hereof, this Warrant
shall expire and shall no longer be exercisable on or after September 7, 2003.
18. Stockholders Agreement. All Common Stock or other securities issuable
upon exercise of this Warrant shall be subject to all of the provisions of and
shall be entitled to the benefits of the Stockholders Agreement dated as of
September 7, 1993 by and among the Corporation and the stockholders of the
Corporation as of such date (the "Stockholders Agreement"). Upon such exercise,
the holder of the Common Stock or other securities issuable hereunder shall
become a "Stockholder" under such Agreement, as the Stockholders Agreement may
have been modified, supplemented or amended prior to the date of such exercise.
The provisions of this Section 18 shall not apply if the Stockholders Agreement
has been terminated, either by agreement of the parties thereto or by its own
terms, prior to the date of such exercise.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly
executed and issued by the officer or officers thereunto duly authorized as of
this 7th day of September, 1993.
FINANCIAL PACIFIC INSURANCE GROUP,
INC., a Delaware corporation
By: /s/ ROBERT C. GOODELL
-----------------------------
__________________, President
9.
<PAGE> 1
EXHIBIT 10.16
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
ORIGINALLY EFFECTIVE: JULY 1, 1993
TERMS EFFECTIVE: JANUARY 1, 1998
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
REINSURANCE CONFIRMATION SLIP
ARTICLE I - CLASSES OF BUSINESS REINSURED
A. By this Contract the Company obligates itself to cede to the Reinsurer and
the Reinsurer obligates itself to accept quota share reinsurance of the
Company's net liability under policies, contracts and binders of insurance
or reinsurance (hereinafter called "policies") issued or renewed on or
after the effective date hereof, and classified by the Company as
Automobile Physical Damage, Commercial Multiple Peril (Section I) and
Inland Marine business.
B. "Net liability" as used herein is defined as the Company's gross liability
remaining after cessions, if any, to other pro rata reinsurers.
C. The liability of the Reinsurer with respect to each cession hereunder
shall commence obligatorily and simultaneously with that of the Company,
subject to the terms, conditions and limitation hereinafter set forth.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1998, with respect to
losses occurring under policies allocated to underwriting years commencing
on or after that date, and shall continue in force thereafter until
terminated.
B. Either party may terminate this Contract on December 31, 1998, or any
December 31 thereafter, by giving the other party not less than 90 days
prior notice by certified mail.
C. Unless the Company elects to reassume the ceded unearned premium in force
on the effective date of termination, and so notifies the Reinsurer prior
to or as promptly as possible after the effective date of termination,
reinsurance hereunder on business in force on the effective date of
termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
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<PAGE> 2
D. "Underwriting year" as used herein shall mean the period from January 1,
1997 through December 31, 1997, and each subsequent 12-month period shall
be a separate underwriting year. However, in the event this Contract is
terminated, the final underwriting year shall be from the beginning of the
then current underwriting year through the effective date of termination.
All premiums and losses from policies allocated to an underwriting year
shall be credited or charged, respectively, to such underwriting year,
regardless of the date said premiums earn or such losses occur, it being
understood that a policy will be allocated to the underwriting year which
is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Such policies shall remain in the same underwriting year, as originally
allocated, until the next renewal date or premium anniversary date, at
which time such policies shall be reallocated to the underwriting year in
effect as of such date as provided in subparagraphs 2 and 3 above.
ARTICLE III - TERRITORY
The liability of the Reinsurer shall be limited to losses under policies
covering property located within the territorial limits of the United States of
America, its territories or possessions, and the District of Columbia; but this
limitation shall not apply to moveable property if the Company's policies
provide coverage when said moveable property is outside the aforesaid
territorial limits.
ARTICLE IV - EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Business accepted by the Company as reinsurance from other insurers
except Agency Reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company
is required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund.
Page 2
<PAGE> 3
"Insolvency Fund" includes any guarantee fund, insolvency fund,
plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any
assessment of or payment or assumption by the Company of part or all
of any claim, debt, charge, fee, or other obligation of an insurer,
or its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise deemed
unable to meet any claim, debt, charge, fee or other obligation in
whole or in part.
4. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.
5. Insurance against earthquake, when written as such.
6. Insurance on growing crops, however, this exclusion shall not apply
to greenhouses and their contents with insured values of $150,000 or
less.
7. Insurance against flood, surface water, waves, tidal water or tidal
wave, overflow of streams or other bodies of water or spray from any
of the foregoing, all whether driven by wind or not, when written as
such.
8. Liability under coverage afforded for loss or damage resulting from
failure to account or pay for any goods or merchandise sold on
credit, delivered under deferred payment agreements, consigned for
sale or delivered under any trust or floor plan agreements, except
under standard accounts receivable policies.
9. Boiler and Machinery, when written as such.
10. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled.
11. Difference in conditions insurance and similar kinds of insurance,
howsoever styled.
12. Risks which have a total insurable value of more than $250,000,000.
13. Mobile homes unless written as part of a Commercial Multiple Peril
policy.
14. Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of the
cost of removing debris of property damaged by a loss otherwise
covered hereunder, subject always to a limit of 25% of the Company's
property loss under the applicable original policy.
15. Fidelity and Surety Business.
16. Satellites.
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<PAGE> 4
17. Ocean Marine when written as such.
18. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect to ocean,
lake, or inland waterways vessels;
c. Commercial negative film insurance and cast insurance;
d. Stationary drilling rigs;
e. Furriers' customers' policies;
f. Garment contractors' policies;
g. Insurance on livestock under so-called "mortality policies";
h. Jewelers' block policies and furriers' block policies;
i. Mining equipment;
j. Registered mail insurance when the limit of any one addressee
on any one day is more than $50,000;
k. Watercraft other than watercraft insured under property
floaters, yacht and/or outboard policies provided they are
less than 50 feet in length;
l. Petrochemical and utility risks;
m. Transmission and distribution lines.
19. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause-Physical Damage Reinsurance" attached to and forming part of
this Contract.
20. Railroad business, specifically insurance for "line" or "track"
operations of actual railroads.
21. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, oil and gas
pipelines, offshore oil and gas properties.
B. If, without the knowledge of a member of the Company's underwriting
department, the Company becomes bound on a risk specifically excluded from
this Contract, such
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<PAGE> 5
reinsurance as would have been afforded for the risk by this Contract if
the risk had not been excluded shall nevertheless apply to such risk with
respect to losses occurring prior to the 66th day (60 discovery days plus
5 mailing days) after discovery by a member of such underwriting
department of the existence of the hazard which makes the exclusion
applicable. In case, within such 65 day period (60 discovery days plus 5
mailing days), the Company shall have forwarded to the Reinsurer complete
underwriting information and shall have received from the Reinsurer
written notice of its approval of the risk for the policy period reported,
the risk shall be covered hereunder in the same manner as if such risk
were not so excluded, subject, however, to the terms of such notice of
approval.
ARTICLE V - RETENTION AND LIMIT
A. As respects business subject to this Contract, the Company shall retain
and be liable for 30.0% of its net liability. The Company shall cede to
the Reinsurer and the Reinsurer agrees to accept 70.0% of the Company's
net liability.
B. Notwithstanding the provisions of paragraph A above, the liability of the
Reinsurer for loss hereunder shall not exceed $15,000,000 each loss
occurrence.
C. The term 'loss occurrence' shall mean the sum of all individual losses
directly occasioned by any one disaster, accident or loss or series of
disasters, accidents or losses arising out of one event which occurs
within the area of one state of the United States or province of Canada
and states or provinces contiguous thereto and to one another. However,
the duration and extent of any one 'loss occurrence' shall be limited to
all individual losses sustained by the Company occurring during any period
of 168 consecutive hours arising out of and directly occasioned by the
same event, except that the term "loss occurrence" shall be further
defined as follows:
1. As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, all individual losses sustained
by the Company occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same event. However,
the event need not be limited to one state or province or states or
provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil commotion, vandalism
and malicious mischief, all individual losses sustained by the
Company occurring during any period of 72 consecutive hours within
the area of one municipality or county and the municipalities or
counties contiguous thereto arising out of and directly occasioned
by the same event. The maximum duration of 72 consecutive hours may
be extended in respect of individual losses which occur beyond such
72 consecutive hours during the continued occupation of an assured's
premises by strikers, provided such occupation commenced during the
aforesaid period.
3. As regards earthquake (the epicentre of which need not necessarily
be within the territorial confines referred to in paragraph A of
this Article) and fire following directly
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<PAGE> 6
occasioned by the earthquake, only those individual fire losses
which commence during the period of 168 consecutive hours may be
included in the Company's 'loss occurrence.'
4. As regards 'freeze,' only individual losses directly occasioned by
collapse, breakage of glass and water damage (caused by bursting
frozen pipes and tanks and melting snow) may be included in the
Company's 'loss occurrence.'
Except for those 'loss occurrences' referred to in subparagraphs 1 and 2
above, the Company may choose the date and time when any such period of
consecutive hours commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded individual loss sustained
by the Company arising out of that disaster, accident or loss, and
provided that only one such period of 168 consecutive hours shall apply
with respect to one event.
However, as respects those 'loss occurrences' referred to in subparagraphs
1 and 2 above, if the disaster, accident or loss occasioned by the event
is of greater duration than 72 consecutive hours, then the Company may
divide that disaster, accident or loss into two or more 'loss
occurrences,' provided that no two periods overlap and no individual loss
is included in more than one such period, and provided that no period
commences earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out of that
disaster, accident or loss.
It is understood that losses arising from a combination of two or more
perils as a result of the same event shall be considered as having arisen
from one 'loss occurrence.' Notwithstanding the foregoing, the hourly
limitations as stated above shall not be exceeded as respects the
applicable perils and no single 'loss occurrence' shall encompass a time
period greater than 168 consecutive hours."
ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS/ECO
A. In the event the Company pays or is held liable to pay an amount of loss
in excess of its policy limit (bailee coverage only), but otherwise within
the terms of its policy (hereinafter called "loss in excess of policy
limits") or any punitive, exemplary, compensatory or consequential
damages, other than loss in excess of policy limits (hereinafter called
"extra contractual obligations") because of alleged or actual bad faith or
negligence on its part in rejecting a settlement within policy limits, or
in discharging its duty to defend or prepare the defense in the trial of
an action against its policyholder, or in discharging its duty to prepare
or prosecute an appeal consequent upon such an action, or in otherwise
handling a claim under a policy subject to this Contract, 90% of the loss
in excess of policy limits and/or 90% of the extra contractual obligations
shall be added to the (Company's loss, if any, under the policy involved,
and the sum thereof (not exceeding, however, $2,000,000) shall be subject
to the provisions of Article V.
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<PAGE> 7
B. An extra contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under the policy.
C. Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. Recoveries from any form of insurance or reinsurance which protects the
Company against claims the subject matter of this Article shall inure to
the benefit of this Contract.
ARTICLE VII - OTHER REINSURANCE
A. The Company shall have the option to purchase excess of loss reinsurance
to protect its net, recoveries under which to inure solely to the benefit
of the Company and be entirely disregarded in applying all of the
provisions of this Contract.
B. The Company shall purchase or be deemed to have purchased inuring excess
facultative reinsurance to limit its loss subject hereto (inclusive of
loss in excess of policy limits and extra contractual obligations) to
$2,000,000 each risk, each loss.
ARTICLE VIII - LOSSES AND LOSS ADJUSTMENT EXPENSES
A. Losses shall be reported by the Company in summary form as hereinafter
provided, however, whenever a loss is reserved by the Company for an
amount greater than $100,000, the Company shall notify the Reinsurer. The
Reinsurer shall have the right to participate in the adjustment of losses
subject to this Contract at its own expense.
B. All loss settlements made by the Company, whether under strict policy
conditions or by way of compromise, shall be binding upon the Reinsurer,
and the Reinsurer agrees to pay or allow, as the case may be, its
proportion of each such settlement in accordance with Article XIV. It is
agreed, however, that if the Company's gross loss is equal to or greater
than $100,000, the Reinsurer shall pay its share of said loss as
promptly as possible after receipt of reasonable evidence of the amount
paid (or scheduled to be paid) by the Company.
C. In the event of a claim under a policy subject hereto, the reinsurer shall
be liable for its proportionate share of loss adjustment expenses incurred
by the Company in connection therewith, and shall be credited with its
proportionate share of any recoveries of such expense.
D. "Loss adjustment expense" means all costs and expenses allocable to a
specific claim that are incurred by the Company in the investigation,
appraisal, adjustment, settlement, litigation, defense or appeal of a
specific claim, including court costs and costs of
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supersedes and appeal bonds, and including 1) prejudgment interest, unless
included as part of the award or judgment; 2) postjudgment interest; 3)
legal expenses and costs incurred in connection with coverage questions
and legal actions connected thereto; and 4) a pro rata share of salaries
and expenses of Company field employees, and expenses of other Company
employees who have been temporarily diverted from their normal and
customary duties and assigned to the field adjustment of losses covered by
this Contract. Loss adjustment expense does not include unallocated loss
adjustment expense. Unallocated loss adjustment expense includes, but is
not limited to, salaries and expenses of employees, other than (4) above
and office and other overhead expenses.
ARTICLE IX - ALTERNATE PAYEE
A. It is understood that in order to make the Company's policies generally
acceptable to certain mortgagees and lending institutions, Gerling Global
Reinsurance Corporation of America, New York, New York (hereinafter
referred to as "Gerling Global") has agreed to issue supplemental
reinsurance endorsements which guarantee that Gerling Global will pay
valid claims under any of the Company's policies to which said
endorsements are attached if the Company fails to pay because of its
insolvency.
B. Now, therefore, it is agreed that if Gerling Global, under the provisions
of a supplemental reinsurance endorsement, pays or becomes liable to pay
any claim or claims under any policy or policies subject to this Contract,
Gerling Global shall be substituted for the Company as payee of any
reinsurance recoverable hereunder in respect of such claim or claims, and
the Reinsurer, upon notice from Gerling Global, shall make payment thereof
directly to Gerling Global.
C. In the event the foregoing provisions apply, all the other provisions of
this Contract shall apply to Gerling Global in the same manner as if
Gerling Global were substituted for the Company as the reinsured party
hereunder, and to the extent this Contract reinsures Gerling Global,
coverage hereunder shall be excluded as respects the Company.
ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with its proportionate share of salvage (i.e.,
reimbursement obtained or recovery made by the Company, less the actual cost,
excluding salaries officials and employees of the Company and sums paid to
attorneys as retainer, of obtaining such reimbursement or making such recovery)
on account of claims and settlements involving reinsurance hereunder.
ARTICLE XI - ORIGINAL CONDITIONS
A. All reinsurance under this Contract shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and
alterations as the respective policies of the
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Company. The Reinsurer shall be credited with its exact proportion of the
original premiums collected by the Company, prior to disbursement of any
dividends, but after deduction of premiums, if any, ceded by the Company
for inuring reinsurance.
B. Except as provided in Article IX, nothing herein shall in any manner
create any obligations or establish any rights against the Reinsurer in
favor of any third party or any persons not parties to this Contract.
ARTICLE XII - PROVISIONAL CEDING COMMISSION
The Reinsurer shall allow the Company a 37.5% provisional commission on all
premiums ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.
ARTICLE XIII - COMMISSION ADJUSTMENT
A. The provisional commission allowed the Company shall be adjusted
periodically for each underwriting year in accordance with the provisions
set forth herein. The adjusted commission rate shall be calculated as
follows and be applied to premiums earned for the underwriting year under
consideration:
1. If the ratio of losses incurred to premiums earned is 67.5% or
greater, the adjusted commission rate for the underwriting year
under consideration shall be 25.0%;
2. If the ratio of losses incurred to premiums earned is less than
67.5%, but not less than 55.0%, the adjusted commission rate for the
underwriting year under consideration shall be 25.0%, plus the
difference in percentage points between 67.5% and the actual ratio
of losses incurred to premiums earned;
3. If the ratio of losses incurred to premiums earned is less than
55.0%, but not less than 45.0%, the adjusted commission rate for the
underwriting year under consideration shall be 37.5%, plus one-half
the difference in percentage points between 55.0% and the actual
ratio of losses incurred to premiums earned;
4. If the ratio of losses incurred to premiums earned is less than
45.0%, but not less than 40.0%, the adjusted commission rate for the
underwriting year under consideration shall be 42.5%, plus the
difference in percentage points between 45.0% and the actual ratio
of losses incurred to premiums earned;
5. If the ratio of losses incurred to premiums earned is 40.0% or less,
the adjusted commission rate for the underwriting year under
consideration shall be 47.5%.
B. If the ratio of losses incurred to premiums, earned for any underwriting
year is greater than 67.5%, the difference in percentage points between
the actual ratio of losses incurred to
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premiums earned and 67.5% shall be, multiplied by premiums earned for the
underwriting year and the product shall be carried forward to the next
underwriting year as a debit (addition) to losses incurred. If the ratio
of losses incurred to premiums earned for any underwriting year is less
than 40.0%, the difference in percentage points between 40.0% and the
actual ratio of losses incurred to premiums earned shall be multiplied by
premiums earned for the underwriting year and the product shall be carried
forward to the next underwriting year as a credit to (subtraction from)
losses incurred.
C. Within 45 days after the end of each underwriting year the Company shall
calculate and report the adjusted commission on premiums earned for the
underwriting year. If the adjusted commission on premiums earned is less
than commissions previously allowed by the Reinsurer on premiums earned
for the underwriting year, the Company shall remit the difference to the
Reinsurer with its report. If the adjusted commission on premiums earned
is greater than commissions previously allowed by the Reinsurer on
premiums earned for the underwriting year, the Reinsurer shall remit the
difference to the Company as promptly as possible after receipt and
verification of the Company's report.
D. In the event the adjusted commission calculation for any underwriting year
is based partly on ceded reserves for losses and/or loss adjustment
expenses, the adjusted commission shall be recalculated within 45 days
after the end of each subsequent 12-month period until all losses under
policies with effective or renewal dates during the underwriting year have
been settled. Any balance shown to be due either party as a result of any
such recalculation shall be remitted promptly by the other party.
E. "Losses incurred" as used herein shall mean ceded losses and loss
adjustment expenses paid as of the effective date of calculation, plus the
ceded reserves for losses and loss adjustment expenses outstanding as of
the same date, plus (minus) the debit (credit) from the preceding
underwriting year, it being understood and agreed that all losses and
related loss adjustment expenses under policies allocated to the
underwriting year shall be charged to that underwriting year, regardless
of the date said losses actually occur, unless this Contract is terminated
on a "cutoff" basis, in which event the Reinsurer shall have no liability
for losses occurring after the effective date of termination.
F. "Premiums earned" as used herein shall mean ceded net written premiums for
policies allocated to the underwriting year, less the unearned portion
thereof as of the effective date of calculation, it being understood and
agreed that all premiums for policies allocated to an underwriting year
shall be credited to that underwriting year, unless this Contract is
terminated on a "cutoff" basis, in which event the unearned reinsurance
premium (less previously allowed provisional ceding commission) as of the
effective date of termination shall be returned by the Reinsurer to the
Company.
G. It is expressly agreed that the ceding commission allowed the Company
includes provision for all dividends, commissions and taxes, and all
board, exchange and bureau assessments, and all other expenses of whatever
nature, except loss adjustment expenses.
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ARTICLE XIV - REPORTS AND REMITTANCES
A. Within 45 days after the end of each month, the Company shall report to
the Reinsurer:
1. Ceded net written premium for the month by underwriting year;
2. Collected subject premium for the month by underwriting year;
3. Provisional ceding commission allowed on (2) above;
4. Ceded losses and loss adjustment expenses paid during the month (net
of any recoveries during the calendar month under the "cash call"
provisions of Article VIII);
5. Ceded unearned premiums and ceded outstanding loss reserves as of
the end of the month.
The positive balance of (2) less (3) less (4) shall be remitted by the
Company with its report. Any balance shown to be due the Company shall be
remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company's report.
B. Annually, the Company shall furnish the Reinsurer with such information as
the Reinsurer may require to complete its Annual Convention Statement.
ARTICLE XV - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XVI - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
ARTICLE XVII - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery.
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ARTICLE XVIII - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia
ARTICLE XIX - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its
share of the Company's ceded unearned premium and outstanding loss and
loss adjustment expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit
and acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the
insurance regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of at
least one year and will include an "evergreen clause," which automatically
extends the term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company not less than
30 days prior to said expiration date. The Company and the Reinsurer
further agree, notwithstanding anything to the contrary in this Contract,
that said letters of credit may be drawn upon by the Company or its
successors in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one or more of
the following purposes:
1. To reimburse itself for the Reinsurer's share of unearned premiums
returned to insureds on account of policy cancellations, unless paid
in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expenses paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
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3. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
4. To fund a cash account in an amount equal to the Reinsurer's share
of any ceded unearned premium and/or outstanding loss and loss
adjustment expense reserves (including incurred but not reported
loss reserves) funded by means of a letter of credit which is under
non-renewal notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration date;
5. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded
unearned premium and/or outstanding loss and loss adjustment expense
reserves (including incurred but not reported loss reserves), if so
requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1), B(2) or B(4), or in the
case of B(3), the actual amount determined to be due, the Company shall
promptly return to the Reinsurer the excess amount so drawn.
Article XX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidation, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of
the Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor
of the Company shall give written notice to the Reinsurer of the pendency
of a claim against the Company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company as
part of the expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency
of the Company, the reinsurance under this Contract shall be payable
directly by the Reinsurer to the Company or
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to its liquidator, receiver or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (a) where this
Contract specifically provides another payee of such reinsurance in the
event of the insolvency of the Company or (b) where the Reinsurer with the
consent of the direct insured or insureds has assumed such policy
obligations of the Company as direct obligations of the Reinsurer to the
payees under such policies and in substitution for the obligations of the
Company to such payees.
D. Any hold harmless and indemnity agreement affecting payment under this
Contract shall be considered an endorsement to and therefore part of this
Contract, irrespective of any language to the contrary. Any indemnitee
shall be considered a 'payee' within this Article. In no event shall any
reinsurer have double indemnity for any loss or expense under this
Contract, it being the intent that any payments by the reinsurer to any
payee as provided herein shall not be subject to and also collectible in
any liquidation or similar proceeding.
ARTICLE XXI - ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to
this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration. One Arbiter shall
be chosen by the Company, the other by the Reinsurer, and an Umpire shall
be chosen by the two Arbiters before they enter upon arbitration, all of
whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies or Lloyd's London Underwriters. In the
event that either party should fail to choose an Arbiter within 30 days
following a written request by the other party to do so, the requesting
party may choose two Arbiters who shall in turn choose an Umpire before
entering upon arbitration. If the two Arbiters fail to agree upon the
selection of an Umpire within 30 days following their appointment, each
Arbiter shall nominate three candidates within 10 days thereafter, two of
whom the other shall decline, and the decision shall be made by drawing
lots.
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
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D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place in Sacramento, California,
but notwithstanding the location of the arbitration, all proceedings
pursuant hereto shall be governed by the law of the State of California.
ARTICLE XXII - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States
or of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute,
or his successor or successors in office, as its true and lawful attorney
upon whom may be served any lawful process in any action, suit or
proceeding instituted by or on behalf of the Company or any beneficiary
hereunder arising out of this Contract.
ARTICLE XXIII - INTERMEDIARY
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Claims notice by the Company to the Intermediary shall
be deemed to constitute notice to the Reinsurer. Payments by the Reinsurer to
the Intermediary shall be deemed to constitute payment to the Company only to
the extent that such payments are actually received by the Company.
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FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
TERMS EFFECTIVE: JANUARY 1, 1998
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
REINSURANCE CONFIRMATION SLIP
ARTICLE I - CLASSES OF BUSINESS REINSURED
A. By this Contract the Reinsurer agrees to reinsure the excess liability
which may accrue to the Company under its policies, contracts and binders
of insurance or reinsurance (hereinafter called "policies") issued or
renewed on or after the effective date hereof, and classified by the
Company as Commercial Multiple Peril (Section II) and Automobile Liability
business, subject to the terms, conditions and limitations hereinafter set
forth.
B. It is understood that the classes of business reinsured under this
Contract are deemed to include:
1. Coverages required for non-resident drivers under the motor vehicle
financial responsibility law or the motor vehicle compulsory
insurance law or any similar law of any state or province, following
the provisions of the Company's policies when they include or are
deemed to include so-called "Out of State Insurance" provisions;
2. Coverages required under Section 30 of the Motor Carrier Act of 1980
and/or any amendments thereto.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become originally effective on January 1, 1997, with
respect to losses arising under policies allocated to underwriting years
commencing on or after that date, and shall continue in force thereafter
until terminated.
B. Either party may terminate this Contract on December 31, 1998 or any other
December 31 thereafter, by giving the other party not less than 90 days
prior notice by certified mail.
C. Notwithstanding the provisions of paragraph B, it is understood and agreed
that this Contract may be terminated on a "runoff" or "cutoff" basis, as
defined in paragraph D below, by
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giving 30 days notice prior to each quarter end by certified mail to the
other party upon the happening of any one of the following circumstances:
1. Either party may terminate this Contract if the other party is sold
during the 1997 calendar year;
2. Either party may terminate this Contract if the other party's A. M.
Best rating drops below A-;
3. The Company may terminate any reinsurers participation at any time
if the policyholders surplus of that respective reinsurer drops more
than 10% from the prior year end surplus level;
4. The Reinsurer may terminate this Contract at any time if the
Company's policyholders surplus drops below $5 million.
D. Unless the Company elects to reassume the ceded unearned premium in force
on the effective date of termination, and so notifies the Reinsurer prior
to or as promptly as possible after the effective date of termination,
reinsurance hereunder on business in force on the effective date of
termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
E. "Underwriting year" as used herein shall mean the period from January 1,
1997 through December 31, 1997, and each subsequent 12-month period shall
be a separate underwriting year. However, in the event this Contract is
terminated, the final underwriting year shall be from the beginning of the
then current underwriting year through the effective date of termination.
All premiums and losses from policies allocated to an underwriting year
shall be credited or charged, respectively, to such underwriting year,
regardless of the date said premiums earn or such losses occur, it being
understood that a policy will be allocated to the underwriting year which
is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Such policies shall remain in the same underwriting year, as originally
allocated, until the next renewal date or premium anniversary date, at
which time such policies shall be reallocated to the underwriting year in
effect as of such date as provided in subparagraphs 2 and 3 above.
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ARTICLE III - TERRITORY
This Contract shall only apply to policies issued to insureds domiciled in the
United States of America, its territories and possessions and the District of
Columbia; but this limitation shall not apply to losses if the Company's
policies provide coverage outside the aforesaid territorial limits.
ARTICLE IV - EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Business accepted by the Company as reinsurance from other insurers
except agency reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company
is required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which
is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $100,000, including Umbrella business.
6. Aviation liability including aerospace and satellite business.
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Retail liquor law liability except where liquor constitutes less
than 50% of sales. Specifically excluded are bars and retail liquor
stores.
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10. Insurance covering damage claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form a part of, or if such
products or property are withdrawn from the market or from use
because of any known or suspected defect or deficiency therein.
11. Liabilities for bodily injury, personal damage and/or property
damage from asbestos and/or asbestos products, including but not
limited to liability arising from the mining, manufacture,
installation, transport, storage, habitation or use of materials,
products or structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or
amendments thereto.
13. Fidelity and Surety.
14. Watercraft liability except for boats less than 50 feet in length.
15. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
16. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil
drilling equipment.
17. Liability insurance relating to premises or operations primarily
involving:
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any
aircraft or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and
racing;
c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerin, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works,
or gas lease operations;
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e. Production, refining, handling, shipping or storage of natural
or artificial fuel gases, synthetic or coal or shale based
fuel, butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs,
exploration risks, cracking plants, refineries and depots, and
oil and gas pipelines;
g. Railroad operations, specifically "line" or "on track"
operations of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
l. Ski resorts;
m. Waste disposal and deposit sites except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is
crane rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
q. Warehousemen's legal liability;
r. Automobile racing and racetracks;
s. Taxis;
t. Blasting contractors;
u. Licensed roofing contractors whose primary business is such;
v. Wrap up construction projects.
18. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause-Liability - Reinsurance" attached to and forming part of this
Contract.
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19. Pollution liability as excluded by the Company's policies. It is
hereby warranted that any Commercial General Liability policy issued
by the Company will include ISO pollution exclusion language.
B. If the Company provides insurance for an insured with respect to any
premises, operations, products or completed operations listed in
subparagraphs 16 and 17 of paragraph A above, except subparagraphs 17(c)
and 17(d), and if such premises, operations, products or completed
operations constitute only a minor incidental part of the total premises,
operations, products or completed operations of the insured, such
exclusion(s) shall not apply.
C. If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set
forth in subparagraphs 14 through 19 of paragraph A above, these
exclusions, except those set forth in subparagraphs 15, 17(c), 17(d), 18
and 19 shall be suspended with respect to such business until 65 days (60
discovery days plus 5 mailing days) after an underwriting supervisor of
the Company acquires knowledge of such business.
ARTICLE V - RETENTION AND LIMIT
A. If the Company's ultimate net loss as respects any one insured, any one
occurrence is less than or equal to $1,000,000, the following provisions
shall apply:
1. The Company shall retain and be liable for the first $250,000 of
ultimate net loss (whether involving any one or any combination of
the classes of business covered hereunder, regardless of the number
of policies under which such loss is payable) as respects each
insured, each occurrence. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
$750,000 each insured, each occurrence.
2. If the Company's losses arising out of any one occurrence involve
losses under policies allocated to more than one underwriting year,
the Company's retention applicable to such occurrence for each
underwriting year shall be reduced to that portion of the Company's
retention determined by dividing the Company's losses arising out of
the occurrence by the number of underwriting years to which such
policies are allocated with pro rata consideration given depending
on the primary policy limits or reinsurance retention of the
underwriting years affected. The Reinsurer's limit of liability
applicable to such occurrence for each such underwriting year shall
be arrived at in the same manner.
B. If the Company's ultimate net loss as respects any one insured, any one
occurrence exceeds $1,000,000, the Company shall retain and be liable for
the first amount of policy period ultimate net loss (whether involving any
one or any combination of the classes of business covered hereunder,
regardless of the number of policies under which such loss is payable)
equal to 25% of such policy period ultimate net loss, subject to a maximum
retention of
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$250,000 each insured, each occurrence, per each underwriting year
affected. The Reinsurer shall then be liable for 75% of such policy period
ultimate net loss, but the liability of the Reinsurer shall not exceed
$750,000 (being 75% of $1,000,000) each insured, each occurrence, per each
underwriting year affected.
ARTICLE VI - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums
(including loss in excess of policy limits, extra contractual obligations
and loss adjustment expenses, as hereinafter provided) paid or payable by
the Company in settlement of claims and in satisfaction of judgments
rendered on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance, whether
collectible or not. Nothing herein shall be construed to mean that losses
under this Contract are not recoverable until the Company's ultimate net
loss has been ascertained. Ultimate net loss shall include the following
loss adjustment expenses, as hereinafter defined:
1. Ultimate net loss shall include loss adjustment expenses which
reduce the Company's limit of liability involved;
2. If the Company's ultimate net loss exclusive of loss adjustment
expenses as respects each insured, each occurrence is less than
$250,000, ultimate net loss shall include loss adjustment expenses
incurred by the Company which do not reduce the Company's limit of
liability under the policy involved, but the amount of such loss
adjustment expenses to be included in ultimate net loss shall not
exceed $750,000 as respects each insured, each occurrence.
B. "Policy period ultimate net loss" as used herein is defined as the
Company's ultimate net loss as respects each insured, each occurrence,
divided by the number of policy periods involved in that occurrence.
C. "Policy period" as used herein shall mean the period from the inception or
renewal date of the primary policy through the expiration, termination or
first premium anniversary date of the policy, whichever first occurs. As
respects continuous or greater than one year term policies, each premium
anniversary date shall be considered the beginning of a new policy period.
D. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 90.0% of any amount
paid or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third party
claimant because of the Company's alleged or actual negligence or
bad faith in rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in the trial
of
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an action against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 90.0% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result
of an action against it by its insured, its insured's assignee or a
third party claimant, which action alleges negligence or bad faith
on the part of the Company in handling a claim under a policy
subject to this Contract. An extra contractual obligation shall be
deemed to have occurred on the same date as the loss covered or
alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
E. "Occurrence" as used herein is defined as an accident or occurrence or a
series of accidents or occurrences arising out of or caused by one event.
However, as respects policies where the Company's limit of liability for
Products and Completed Operations coverages is determined on the basis of
the insured's aggregate losses during a policy period, all such losses
proceeding from or traceable to the same causative agency shall, at the
Company's option, be deemed to have been caused by one occurrence
commencing at the beginning of the policy period, it being understood and
agreed that each renewal or annual anniversary date of the policy involved
shall be deemed the beginning of a new policy period.
F. "Loss adjustment expense" means all costs and expenses allocable to a
specific claim that are incurred by the Company 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 1) prejudgment interest, unless included as part of
the award or judgment; 2) postjudgment interest; 3) legal expenses and
costs incurred in connection with coverage questions and legal actions
connected thereto; and 4) a pro rata share of salaries and expenses of
Company field employees, and expenses of other Company employees who have
been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract. Loss
adjustment expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense includes, but is not limited to,
salaries and expenses of employees, other than (4) above and office and
other overhead expenses.
ARTICLE VII - CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Whenever a claim is reserved by the Company for an amount greater than
50.0% of its retention hereunder and/or whenever a claim appears likely to
result in a claim under this Contract, the Company shall notify the
Reinsurer. The Reinsurer shall have the right to participate, at its own
expense, in the defense or control of any claim or suit or proceeding
involving this reinsurance.
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B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable upon
receipt of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder for which the Company's ultimate net loss
exclusive of loss adjustment expenses as respects each insured, each
occurrence is greater than or equal to $250,000, loss adjustment expenses
incurred by the Company in connection therewith which do not reduce the
Company's limit of liability under the policy involved shall be shared by
the Company and the Reinsurer in the proportion the ultimate net loss paid
or payable by the Reinsurer bears to the total loss paid or payable by the
Company, prior to any reinsurance recoveries, but after deduction of all
salvage, subrogation and other recoveries. However, if a verdict or
judgment is reduced by any process other than by the trial court,
resulting in an ultimate saving to the Reinsurer, or a judgment is
reversed outright, the expenses incurred in securing such reduction or
reversal shall be shared by the Company and the Reinsurer in the
proportion that each benefits from such reduction or reversal, and the
expenses incurred up to the time of the original verdict or judgment which
do not reduce the Company's limit of liability under the policy involved
shall be shared in proportion to each party's interest in such original
verdict or judgment. The Reinsurer's liability for such loss adjustment
expenses shall be in addition to its liability for ultimate net loss.
ARTICLE VIII - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss.
ARTICLE IX - PROVISIONAL PREMIUM
A. As provisional premium for the reinsurance provided hereunder for each
underwriting year, the Company shall pay the Reinsurer 16.0% of its net
written premium for the underwriting year.
B. Within 45 days after the end of each month within each underwriting year,
the Company shall report its net written premium for the month. The
provisional premium due the Reinsurer shall be paid by the Company with
its report at the rate shown in paragraph A, multiplied by the actual
amount of premium collected by the Company during the month from policies
allocated to the underwriting year.
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ARTICLE X - PREMIUM ADJUSTMENT
A. The provisional premium paid by the Company shall be adjusted periodically
in accordance with the provisions set forth herein. The first adjustment
period shall be from the effective date of this Contract through December
31, 1999, and each subsequent 36-month period shall be a separate
adjustment period, unless this Contract is terminated, in which event the
final adjustment period shall be from the beginning of the then current
adjustment period through the date of termination.
B. The adjusted premium for each adjustment period shall be equal to 160% of
the Reinsurer's losses incurred for the adjustment period, plus 5.20% of
the Company's net earned premium for the first underwriting year, plus
4.80% of the Company's net earned premium for each underwriting year
thereafter. However, the adjusted premium for any one adjustment period
shall not exceed an amount equal to 25.60% of the Company's net earned
premium for the adjustment period.
C. The Company shall calculate and report the adjusted premium for each
adjustment period at the following times:
1. Within 45 days after the end of each underwriting year within the
adjustment period;
2. Within 45 days after the end of the adjustment period; and
3. Within 45 days after the end of each 12-month period after the end
of the adjustment period until all losses arising out of occurrences
commencing during the adjustment period have been finally settled.
Each such calculation shall be based on the Reinsurer's losses incurred
and the Company's net earned premium for the adjustment period as of the
date of the calculation.
D. As respects calculations made in accordance with subparagraph (b) or (c)
of subparagraph 3 above, if the adjusted premium is less than reinsurance
premiums previously paid for the adjustment period, the Reinsurer shall
remit the difference to the Company within 45 days after receipt and
verification of the Company's report, subject to the following schedule:
1. 33.33% of the adjusted premium shown to be due as of the calculation
due within 45 days after the end of the adjustment period;
2. 66.67% of the adjusted premium shown to be due as of the calculation
due within 45 days after 12 months after the end of the adjustment
period (less any adjustment premium amounts previously paid);
3. 100.0% of the adjusted premium shown to be due as of the calculation
due within 45 days after 24 months after the end of the adjustment
period (less any adjustment premium amounts previously paid) and as
of the calculation due within 45 days after the end of any 12-month
period thereafter.
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It is further agreed that all payments under the provisions of this
paragraph shall be net of ceding commission allowed thereon.
E. "Net written premium" as used herein is defined as gross written premium
of the Company for the Casualty classes of business reinsured hereunder,
less cancellations and return premiums, and less premiums ceded by the
Company for excess facultative reinsurance or other reinsurance which
inures to the benefit of this Contract.
F. "Losses incurred" as used herein shall mean losses and loss adjustment
expense paid by the Reinsurer as of the effective date of calculation,
plus the ceded reserves for losses and loss adjustment expense outstanding
as of the same date, it being understood and agreed that all losses under
policies allocated to underwriting years within an adjustment period shall
be charged to that adjustment period, regardless of the date said losses
actually occur, unless this Contract is terminated on a "cutoff" basis, in
which event the Reinsurer shall have no liability for losses arising out
of occurrences commencing after the effective date of termination under
policies allocated to underwriting years within the final adjustment
period.
G. "Net earned premium" as used herein is defined as the Company's net
written premium for policies allocated to underwriting years within the
adjustment period, less the unearned portion thereof as of the effective
date of calculation, it being understood and agreed that all premiums for
policies allocated to underwriting years within an adjustment period shall
be credited to that adjustment period, unless this Contract is terminated
on a "cutoff" basis, in which event the unearned reinsurance premium as of
the effective date of termination shall be returned by the Reinsurer to
the Company.
ARTICLE XI - COMMISSION (BRMA 1OA)
A. The Reinsurer shall allow the Company a 37.5% commission on all premiums
ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.
B. It is expressly agreed that the ceding commission allowed the Company
includes provision for all dividends, commissions, taxes, assessments, and
all other expenses of whatever nature, except loss adjustment expense.
ARTICLE XII - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
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ARTICLE XIII - ACCESS TO RECORDS (BRMA ID)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
ARTICLE XIV - LIABILITY OF THE REINSURER
A. The liability of the Reinsurer shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's policies
and any endorsements thereon. However, in no event shall this be construed
in any way to provide coverage outside the terms and conditions set forth
in this Contract.
B. Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer in favor of any third party or any persons
not parties to this Contract.
ARTICLE XV - NET RETAINED LIABILITY
This Contract shall apply only to that portion of any insurance or reinsurance
the Company retains net for its own account, and in calculating the amount of
any loss hereunder and the amount in excess of which this Contract attaches,
only loss or losses with respect to that portion of any insurance or reinsurance
the Company retains net for its own account shall be included. It is understood
and agreed, however, that the Reinsurer's liability hereunder with respect to
any loss or losses shall not be increased by reason of the inability of the
Company to collect from any other reinsurers, whether specific or general, any
amounts which may be due from them, whether such inability arises from the
insolvency of such other reinsurers or otherwise.
ARTICLE XVI - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery.
ARTICLE XVII - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
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ARTICLE XVIII - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its
share of the Company's ceded unearned premium and outstanding loss and
loss adjustment expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit
and acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the
insurance regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of at
least one year and will include an "evergreen clause," which automatically
extends the term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company not less than
30 days prior to said expiration date. The Company and the Reinsurer
further agree, notwithstanding anything to the contrary in this Contract,
that said letters of credit may be drawn upon by the Company or its
successors in interest at any time, without diminution because of the
insolvency of the Company or the Reinsurer, but only for one or more of
the following purposes:
1. To reimburse itself for the Reinsurer's share of unearned premiums
returned to insureds on account of policy cancellations, unless paid
in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expenses paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
4. To fund a cash account in an amount equal to the Reinsurer's share
of any ceded unearned premium and/or outstanding loss and loss
adjustment expense reserves (including incurred but not reported
loss reserves) funded by means of a letter of credit which is under
non-renewal notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration date;
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5. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded
unearned premium and/or outstanding loss and loss adjustment expense
reserves (including incurred but not reported loss reserves), if so
requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1), B(2) or B(4), or in the
case of B(3), the actual amount determined to be due, the Company shall
promptly return to the Reinsurer the excess amount so drawn.
ARTICLE XIX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of
the Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor
of the Company shall give written notice to the Reinsurer of the pendency
of a claim against the Company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company as
part of the expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency
of the Company, the reinsurance under this Contract shall be payable
directly by the Reinsurer to the Company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of the New York
Insurance Law or except (a) where this Contract specifically provides
another payee of such reinsurance in the event of the insolvency of the
Company or (b) where the Reinsurer with the consent of the direct insured
or insureds has assumed such policy obligations of the Company as direct
obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
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ARTICLE XX - ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to
this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration. One Arbiter shall
be chosen by the Company, the other by the Reinsurer, and an Umpire shall
be chosen by the two Arbiters before they enter upon arbitration, all of
whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies or Lloyd's London Underwriters. In the
event that either party should fail to choose an Arbiter within thirty
(30) days following a written request by the other party to do so, the
requesting party may choose two Arbiters who shall in turn choose an
Umpire before entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within thirty (30)days following their
appointment, each Arbiter shall nominate three candidates within ten (10)
days thereafter, two of whom the other shall decline, and the decision
shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within thirty (30) days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honorable engagement rather than merely as a
legal obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
Joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place in Sacramento, California,
but notwithstanding the location of the arbitration, all proceedings
pursuant hereto shall be governed by the law of the State of California.
ARTICLE XXI - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
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A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States
or of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute,
or his successor or successors in office, as its true and lawful attorney
upon whom may be served any lawful beneficiary hereunder arising out of
this Contract.
ARTICLE XXII - INTERMEDIARY
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Claims notice by the Company to the Intermediary shall
be deemed to constitute notice to the Reinsurer. Payments by the Reinsurer to
the Intermediary shall be deemed to constitute payment to the Company only to
the extent that such payments are actually received by the Company.
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Financial Pacific Insurance Company
Sacramento, California
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1998
REINSURANCE CONFIRMATION
BUSINESS A. By this Contract the Reinsurer agrees to reinsure the
REINSURED: excess liability which may accrue to the Company under
its policies, contracts and binders of insurance or
reinsurance (hereinafter called "policies") in force on
the effective date hereof or issued or renewed on or
after that date, and classified by the Company as
Commercial Multiple Peril (Section II) and Automobile
Liability business (hereinafter referred to as "Casualty
business") and Commercial Multiple Peril (Section I),
Automobile Physical Damage and Inland Marine business
(hereinafter referred to as "Property business"),
subject to the terms, conditions and limitations
hereinafter set forth.
B. It is understood that the classes of business reinsured
under this Contract are deemed to include:
1. Coverages required for non-resident drivers under
the motor vehicle financial responsibility law or
the motor vehicle compulsory insurance law or any
similar law of any state or province, following
the provisions of the Company's policies when such
policies include or are deemed to include
so-called "Out of State Insurance" provisions;
2. Coverages required under Section 30 of the Motor
Carrier Act of 1980 and/or any amendments thereto.
COMMENCEMENT A. This Contract shall become effective on January 1, 1998,
AND with respect to losses arising under policies allocated
TERMINATION: to underwriting years commencing on or after that date,
and shall continue in force thereafter until terminated.
B. Either party may terminate this Contract on December 31,
1998 or on any December 31 thereafter by giving the
other party not less than 90 days prior notice by
certified mail.
C. Unless the Company elects to reassume the ceded unearned
premium
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in force on the effective date of termination, and so
notifies the Reinsurer prior to or as promptly as
possible after the effective date of termination,
reinsurance hereunder on business in force on the
effective date of termination shall remain in full force
and effect until expiration, cancellation or next
premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the
effective date of termination.
D. "Underwriting year" as used herein shall mean the period
from January 1, 1998 through December 31, 1998, and each
12-month period thereafter shall be a separate
underwriting year. All premiums and losses from policies
allocated to an underwriting year shall be credited or
charged, respectively, to such underwriting year,
regardless of the date said premiums earn or such losses
occur, it being understood that a policy will be
allocated to the underwriting year which is in effect as
of:
1. As respects all new policies, the effective date
of such policies;
2. As respects renewals of one year or less term
policies, the renewal date of such policies;
3. As respects continuous or greater than one year
term policies, the premium anniversary date of
such policies.
Policies shall remain in the same underwriting year, as
originally allocated, until the next renewal date or
premium anniversary date, at which time such policies
shall be reallocated to the underwriting year in effect
as of such date as provided in subparagraphs 2 and 3
above.
EXCLUSIONS: See attached.
RETENTION AND A. As regards all Property business the subject of this
LIMIT: Reinsurance
To pay up to $2,000,000 Ultimate Net Loss, each Insured
each loss occurrence, in excess of $2,000,000 Ultimate
Net Loss, each Insured each loss occurrence.
B. As regards the Casualty business the subject of this
Reinsurance
1a. As respects new and renewal business only with
policy limits of $1,000,000 or less.
To pay up to $2,000,000 Ultimate Net Loss, each Insured
each loss
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<PAGE> 34
occurrence, in excess of $1,000,000 Ultimate Net Loss,
each insured each loss occurrence.
1b. As regards business with limits excess of
$1,000,000.
To pay up to $2,000,000 Ultimate net Loss, each Insured
each loss occurrence, in excess of $11,000,000 Ultimate
Net Loss, each Insured each loss occurrence.
C. Coverage hereunder shall apply only in the event the
Reinsured sustains liability for Extra Contractual
Obligations and/or losses in excess of original policy
limits, arising under policies written by them.
D. In the event that two or more policies covered under
this Contract are involved in the same occurrence but
allocated to different underwriting years, the amount to
be retained by the Company for each underwriting year
shall be reduced to the percentage that the Company's
retained losses on the policies allocated to each
underwriting year bears to the total of all the
Company's retained losses contributing to the same
occurrence. The indemnity and/or recovery shall be
arrived at in the same manner.
OTHER A. The Company shall maintain in force facultative
REINSURANCE: certificates or semi-automatic facultative facilities
that apply on an individual risk basis which cover
indemnity loss and may or may not cover extra
contractual obligations and loss in excess of policy
limits in accordance with the terms of the individual
certificate or semi-automatic facultative facility.
Recoveries under such reinsurance shall inure to the
benefit of this Contract.
B. The Company shall be permitted to carry underlying
reinsurance, recoveries under which shall inure solely
to the benefit of the Company and be entirely
disregarded in applying all of the provisions of this
Contract.
ULTIMATE NET See attached. Includes 100% ECO and 100% XPL.
LOSS:
CLAIMS AND Individual loss notices and settlements. Pro rata loss
LOSS adjustment expense in addition to the limit.
ADJUSTMENT
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<PAGE> 35
EXPENSE:
PREMIUM: .2825% of net earned premium for the contract year (including
the runoff contract year, if any), subject to an annual
minimum premium of $130,000. Adjusted within 45 days after the
end of each contract year.
Annual deposit premium of $130,000 in four equal installments
of $32,500 on January 1, April 1, July 1, and October 1, of
each contract year (including the runoff contract year, if
any).
REINSTATEMENT: One full reinstatement in all, the additional premium for
which shall be calculated at 100% for time and pro rata for
amount.
Other Salvage and Subrogation
Provisions: Offset (BRMA 36C)
Access to Records (BRMA 1D)
Liability of the Reinsurer
Net Retained Lines (BRMA 32E)
Errors and Omissions (BRMA 14F)
Taxes (BRMA 50B)
Unauthorized Reinsurers (Evergreen LOC for outstanding
losses/LAE; excluding IBNR)
Insolvency
Arbitration
Service of Suit (BRMA 49C)
Intermediary
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<PAGE> 36
EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
A. The following General Exclusions:
1. Business accepted by the Company as reinsurance from other insurers
except Agency Reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company
is required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which
is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.
5. Business written to apply in excess of a deductible or
self-insured amount of more than $100,000 or business written to
apply specifically in excess over underlying insurance. However,
this exclusion shall not apply to Umbrella business.
6. Aviation liability including aerospace and satellite business.
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Retail liquor law liability, except where liquor constitutes less
than 50.0% of sales. Specifically excluded are bars and retail
liquor stores.
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<PAGE> 37
10. Insurance covering damages claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form a part of, or if such
products or property are withdrawn from the market or from use
because of any known or suspected defect or deficiency therein.
11. Liabilities for bodily injury, personal damage and/or property
damage from asbestos and/or asbestos products, including but not
limited to liability arising from the mining, manufacture,
installation, transport, storage, habitation or use of materials,
products or structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or
amendments thereto.
13. Fidelity and Surety.
B. The following Property Exclusions:
1. Insurance against earthquake, when written as such.
2. Insurance on growing crops.
3. Insurance against flood, surface water, waves, tidal water or tidal
wave, overflow of streams or other bodies of water or spray from any
of the foregoing, all whether driven by wind or not, when written as
such.
4. Liability under coverage specifically afforded for loss or damages
resulting from misappropriation, secretion, conversion, infidelity
or any dishonest act on the part of the insured or other party of
interest, his/her or their employees or agents, or any person or
persons to whom merchandise may be entrusted (carriers for hire
excepted).
5. Liability under coverage afforded for loss or damage resulting from
failure to account or pay for any goods or merchandise sold on
credit, delivered under deferred payment agreements, consigned for
sale, or delivered under any trust or floor plan agreements, except
under standard accounts receivable policies.
6. Boiler and Machinery, when written as such.
7. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled.
8. Difference in conditions insurance and similar kinds of insurance,
howsoever styled.
9. Risks which have a total insurable value of more than $250,000,000.
10. Mobile homes unless written as part of a commercial multiple peril
policy.
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<PAGE> 38
11. Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of the
cost of removing debris of property damaged by a loss otherwise
covered hereunder, subject always to a limit of 25% of the Company's
property loss under the applicable original policy.
12. Satellites.
13. Ocean Marine when written as such.
14. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Physical Damage-Reinsurance" attached to and forming part of this
Contract.
15. Railroad business, specifically insurance for "line" or "track"
operations of actual railroads.
16. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, oil and gas
pipelines, offshore oil and gas properties.
17. As respects aviation, hull and ingestion.
C. The following Casualty Exclusions:
1. Watercraft liability except for boats less than 50 feet in length.
2. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
3. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil
drilling equipment;
4. Liability insurance relating to premises or operations primarily
involving:
Page 7
<PAGE> 39
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any
aircraft or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and
racing;
c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerine, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works,
or gas lease operations;
e. Production, refining, handling, shipping or storage of natural
or artificial fuel gases, synthetic or coal or shale based
fuel, butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs,
exploration risks, cracking plants, refineries and depots, and
oil and gas pipelines;
g. Railroad operations, specifically "line" or "on track"
operations of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
i. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
l. Ski resorts;
m. Waste disposal and deposit sites except when written in
conjunction with either a refuse hauler or recycling account.
n. Crane rentals without operators whose primary business is
crane rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Existence, construction or maintenance of dams;
q. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
r. Warehousemen's legal liability;
s. Automobile racing and racetracks;
Page 8
<PAGE> 40
t. Taxis;
u. Blasting contractors;
v. Licensed roofing contractors whose primary business is such;
w. General contractors with revenues in excess of $50,000,000;
x. Wrap up construction projects.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability-Reinsurance" attached to and forming part of this Contract.
6. Pollution liability as excluded by the Company's policies. It is hereby
warranted that any Commercial General Liability policy issued by the
Company will include ISO pollution exclusion language.
7. Any loss, cost, or expense arising out of any governmental direction or
request that the insured test for, monitor, clean up, remove, contain,
treat, detoxify or neutralize pollutants.
If the Company provides insurance for an insured with respect to any
premises, operations, products or completed operations listed in
subparagraphs 3 and 4 of this paragraph, except subparagraphs 4(c) and
4(d), and if such premises, operations, products or completed operations
constitute only a minor incidental part of the total premises, operations,
products or completed operations of the insured, such exclusion(s) shall
not apply.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set
forth in this paragraph, these exclusions, except those set forth in
subparagraphs 2, 4(c), 4(d), 5, 6 and 7, shall be suspended with respect
to such business until 30 days after an underwriting supervisor of the
Company acquires knowledge of such business.
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<PAGE> 41
ULTIMATE NET LOSS
A. "Ultimate net loss" as used herein is defined as the sum or sums paid or
payable by the Company in settlement of claims and in satisfaction of
judgments rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or
reinsurance, whether collectible or not. Nothing herein shall be construed
to mean that losses under this Contract are not recoverable until the
Company's ultimate net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 100% of any amount
paid or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third party
claimant because of the Company's alleged or actual negligence or
bad faith in rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in the trial
of an action against its insured, or in discharging its duty to
prepare or prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 100% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result
of an action against it by its insured, its insured's assignee or a
third party claimant, which action alleges negligence or bad faith
on the part of the Company in handling a claim under a policy
subject to this Contract. An extra contractual obligation shall be
deemed to have occurred on the same date as the loss covered or
alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. "Loss adjustment expense" as used herein shall mean expenses allocable to
the investigation, defense and/or settlement of specific claims, including
litigation expenses and interest on judgments, but not including office
expenses or salaries of the Company's regular employees.
Page 10
<PAGE> 1
EXHIBIT 10.17
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
Originally Effective: July 1, 1996
<PAGE> 2
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 3
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
THROUGH MILLER REINSURANCE BROKERS NORTH AMERICA LTD.
Lloyd's Underwriters and Companies
Per Signing Schedule(s) 100.0%
TOTAL 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
I Classes of Business Reinsured 1
II Commencement and Termination 2
III Territory 3
IV Exclusions 3
V Retention and Limit 8
VI Reinstatement 9
VII Definitions 10
VIII Other Reinsurance 12
IX Claims and Loss Adjustment Expenses 13
X Salvage and Subrogation 13
XI Premium 14
XII Offset (BRMA 36C) 14
XIII Access to Records (BRMA 1D) 14
XIV Net Retained Liability 15
XV Errors and Omissions (BRMA 14F) 15
XVI Taxes (BRMA 50B) 15
XVII Unauthorized Reinsurers 15
XVIII Insolvency 16
XIX Arbitration (BRMA 6J) 17
XX Service of Suit (BRMA 49C) 18
XXI Intermediary (BRMA 23A) 19
</TABLE>
<PAGE> 5
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
ARTICLE I - CLASSES OF BUSINESS REINSURED
A. By this Contract the Reinsurer agrees to reinsure the excess liability
which may accrue to the Company under its policies, contracts and binders
of insurance or reinsurance (hereinafter called "policies") in force at
the effective date hereof or issued or renewed on or after that date, and
classified by the Company as Commercial Multiple Peril (Section II) and
Automobile Liability business (hereinafter referred to as "Casualty
business") and Commercial Multiple Peril (Section I), Automobile Physical
Damage and Inland Marine business (hereinafter referred to as "Property
business"), subject to the terms, conditions and limitations hereinafter
set forth.
B. It is understood that the classes of business reinsured under this
Contract are deemed to include:
1. Coverages required for non-resident drivers under the motor vehicle
financial responsibility law or the motor vehicle compulsory
insurance law or any similar law of any state or province, following
the provisions of the Company's policies when they include or are
deemed to include so-called "Out of State Insurance" provisions;
2. Coverages required under Section 30 of the Motor Carrier Act of 1980
and/or any amendments thereto.
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<PAGE> 6
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on July 1, 1996, with respect to
losses arising under policies allocated to underwriting years commencing on
or after that date, and shall continue in force thereafter until
terminated.
B. The Company may, at its sole option, terminate and replace this Contract on
December 31, 1996, if there are no known losses under this Contract as of
December 31, 1996. Either party may terminate this Contract on June 30,
1997 or on any June 30 or December 31 thereafter by giving the other party
not less than 90 days prior notice by certified mail.
C. Unless the Company elects that the Reinsurer have no liability for losses
occurring after the effective date of termination, and so notifies the
Reinsurer prior to or as promptly as possible after the effective date of
termination, reinsurance hereunder on business in force on the effective
date of termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
D. "Underwriting year" as used herein shall mean the period from July 1, 1996
through June 30, 1997, and each subsequent 12-month period shall be a
separate underwriting year unless this Contract is terminated on December
31, 1996, in which event the term "underwriting year" shall mean the period
from July 1, 1996 through December 31, 1996. All premiums and losses from
policies allocated to an underwriting year shall be credited or charged,
respectively, to such underwriting year, regardless of the date said
premiums earn or such losses occur, it being understood that a policy will
be allocated to the underwriting year which is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Notwithstanding the foregoing, polices in force on July 1, 1996, shall be
allocated to the first underwriting year hereunder. Such policies shall
remain in the same underwriting year, as originally allocated, until the
next renewal date or premium anniversary date, at which time such policies
shall be reallocated to the underwriting year in effect as of such date as
provided in subparagraphs 2 and 3 above.
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<PAGE> 7
ARTICLE III - TERRITORY
This Contract shall only apply to policies issued to insureds domiciled in the
United States of America, its territories and possessions, Puerto Rico and the
District of Columbia; but this limitation shall not apply to losses if the
Company's policies provide coverage outside the aforesaid territorial limits.
ARTICLE IV - EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
A. The following General Exclusions:
1. Business accepted by the Company as reinsurance from other insurers
except Agency Reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company is
required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which is
otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped power, or martial law or confiscation by order of any
government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $10,000 or business written to apply
specifically in excess over underlying insurance. However, this
exclusion shall not apply to Umbrella business.
6. Aviation liability including aerospace and satellite business.
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
Page 3
<PAGE> 8
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Liquor law liability, except where liquor constitutes less than 50.0%
of sales. Specifically excluded are bars and retail liquor stores.
10. Insurance written for governmental bodies, municipalities, schools and
colleges.
11. Insurance covering damages claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form a part of, or if such
products or property are withdrawn from the market or from use because
of any known or suspected defect or deficiency therein.
12. Liabilities for bodily injury, personal damage and/or property damage
from asbestos and/or asbestos products, including but not limited to
liability arising from the mining, manufacture, installation,
transport, storage, habitation or use of materials, products or
structure containing asbestos.
13. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or amendments
thereto.
14. Liability for property damage caused by the subsidence of land and
arising out of or attributable to any operations of the insured.
15. Fidelity and Surety.
B. The following Property Exclusions:
1. Insurance against earthquake, when written as such.
2. Insurance on growing crops.
3. Insurance against flood, surface water, waves, tidal water or tidal
wave, overflow of streams or other bodies of water or spray from any
of the foregoing, all whether driven by wind or not, when written as
such.
4. Liability under coverage specifically afforded for loss or damages
resulting from misappropriation, secretion, conversion, infidelity or
any dishonest act on the part of the insured or other party of
interest, his/her or their employees or agents, or any person or
persons to whom merchandise may be entrusted (carriers for hire
excepted).
5. Liability under coverage afforded for loss or damage resulting from
failure to account or pay for any goods or merchandise sold on credit,
delivered under deferred payment agreements, consigned for sale, or
delivered under any trust or floor plan agreements, except under
standard accounts receivable policies.
Page 4
<PAGE> 9
6. Boiler and Machinery, when written as such.
7. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled, providing coverage to an insured with respect to its
mortgage interest in property or its owner interest in foreclosed
property except that physical and consequential damage will be covered
and not considered mortgage impairment when physical loss, damage or
extra expense is caused by perils insured under the Company's policy
to all real and personal property against which the Company's insured
has granted a mortgage or to which the insured has taken title, or
property in which the insured retains an interest when sold under a
conditional sales agreement, a deed of trust, or any other instrument
whereby title remains in the insured, or the insured's interest in
co-operative loans.
8. Difference in conditions insurance and similar kinds of insurance,
howsoever styled.
9. Risks which have a total insurable value of more than $250,000,000.
10. Mobile homes, unless written as part of a commercial multiple peril
policy.
11. Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of the
cost of removing debris of property damaged by a loss otherwise
covered hereunder, subject always to a limit of 25% of the Company's
property loss under the applicable original policy.
12. Grain elevators.
13. Satellites.
14. Ocean Marine when written as such.
15. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Physical Damage -- Reinsurance" attached to and forming part of this
Contract.
16. Railroad business, specifically insurance for "line" or "track"
operations of actual railroads.
17. Oil and gas risks, by which is meant drilling rigs, exploration risks,
cracking plants, refineries and depots, oil and gas pipelines,
offshore oil and gas properties.
18. As respects aviation, hull and ingestion.
C. The following Casualty Exclusions:
1. Watercraft liability except for boats less than 50 feet in length.
Page 5
<PAGE> 10
2. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
3. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil drilling
equipment;
e. Manufacture of automobile components critical to automobile
safety.
4. Liability insurance relating to premises or operations primarily
involving:
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any aircraft
or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and racing;
c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerine, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works, or
gas lease operations;
e. Production, refining, handling, shipping or storage of natural or
artificial fuel gases, synthetic or coal or shale based fuel,
butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, and oil and gas
pipelines;
g. Railroad operations, specifically "line" or "on track" operations
of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
Page 6
<PAGE> 11
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
1. Ski resorts;
m. Waste disposal and deposit sites, except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is crane
rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Existence, construction or maintenance of dams;
q. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
r. Warehousemen's legal liability;
s. Automobile racing and racetracks;
t. Taxis;
u. Blasting contractors;
v. Licensed roofing contractors whose primary business is such;
w. General contractors with revenues in excess of $50,000,000;
x. Wrap up construction projects.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability -- Reinsurance" attached to and forming part of this
Contract.
6. Pollution liability as excluded by the Company's policies. It is
hereby warranted that any Commercial General Liability policy issued
by the Company win include ISO pollution exclusion language.
7. Any loss, cost, or expense arising out of any governmental direction
or request that the insured test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize pollutants.
If the Company provides insurance for an insured with respect to any
premises, operations, products or completed operations listed in
subparagraphs 3 and 4 of this paragraph, except
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subparagraphs, 4(c) and 4(d), and if such premises, operations, products or
completed operations constitute only a minor incidental part of the total
premises, operations, products or completed operations of the insured, such
exclusion(s) shall not apply.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set
forth in this paragraph, these exclusions, except those set forth in
subparagraphs 2, 4(c), 4(d), 5, 6 and 7, shall be suspended with respect to
such business until 30 days after an underwriting supervisor of the Company
acquires knowledge of such business.
ARTICLE V - RETENTION AND LIMIT
A. COVERAGE A: As respects Casualty business subject to this Contract, the
Company's retention and the Reinsurer's liability shall be determined as
follows:
1. As respects in force business only, the Company shall retain and be
liable for the first $2,000,000 of ultimate net loss (whether
involving any one or any combination of the casualty classes of
business covered hereunder, regardless of the number of policies under
which such loss is payable) as respects each insured, each occurrence.
The Reinsurer shall then be liable for the amount by which such
ultimate net loss exceeds the Company's retention, but the liability
of the Reinsurer shall not exceed $2,000,000 as respects any one
insured, any one occurrence.
2. As respects new and renewal business only with policy limits of
$1,000,000 or less, the Company shall retain and be liable for the
first $1,000,000 of ultimate net loss (whether involving any one or
any combination of the casualty classes of business covered hereunder,
regardless of the number of policies under which such loss is payable)
as respects each insured, each occurrence. The Reinsurer shall then be
liable for the amount by which such ultimate net loss exceeds the
Company's retention, but the liability of the Reinsurer shall not
exceed $2,000,000 as respects any one insured, any one occurrence.
3. As respects new and renewal business only with policy limits greater
than $1,000,000, the Company shall retain and be liable for the first
$5,000,000 of ultimate net loss (whether involving any one or any
combination of the casualty classes of business covered hereunder,
regardless of the number of policies under which such loss is payable)
as respects each insured, each occurrence. The Reinsurer shall then be
liable for the amount by which such ultimate net loss exceeds the
Company's retention, but the liability of the Reinsurer shall not
exceed $2,000,000 as respects any one insured, any one occurrence.
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B. COVERAGE B: As respects Property business subject to this Contract,
the Company shall retain and be liable for the first $2,000,000 of
ultimate net loss as respects any one risk, each loss occurrence. The
Reinsurer shall then be liable for the amount by which such ultimate
net loss exceeds the Company's retention, but the liability of the
Reinsurer shall not exceed $2,000,000 as respects any one risk, each
loss occurrence.
C. Coverage hereunder shall apply only in the event the Company sustains
liability for extra contractual obligations and/or losses in excess of
original policy limits, arising under policies written by the Company.
D. In the event that two or more policies covered under this Contract are
involved in the same occurrence but allocated to different
underwriting years, the amount to be retained by the Company for each
underwriting year shall be reduced to the percentage that the
Company's retained losses on the policies allocated to each
underwriting year bears to the total of all the Company's retained
losses contributing to the same occurrence. The indemnity and/or
recovery shall be arrived at in the same manner.
E. The maximum policy limits shown in paragraphs A and B shall be
extended to follow the Company's policy if the Company's ultimate net
loss is greater than one or more of said amounts because its policy
includes or is deemed to include:
1. So-called "Out of State Insurance" provisions;
2. Limits of liability required under Section 30 of the Motor
Carrier Act of 1980 and/or any amendments thereto.
ARTICLE VI - REINSTATEMENT
A. In the event all or any portion of the reinsurance hereunder is exhausted
by loss, the amount so exhausted shall be reinstated immediately from the
time the occurrence commences hereon. For each amount so reinstated the
Company agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit reinstated (based on the
ultimate net loss paid by the Reinsurer); times
2. The earned reinsurance premium for the underwriting year in which the
occurrence commences (exclusive of reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any ultimate net
loss hereunder, the Company shall submit a statement to the Reinsurer of
reinstatement premium due the Reinsurer. If the earned reinsurance premium
for the contract year has not been finally determined as of the date of any
such statement, the calculation of reinstatement
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premium due shall be based on the annual deposit premium and shall be
readjusted when the earned reinsurance premium for the contract year has
been finally determined. Any reinstatement premium shown to be due the
Reinsurer as reflected by any such statement (less prior payments, if any)
shall be payable by the Company concurrently with payment by the Reinsurer
of the requested loss. Any return reinstatement premium shown to be due the
Company shall be remitted by the Reinsurer as promptly as possible after
receipt and verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the Reinsurer
hereunder for ultimate net loss shall not exceed $2,000,000 as respects any
one occurrence, nor shall it exceed $4,000,000 as respects all occurrences
commencing during any one contract year.
ARTICLE VII - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums paid or
payable by the Company in settlement of claims and in satisfaction of
judgments rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed to mean that
losses under this Contract are not recoverable until the Company's ultimate
net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 100% of any amount paid
or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover damages
the insured is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 100% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result of
an action against it by its insured, its insured's assignee or a third
party claimant, which action alleges negligence or bad faith on the
part of the Company in handling a claim under a policy subject to this
Contract. An extra contractual obligation shall be deemed to have
occurred on the same date as the loss covered or alleged to be covered
under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually
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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.
C. As respects Coverage A of Article V, "occurrence" as used herein is defined
as an accident or occurrence or a series of accidents or occurrences
arising out of or caused by one event. However, as respects policies where
the Company's limit of liability for Products and Completed Operations
coverages is determined on the basis of the insured's aggregate losses
during a policy period, all such losses proceeding from or traceable to the
same causative agency shall, at the Company's option, be deemed to have
been caused by one occurrence commencing at the beginning of the policy
period, it being understood and agreed that each renewal or annual
anniversary date of the policy involved shall be deemed the beginning of a
new policy period.
D. As respects Coverage B of Article V, the term "loss occurrence" shall mean
the sum of all individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses arising out of
one event which occurs within the area of one state of the United States or
province of Canada and states or provinces contiguous thereto and to one
another. However, the duration and extent of any one "loss occurrence"
shall be limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising out of and
directly occasioned by the same event, except that the term "loss
occurrence" shall be further defined as follows:
1. As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, all individual losses sustained by
the Company occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same event. However, the
event need not be limited to one state or province or states or
provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil commotion, vandalism
and malicious mischief, all individual losses sustained by the Company
occurring during any period of 72 consecutive hours within the area of
one municipality or county and the municipalities or counties
contiguous thereto arising out of and directly occasioned by the same
event. The maximum duration of 72 consecutive hours may be extended in
respect of individual losses which occur beyond such 72 consecutive
hours during the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the aforesaid
period.
3. As regards earthquake (the epicentre of which need not necessarily be
within the territorial confines referred to in the introductory
portion of this paragraph ) and fire following directly occasioned by
the earthquake, only those individual fire losses which commence
during the period of 168 consecutive hours may be included in the
Company's "loss occurrence."
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4. As regards "freeze," only individual losses directly occasioned by
collapse, breakage of glass and water damage (caused by bursting frozen
pipes and tanks) may be included in the Company's "loss occurrence."
Except for those "loss occurrences" referred to in subparagraphs, 1 and 2
above, the Company may choose the date and time when any such period of
consecutive hours commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded individual loss sustained
by the Company arising out of that disaster, accident or loss, and provided
that only one such period of 168 consecutive hours shall apply with respect
to one event.
However, as respects those "loss occurrences" referred to in subparagraphs
1 and 2 above, if the disaster, accident or loss occasioned by the event is
of greater duration than 72 consecutive hours, then the Company may divide
that disaster, accident or loss into two or more "loss occurrences,"
provided that no two periods overlap and no individual loss is included in
more than one such period, and provided that no period commences earlier
than the date and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster, accident or
loss.
No individual losses occasioned by an event that would be covered by 72
hours clauses may be included in any "loss occurrence" claimed under the
168 hours provision.
E. Loss adjustment expense means all costs and expenses allocable to a
specific claim that are incurred by the Company 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 1) pre-judgment interest, unless included as part of
the award or judgment; 2) post-judgment interest; 3) legal expenses and
costs incurred in connection with coverage questions and legal actions
connected thereto; and 4) a pro rata share of salaries and expenses of
Company field employees, and expenses of other Company employees who have
been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract. Loss
adjustment expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense includes, but is not limited to,
salaries and expenses of employees, other than (4) above, and office and
other overhead expenses.
F. The Company shall be the sole judge of what constitutes "one risk."
ARTICLE VIII - OTHER REINSURANCE
A. The Company shall maintain in force facultative certificates or
semi-automatic facultative facilities that apply on an individual risk
basis which cover indemnity loss and may or may not cover extra contractual
obligations and loss in excess of policy limits in accordance with the
terms of the individual certificate or semi-automatic facultative facility.
Recoveries under such reinsurance shall inure to the benefit of this
Contract.
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B. The Company shall be permitted to carry underlying reinsurance, recoveries
under which shall inure solely to the benefit of the Company and be
entirely disregarded in applying all of the provisions of this Contract.
ARTICLE IX - CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Whenever a claim is reserved by the Company for an amount greater than its
retention hereunder and/or whenever a claim appears likely to result in a
claim under this Contract, the Company shall notify the Reinsurer. The
Reinsurer shall have the right to participate, at its own expense, in the
defense or control of any claim or suit or proceeding involving this
reinsurance.
B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable upon receipt
of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder, loss adjustment expenses incurred by the
Company in connection therewith which do not reduce the Company's limit of
liability under the policy involved shall be shared by the Company and the
Reinsurer in the proportion the ultimate net loss paid or payable by the
Reinsurer bears to the total loss paid or payable by the Company, prior to
any reinsurance recoveries, but after deduction of all salvage, subrogation
and other recoveries. However, if a verdict or judgment is reduced by any
process other than by the trial court, resulting in an ultimate saving to
the Reinsurer, or a judgment is reversed outright, the expenses incurred in
securing such reduction or reversal shall be shared by the Company and the
Reinsurer in the proportion that each benefits from such reduction or
reversal, and the expenses incurred up to the time of the original verdict
or judgment which do not reduce the Company's limit of liability under the
policy involved shall be shared in proportion to each party's interest in
such original verdict or judgment. The Reinsurer's liability for such loss
adjustment expenses shall be in addition to its liability for ultimate net
loss.
ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating
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to any loss, a part of which loss was sustained by the Reinsurer, and to
prosecute all claims arising out of such rights.
ARTICLE XI - PREMIUM
A. As premium for the reinsurance provided hereunder for each underwriting
year, the Company shall pay the Reinsurer .2825% of its net written premium
for the underwriting year subject to an annual minimum premium of $130,000
for the underwriting year. However, in the event this Contract is
terminated on a "cutoff" basis, the minimum premium for the final
underwriting year shall be $65,000.
B. The Company shall pay the Reinsurer an annual deposit premium of $130,000
in four equal installments of $32,500 on July 1, October 1, January 1 and
April 1 of each underwriting year.
C. Within 45 days after the end of each underwriting year, the Company shall
provide a report to the Reinsurer setting forth the premium due hereunder
for the underwriting year, computed in accordance with paragraph A, and if
the premium so computed is greater than the previously paid minimum and
deposit premium, the balance shall be remitted by the Company with its
report.
D. "Net written premium" as used herein is defined as gross written premium of
the Company for the classes of business reinsured hereunder, less
cancellations and return premiums, and less premiums ceded by the Company
for reinsurance which inures to the benefit of this Contract.
ARTICLE XII - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XIII - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
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ARTICLE XIV - NET RETAINED LIABILITY
This Contract shall apply only to that portion of any insurance or reinsurance
the Company retains net for its own account (prior to deduction of any
underlying reinsurance specifically permitted in this Contract), and in
calculating the amount of any loss hereunder and the amount in excess of which
this Contract attaches, only loss or losses with respect to that portion of any
insurance or reinsurance the Company retains net for its own account shall be
included. It is understood and agreed, however, that the Reinsurer's liability
hereunder with respect to any loss or losses shall not be increased by reason of
the inability of the Company to collect from any other reinsurers, whether
specific or general, any amounts which may be due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
ARTICLE XV - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.
ARTICLE XVI - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XVII - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its share
of the Company's ceded outstanding loss and loss adjustment expense
reserves by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
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if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the insurance
regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to insurance
regulatory authorities involved, will be issued for a term of at least one
year and will include an "evergreen clause," which automatically extends
the term for at least one additional year at each expiration date unless
written notice of non-renewal is given to the Company not less than 30 days
prior to said expiration date. The Company and the Reinsurer further agree,
notwithstanding anything to the contrary in this Contract, that said
letters of credit may be drawn upon by the Company or its successors in
interest at any time, without diminution because of the insolvency of the
Company or the Reinsurer, but only for one or more of the following
purposes:
1. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expense paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
3. To fund a cash account in an amount equal to the Reinsurer's share of
any ceded outstanding loss and loss adjustment expense reserves funded
by means of a letter of credit which is under non-renewal notice, if
said letter of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded
outstanding loss and loss adjustment expense reserves, if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1) or B(3), or in the case of
B(2), the actual amount determined to be due, the Company shall promptly
return to the Reinsurer the excess amount so drawn.
ARTICLE XVIII - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, with reasonable provision
for verification, on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that
the liquidator, receiver, conservator or statutory successor of the Company
shall give written notice to the Reinsurer of the
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pendency of a claim against the Company indicating the policy or bond
reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such claim
and interpose, at its own expense, in the proceeding where such claim is to
be adjudicated, any defense or defenses that it may deem available to the
Company or its liquidator, receiver, conservator or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to
the approval of the Court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this Contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance
Law or except (a) where this Contract specifically provides another payee
of such reinsurance in the event of the insolvency of the Company or (b)
where the Reinsurer with the consent of the direct insured or insureds has
assumed such policy obligations of the Company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligations of the Company to such payees.
D. Any hold harmless and indemnity agreement affecting payment under this
Contract shall be considered an endorsement to and therefore part of this
Contract, irrespective of any language to the contrary. Any indemnitee
shall be considered a "payee" within this Article. In no event shall any
reinsurer have double indemnity for any loss or expense under this
Contract, it being the intent that any payments by the reinsurer to any
payee as provided herein shall not be subject to and also collectible in
any liquidation or similar proceeding.
ARTICLE XIX - ARBITRATION (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by
the Company, the other by the Reinsurer, and an Umpire shall be chosen by
the two Arbiters before they enter upon arbitration, all of whom shall be
active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's London Underwriters. In the event that
either party should fail to choose an Arbiter within 30 days following a
written request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an
Umpire within 30 days following their
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appointment, each Arbiter shall nominate three candidates within 10 days
thereafter, two of whom the other shall decline, and the decision shall be
made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of
the arbitration, all proceedings pursuant hereto shall be governed by the
law of the state in which the Company has its principal office.
ARTICLE XX - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or
of any state in the United States.
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B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract.
ARTICLE XXI - INTERMEDIARY (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent that such
payments are actually received by the Company.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this ____ day of ______________________________ 199___.
________________________________________
Financial Pacific Insurance Company
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U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and nether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on
the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material,"
and for reprocessing, salvaging, chemically separating, storing
or disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2)III above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January
1960 this sub-paragraph (b) shall only apply provided the said
radioactive contamination exclusion provision has been approved
by the Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note.-Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st December
1957 shall be free from the application of the other provisions
of this Clause until expiry date or 31st December 1960 whichever
first occurs whereupon all the provisions of this Clause shall
apply.
(b) with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
<PAGE> 25
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(Approved by Lloyd's Underwriters' Fire and Non-Marine Association)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any Association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph (2) from the time specified in
Clause II in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage, to injury, sickness, disease, death or destruction, bodily
injury or property damage with respect to which an insured under the
policy is also an insured under a nuclear energy liability policy
issued by Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the Limited
Exclusion Provision set out above; provided this paragraph (2)
shall not be applicable to Family Automobile Policies, Special
Automobile Policies, or policies or combination policies of a
similar nature, issued by the Reassured on New York risks, until
90 days following approval of the Limited Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage to (injury, sickness, disease, death
or destruction (bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such
policy but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America,
or any agency thereof, under any agreement entered into by
the United States of America, or any agency thereof, with
any person or organization.
<PAGE> 26
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to (immediate medical or surgical
relief, first aid, to expenses incurred with respect
to bodily injury, sickness, disease or death, bodily injury
resulting from the hazardous properties of nuclear material and
arising out of the operation of a nuclear facility by any person
or organization.
III. Under any Liability Coverage to (injury, sickness, disease,
death or destruction
(bodily injury or property damage
resulting from the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned
by, or operated by or on behalf of, an insured or (2) has
been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the (injury, sickness, disease, death or destruction, bodily
injury or property damage arises out of the furnishing by an
insured of services, materials, parts or equipment in
connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such
facility is located within the United States of America, its
territories, or possessions or Canada, this exclusion (c)
applies only to (injury to or destruction of property at
such nuclear facility) property damage to such nuclear
facility and any property thereat.
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special
nuclear material or byproduct material; "source material",
"special nuclear material", and "byproduct material" have the
meanings given them in the Atomic Energy Act of 1954 or in any
law amendatory thereof; "spent fuel" means any fuel element or
fuel component, solid or liquid, which has been used or exposed
to radiation in a nuclear reactor; "waste" means any waste
material (1) containing byproduct material and (2) resulting from
the operation by any person or organization of any nuclear
facility included within the definition of nuclear facility under
paragraph (a) or (b) thereof, "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling processing or
packaging waste,
(c) any equipment or device used for the processing, fabricating
or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured
at the premises where such equipment or device is located
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste, and includes
the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for
such operations; "nuclear reactor" means any apparatus
designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass
of fissionable material;
( With respect to injury to or destruction of property, the word
"injury" or "destruction"
( "property damage" includes all forms of radioactive
contamination of property.
( includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on
or after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts, until 90 days following
approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association of the Independent Insurance Conference of Canada.
- ----------
NOTE. The words printed in italics in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply only in relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
<PAGE> 27
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Underwriting Members of Lloyd's
shown in the Signing Schedule attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 40.46% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 725 South Figueroa Street, Suite 1990, Los Angeles, California
90017.
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule
attached hereto.
<PAGE> 28
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Insurance Companies
shown in the Signing Schedule(s) attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 59.54% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 725 South Figueroa Street, Suite 1990, Los Angeles, California
90017.
The following Article shall apply to the Subscribing Reinsurer's share in the
attached Contract, in lieu of the provisions of Article XVII - Unauthorized
Reinsurers - of the Contract:
"ARTICLE XVII - LOSS RESERVES
(Applicable only if the Reinsurer cannot qualify for credit by any state or
any other governmental authority having jurisdiction over the Company's
loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Contract, the Company agrees that, when it shall file
with the Insurance Department or set up on its books reserves for
losses covered hereunder which it shall be required by
Page 1 of 3
<PAGE> 29
law to set up it will forward to the Reinsurer a statement showing the
proportion of such loss reserves which is applicable to the Reinsurer.
The Reinsurer hereby agrees that it will apply for and secure delivery
to the Company of a clean, irrevocable and unconditional Letter of
Credit issued and confirmed, if confirmation is required by the
regulatory authority(ies) having jurisdiction over the Company's loss
reserves, by a bank or banks meeting the NAIC Securities Valuation
Office credit standards for issuers of Letters of Credit and which is
(are) acceptable to said regulatory authority(ies), in an amount
equal to the Reinsurer's proportion of reserves in respect of known
outstanding losses that have been reported to the Reinsurer and
allocated loss expenses relating thereto as shown in the statement
prepared by the Company. Under no circumstances shall any amount
relating to reserves in respect of Incurred But Not Reported losses be
included in the amount of the Letter of Credit.
B. The Letter of Credit shall be in a form acceptable to insurance
regulatory authority(ies) having jurisdiction over the Company's loss
reserves, shall be issued for a period of not less than one year, and
shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior
to any expiration date the issuing bank shall notify the Company by
registered mail that the issuing bank elects not to consider the
Letter of Credit extended for any additional period. An issuing bank,
not a member of the federal reserve system or not chartered in New
York State, shall provide sixty (60) days notice to the Company prior
to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Contract, the Company or
its successors in interest may draw upon such credit at any time,
without diminution because of the insolvency of the Company or of the
Reinsurer, for one or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any loss reinsured by this Contract, the
payment of which has been agreed by the Reinsurer and which has
not been otherwise paid;
2. To make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's share of any liability reinsured
by this Contract;
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of known
and reported outstanding losses and allocated expenses relating
thereto under this Contract. Such cash deposit shall be held in
an interest bearing account separate from the Company's other
assets, and interest thereon shall accrue to the benefit of the
Reinsurer.
The issuing bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Company or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the
order of properly authorized representatives of the Company.
Page 2 of 3
<PAGE> 30
D. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of
the Reinsurer's share of known and reported outstanding losses and
allocated expenses relating thereto. If the statement shows that the
Reinsurer's share of such losses and allocated loss expenses exceeds
the balance of credit as of the statement date, the Reinsurer shall,
within thirty (30) days after receipt of notice of such excess, secure
delivery to the Company of an amendment of the Letter of Credit
increasing the amount of credit by the amount of such difference. If,
however, the statement shows that the Reinsurer's share of known and
reported outstanding losses plus allocated loss expenses relating
thereto is less than the balance of credit as of the statement date,
the Company shall, within thirty (30) days after receipt of written
request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit."
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule(s)
attached hereto.
Page 3 of 3
<PAGE> 31
TERMINATION ADDENDUM
to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
and to the
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Underwriting Members of Lloyd's
shown in the Signing Schedule attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
attached thereto
IT IS HEREBY AGREED that this Contract and the Interests and Liabilities
Agreement under which the Subscribing Reinsurer has a 40.46% share in the
interests and liabilities of the "Reinsurer" shall be terminated at December 31,
1996, with respect to losses occurring after that date.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this____________day of___________________________199___.
________________________________________
Financial Pacific Insurance Company
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule
attached hereto.
<PAGE> 32
TERMINATION ADDENDUM
to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
and to the
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Insurance Companies
shown in the Signing Schedule(s) attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
attached thereto
IT IS HEREBY AGREED that this Contract and the Interests and Liabilities
Agreement under which the Subscribing Reinsurer has a 59.54% share in the
interests and liabilities of the "Reinsurer" shall be terminated at December 31,
1996, with respect to losses occurring after that date.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this____________day of___________________________199___.
________________________________________
Financial Pacific Insurance Company
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule
attached hereto.
<PAGE> 1
EXHIBIT 10.18
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
Originally Effective: January 1, 1997
<PAGE> 2
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 3
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
REINSURERS PARTICIPATIONS
THROUGH MILLER REINSURANCE BROKERS NORTH AMERICA LTD.
Lloyd's Underwriters and Companies
Per Signing Schedule(s) 100.0%
TOTAL 100.0%
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
I Classes of Business Reinsured 1
II Commencement and Termination 2
III Territory 2
IV Exclusions 3
V Retention and Limit 7
VI Reinstatement 8
VII Definitions 9
VIII Other Reinsurance 11
IX Claims and Loss Adjustment Expenses 12
X Salvage and Subrogation 12
XI Premium 13
XII Offset (BRMA 36C) 13
XIII Access to Records (BRMA 1D) 13
XIV Net Retained Liability 14
XV Errors and Omissions (BRMA 14F) 14
XVI Taxes (BRMA 50B) 14
XVII Unauthorized Reinsurers 14
XVIII Insolvency 15
XIX Arbitration (BRMA 6J) 16
XX Service of Suit (BRMA 49C) 17
XXI Intermediary (BRMA 23A) 18
</TABLE>
<PAGE> 5
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
ARTICLE I - Classes OF BUSINESS REINSURED
A. By this Contract the Reinsurer agrees to reinsure the excess liability
which may accrue to the Company under its policies, contracts and binders
of insurance or reinsurance (hereinafter called "policies") in force at the
effective date hereof or issued or renewed on or after that date, and
classified by the Company as Commercial Multiple Peril (Section II) and
Automobile Liability business (hereinafter referred to as "Casualty
business") and Commercial Multiple Peril (Section I), Automobile Physical
Damage and Inland Marine business (hereinafter referred to as "Property
business"), subject to the terms, conditions and limitations hereinafter
set forth.
B. It is understood that the classes of business reinsured under this Contract
are deemed to include:
1. Coverages required for non-resident drivers under the motor vehicle
financial responsibility law or the motor vehicle compulsory insurance
law or any similar law of any state or province, following the
provisions of the Company's policies when they include or are deemed
to include so-called "Out of State Insurance" provisions;
2. Coverages required under Section 30 of the Motor Carrier Act of 1980
and/or any amendments thereto.
Page 1
<PAGE> 6
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on January 1, 1997, with respect to
losses arising under policies allocated to underwriting years commencing on
or after that date, and shall continue in force thereafter until
terminated.
B. Either party may terminate this Contract on December 31, 1997 or any
December 31 thereafter by giving the other party not less than 90 days
prior notice by certified mail.
C. Unless the Company elects that the Reinsurer have no liability for losses
occurring after the effective date of termination, and so notifies the
Reinsurer prior to or as promptly as possible after the effective date of
termination, reinsurance hereunder on business in force on the effective
date of termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
D. "Underwriting year" as used herein shall mean the period from January 1,
1997 through December 31, 1997, and each subsequent 12-month period shall
be a separate underwriting year. All premiums and losses from policies
allocated to an underwriting year shall be credited or charged,
respectively, to such underwriting year, regardless of the date said
premiums earn or such losses occur, it being understood that a policy will
be allocated to the underwriting year which is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Notwithstanding the foregoing, the policies in force on January 1, 1997,
shall be allocated to the first underwriting year hereunder. Such policies
shall remain in the same underwriting year, as originally allocated, until
the next renewal date or premium anniversary date, at which time such
policies shall be reallocated to the underwriting year in effect as of such
date as provided in subparagraphs 2 and 3 above.
ARTICLE III - TERRITORY
This Contract shall only apply to policies issued to insureds domiciled in the
United States of America, its territories and possessions, Puerto Rico and the
District of Columbia; but this limitation shall not apply to losses if the
Company's policies provide coverage outside the aforesaid territorial limits.
Page 2
<PAGE> 7
ARTICLE IV - EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
A. The following General Exclusions:
1. Business accepted by the Company as reinsurance from other insurers
except Agency Reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company is
required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which is
otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped power, or martial law or confiscation by order of any
government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $ 100,000 or business written to apply
specifically in excess over underlying insurance. However, this
exclusion shall not apply to Umbrella business.
6. Aviation liability including aerospace and satellite business.
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Retail liquor law liability, except where liquor constitutes less than
50.0% of sales. Specifically excluded are bars and retail liquor
stores.
10. Insurance covering damages claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form
Page 3
<PAGE> 8
a part of, or if such products or property are withdrawn from the
market or from use because of any known or suspected defect or
deficiency therein.
11. Liabilities for bodily injury, personal damage and/or property damage
from asbestos and/or asbestos products, including but not limited to
liability arising from the mining, manufacture, installation,
transport, storage, habitation or use of materials, products or
structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or amendments
thereto.
13. Fidelity and Surety.
B. The following Property Exclusions:
1. Insurance against earthquake, when written as such.
2. Insurance on growing crops.
3. Insurance against flood, surface water, waves, tidal water or tidal
wave, overflow of streams or other bodies of water or spray from any
of the foregoing, all whether driven by wind or not, when written as
such.
4. Liability under coverage specifically afforded for loss or damages
resulting from misappropriation, secretion, conversion, infidelity or
any dishonest act on the part of the insured or other party of
interest, his/her or their employees or agents, or any person or
persons to whom merchandise may be entrusted (carriers for hire
excepted).
5. Liability under coverage afforded for loss or damage resulting from
failure to account or pay for any goods or merchandise sold on credit,
delivered under deferred payment agreements, consigned for sale, or
delivered under any trust or floor plan agreements, except under
standard accounts receivable policies.
6. Boiler and Machinery, when written as such.
7. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled.
8. Difference in conditions insurance and similar kinds of insurance,
howsoever styled.
9. Risks which have a total insurable value of more than $250,000,000.
10. Mobile homes, unless written as part of a commercial multiple peril
policy.
11. Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of the
cost of removing debris of property
Page 4
<PAGE> 9
damaged by a loss otherwise covered hereunder, subject always to a
limit of 25% of the Company's property loss under the applicable
original policy.
12. Satellites.
13. Ocean Marine when written as such.
14. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Physical Damage Reinsurance" attached to and forming part of this
Contract.
15. Railroad business, specifically insurance for "line" or "track"
operations of actual railroads.
16. Oil and gas risks, by which is meant drilling rigs, exploration risks,
cracking plants, refineries and depots, oil and gas pipelines,
offshore oil and gas properties.
17. As respects aviation, hull and ingestion.
C. The following Casualty Exclusions:
1. Watercraft liability except for boats less than 50 feet in length.
2. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
3. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil drilling
equipment;
4. Liability insurance relating to premises or operations primarily
involving:
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any aircraft
or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and racing;
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c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerine, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works, or
gas lease operations;
e. Production, refining, handling, shipping or storage of natural or
artificial fuel gases, synthetic or coal or shale based fuel,
butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, and oil and gas
pipelines;
g. Railroad operations, specifically "line" or "on track" operations
of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
l. Ski resorts;
m. Waste disposal and deposit sites, except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is crane
rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Existence, construction or maintenance of dams;
q. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
r. Warehousemen's legal liability;
s. Automobile racing and racetracks;
t. Taxis;
u. Blasting contractors;
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v. Licensed roofing contractors whose primary business is such;
w. General contractors with revenues in excess of $50,000,000;
x. Wrap up construction projects.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability-Reinsurance" attached to and forming part of this Contract.
6. Pollution liability as excluded by the Company's policies. It is
hereby warranted that any Commercial General Liability policy issued
by the Company will include ISO pollution exclusion language.
7. Any loss, cost, or expense arising out of any governmental direction
or request that the insured test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize pollutants.
If the Company provides insurance for an insured with respect to any
premises, operations, products or completed operations listed in
subparagraphs 3 and 4 of this paragraph, except subparagraphs 4(c) and
4(d), and if such premises, operations, products or completed operations
constitute only a minor incidental part of the total premises, operations,
products or completed operations of the insured, such exclusion(s) shall
not apply.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set
forth in this paragraph, these exclusions, except those set forth in
subparagraphs 2, 4(c), 4(d), 5, 6 and 7, shall be suspended with respect to
such business until 30 days after an underwriting supervisor of the Company
acquires knowledge of such business.
ARTICLE V - RETENTION AND LIMIT
A. Coverage A: As respects Casualty business subject to this Contract, the
Company's retention and the Reinsurer's liability shall be determined as
follows:
1. As respects business with policy limits of $1,000,000 or less, the
Company shall retain and be liable for the first $ 1,000,000 of
ultimate net loss (whether involving any one or any combination of the
casualty classes of business covered hereunder, regardless of the
number of policies under which such loss is payable) as respects each
insured, each occurrence. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
$2,000,000 as respects any one insured, any one occurrence.
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2. As respects business with policy limits greater than $ 1,000,000, the
Company shall retain and be liable for the first $5,000,000 of
ultimate net loss (whether involving any one or any combination of the
casualty classes of business covered hereunder, regardless of the
number of policies under which such loss is payable) as respects each
insured, each occurrence. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
$2,000,000 as respects any one insured, any one occurrence.
B. Coverage B: As respects Property business subject to this Contract, the
Company shall retain and be liable for the first $2,000,000 of ultimate net
loss as respects any one risk, each loss occurrence. The Reinsurer shall
then be liable for the amount by which such ultimate net loss exceeds the
Company's retention, but the liability of the Reinsurer shall not exceed
$2,000,000 as respects any one risk, each loss occurrence.
C. Coverage hereunder shall apply only in the event the Company sustains
liability for extra contractual obligations and/or losses in excess of
original policy limits, arising under policies written by the Company.
D. In the event that two or more policies covered under this Contract are
involved in the same occurrence but allocated to different underwriting
years, the amount to be retained by the Company for each underwriting year
shall be reduced to the percentage that the Company's retained losses on
the policies allocated to each underwriting year bears to the total of all
the Company's retained losses contributing to the same occurrence. The
indemnity and/or recovery shall be arrived at in the same manner.
E. The maximum policy limits shown in paragraphs A and B shall be extended to
follow the Company's policy if the Company's ultimate net loss is greater
than one or more of said amounts because its policy includes or is deemed
to include:
1. So-called "Out of State Insurance" provisions;
2. Limits of liability required under Section 30 of the Motor Carrier Act
of 1980 and/or any amendments thereto.
ARTICLE VI - REINSTATEMENT
A. In the event all or any portion of the reinsurance hereunder is exhausted
by loss, the amount so exhausted shall be reinstated immediately from the
time the occurrence commences hereon. For each amount so reinstated the
Company agrees to pay additional premium equal to the product of the
following:
1. The percentage of the occurrence limit reinstated (based on the
ultimate net loss paid by the Reinsurer); times
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2. The earned reinsurance premium for the underwriting year in which the
occurrence commences (exclusive of reinstatement premium).
B. Whenever the Company requests payment by the Reinsurer of any ultimate net
loss hereunder, the Company shall submit a statement to the Reinsurer of
reinstatement premium due the Reinsurer. If the earned reinsurance premium
for the contract year has not been finally determined as of the date of any
such statement, the calculation of reinstatement premium due shall be based
on the annual deposit premium and shall be readjusted when the earned
reinsurance premium for the contract year has been finally determined. Any
reinstatement premium shown to be due the Reinsurer as reflected by any
such statement (less prior payments, if any) shall be payable by the
Company concurrently with payment by the Reinsurer of the requested loss.
Any return reinstatement premium shown to be due the Company shall be
remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company's statement.
C. Notwithstanding anything stated herein, the liability of the Reinsurer
hereunder for ultimate net loss shall not exceed $2,000,000 as respects any
one occurrence, nor shall it exceed $4,000,000 as respects all occurrences
commencing during any one contract year.
Article VII - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums paid or
payable by the Company in settlement of claims and in satisfaction of
judgments rendered on account of such claims, after deduction of all
salvage, all recoveries and all claims on inuring insurance or reinsurance,
whether collectible or not. Nothing herein shall be construed to mean that
losses under this Contract are not recoverable until the Company's ultimate
net loss has been ascertained.
B. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 100% of any amount paid
or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover damages
the insured is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 100% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result of
an action against it by its insured, its insured's assignee or a third
party claimant, which action alleges negligence or bad faith on the
part of the Company in handling a claim under a policy subject to this
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Contract. An extra contractual obligation shall be deemed to have
occured on the same date as the loss covered or alleged to be covered
under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. As respects Coverage A of Article V, "occurrence" as used herein is
defined as an accident or occurrence or a series of accidents or
occurrences arising out of or caused by one event. However, as respects
policies where the Company's limit of liability for Products and Completed
Operations coverages is determined on the basis of the insured's aggregate
losses during a policy period, all such losses proceeding from or traceable
to the same causative agency shall, at the Company's option, be deemed to
have been caused by one occurrence commencing at the beginning of the
policy period, it being understood and agreed that each renewal or annual
anniversary date of the policy involved shall be deemed the beginning of a
new policy period.
D. As respects Coverage B of Article V, the term "loss occurrence" shall mean
the sum of all individual losses directly occasioned by any one disaster,
accident or loss or series of disasters, accidents or losses arising out of
one event which occurs within the area of one state of the United States or
province of Canada and states or provinces contiguous thereto and to one
another. However, the duration and extent of any one "loss occurrence"
shall be limited to all individual losses sustained by the Company
occurring during any period of 168 consecutive hours arising out of and
directly occasioned by the same event, except that the term "loss
occurrence" shall be further defined as follows:
1. As regards windstorm, hail, tornado, hurricane, cyclone, including
ensuing collapse and water damage, all individual losses sustained by
the Company occurring during any period of 72 consecutive hours
arising out of and directly occasioned by the same event. However, the
event need not be limited to one state or province or states or
provinces contiguous thereto.
2. As regards riot, riot attending a strike, civil commotion, vandalism
and malicious mischief, all individual losses sustained by the Company
occurring during any period of 72 consecutive hours within the area of
one municipality or county and the municipalities or counties
contiguous thereto arising out of and directly occasioned by the same
event. The maximum duration of 72 consecutive hours may be extended in
respect of individual losses which occur beyond such 72 consecutive
hours during the continued occupation of an assured's premises by
strikers, provided such occupation commenced during the aforesaid
period.
3. As regards earthquake (the epicentre of which need not necessarily be
within the territorial confines referred to in the introductory
portion of this paragraph ) and fire following directly occasioned by
the earthquake, only those individual fire losses
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which commence during the period of 168 consecutive hours may be
included in the Company's "loss occurrence."
4. As regards "freeze," only individual losses directly occasioned by
collapse, breakage of glass and water damage (caused by bursting
frozen pipes and tanks) may be included in the Company's "loss
occurrence."
Except for those "loss occurrences" referred to in subparagraphs 1 and 2
above, the Company may choose the date and time when any such period of
consecutive hours commences, provided that it is not earlier than the date
and time of the occurrence of the first recorded individual loss sustained
by the Company arising out of that disaster, accident or loss, and provided
that only one such period of 168 consecutive hours shall apply with respect
to one event.
However, as respects those "loss occurrences" referred to in subparagraphs
1 and 2 above, if the disaster, accident or loss occasioned by the event is
of greater duration than 72 consecutive hours, then the Company may divide
that disaster, accident or loss into two or more "loss occurrences,"
provided that no two periods overlap and no individual loss is included in
more than one such period, and provided that no period commences earlier
than the date and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster, accident or
loss.
No individual losses occasioned by an event that would be covered by 72
hours clauses may be included in any "loss occurrence" claimed under the
168 hours provision.
E. Loss adjustment expense means all costs and expenses allocable to a
specific claim that are incurred by the Company 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 1) pre-judgment interest, unless included as part of
the award or judgment; 2) post-judgment interest; 3) legal expenses and
costs incurred in connection with coverage questions and legal actions
connected thereto; and 4) a pro rata share of salaries and expenses of
Company field employees, and expenses of other Company employees who have
been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract. Loss
adjustment expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense includes, but is not limited to,
salaries and expenses of employees, other than (4) above, and office and
other overhead expenses.
F. The Company shall be the sole judge of what constitutes "one risk."
ARTICLE VIII - OTHER REINSURANCE
A. The Company shall maintain in force facultative certificates or
semi-automatic facultative facilities that apply on an individual risk
basis which cover indemnity loss and may or may not cover extra contractual
obligations and loss in excess of policy limits in accordance with
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the terms of the individual certificate or semi-automatic facultative
facility. Recoveries under such reinsurance shall inure to the benefit of
this Contract.
B. The Company shall be permitted to carry underlying reinsurance, recoveries
under which shall inure solely to the benefit of the Company and be
entirely disregarded in applying all of the provisions of this Contract.
ARTICLE IX - CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Whenever a claim is reserved by the Company for an amount greater than its
retention hereunder and/or whenever a claim appears likely to result in a
claim under this Contract, the Company shall notify the Reinsurer. The
Reinsurer shall have the right to participate, at its own expense, in the
defense or control of any claim or suit or proceeding involving this
reinsurance.
B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable upon receipt
of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder, loss adjustment expenses incurred by the
Company in connection therewith which do not reduce the Company's limit of
liability under the policy involved shall be shared by the Company and the
Reinsurer in the proportion the ultimate net loss paid or payable by the
Reinsurer bears to the total loss paid or payable by the Company, prior to
any reinsurance recoveries, but after deduction of all salvage, subrogation
and other recoveries. However, if a verdict or judgment is reduced by any
process other than by the trial court, resulting in an ultimate saving to
the Reinsurer, or a judgment is reversed outright, the expenses incurred in
securing such reduction or reversal shall be shared by the Company and the
Reinsurer in the proportion that each benefits from such reduction or
reversal, and the expenses incurred up to the time of the original verdict
or judgment which do not reduce the Company's limit of liability under the
policy involved shall be shared in proportion to each party's interest in
such original verdict or judgment. The Reinsurer's liability for such loss
adjustment expenses shall be in addition to its liability for ultimate net
loss.
ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its
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primary loss. The Company hereby agrees to enforce its rights to salvage or
subrogation relating to any loss, a part of which loss was sustained by the
Reinsurer, and to prosecute all claims arising out of such rights.
ARTICLE XI - PREMIUM
A. As premium for the reinsurance provided hereunder for each underwriting
year, the Company shall pay the Reinsurer .2825 % of its net written
premium for the underwriting year subject to an annual minimum premium of
$130,000 for the underwriting year. However, in the event this Contract is
terminated on a "cutoff" basis, the minimum premium for the final
underwriting year shall be $65,000.
B. The Company shall pay the Reinsurer an annual deposit premium of $130,000
in four equal installments of $32,500 on, January 1, April 1, July 1 and
October 1 of each underwriting year.
C. Within 45 days after the end of each underwriting year, the Company shall
provide a report to the Reinsurer setting forth the premium due hereunder
for the underwriting year, computed in accordance with paragraph A, and if
the premium so computed is greater than the previously paid minimum and
deposit premium, the balance shall be remitted by the Company with its
report.
D. "Net written premium" as used herein is defined as gross written premium of
the Company for the classes of business reinsured hereunder, less
cancellations and return premiums, and less premiums ceded by the Company
for reinsurance which inures to the benefit of this Contract.
ARTICLE XII - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XIII - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
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ARTICLE XIV - NET RETAINED LIABILITY
This Contract shall apply only to that portion of any insurance or reinsurance
the Company retains net for its own account (prior to deduction of any
underlying reinsurance specifically permitted in this Contract), and in
calculating the amount of any loss hereunder and the amount in excess of which
this Contract attaches, only loss or losses with respect to that portion of any
insurance or reinsurance the Company retains net for its own account shall be
included. It is understood and agreed, however, that the Reinsurer's liability
hereunder with respect to any loss or losses shall not be increased by reason of
the inability of the Company to collect from any other reinsurers, whether
specific or general, any amounts which may be due from them, whether such
inability arises from the insolvency of such other reinsurers or otherwise.
ARTICLE XV - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.
ARTICLE XVI - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XVII - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its share
of the Company's ceded outstanding loss and loss adjustment expense
reserves by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
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if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the insurance
regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to insurance
regulatory authorities involved, will be issued for a term of at least one
year and will include an "evergreen clause," which automatically extends
the term for at least one additional year at each expiration date unless
written notice of non-renewal is given to the Company not less than 30 days
prior to said expiration date. The Company and the Reinsurer further agree,
notwithstanding anything to the contrary in this Contract, that said
letters of credit may be drawn upon by the Company or its successors in
interest at any time, without diminution because of the insolvency of the
Company or the Reinsurer, but only for one or more of the following
purposes:
1. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expense paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
3. To fund a cash account in an amount equal to the Reinsurer's share of
any ceded outstanding loss and loss adjustment expense reserves funded
by means of a letter of credit which is under non-renewal notice, if
said letter of credit has not been renewed or replaced by the
Reinsurer 10 days prior to its expiration date;
4. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded
outstanding loss and loss adjustment expense reserves, if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1) or B(3), or in the case of
B(2), the actual amount determined to be due, the Company shall promptly
return to the Reinsurer the excess amount so drawn.
ARTICLE XVIII - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, with reasonable provision
for verification, on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that
the liquidator, receiver, conservator or statutory successor of the Company
shall give written notice to the Reinsurer of the pendency of a claim
against the Company indicating the policy or bond reinsured which
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claim would involve a possible liability on the part of the Reinsurer
within a reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses that it may deem available to the Company or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this Contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance
Law or except (a) where this Contract specifically provides another payee
of such reinsurance in the event of the insolvency of the Company or (b)
where the Reinsurer with the consent of the direct insured or insureds has
assumed such policy obligations of the Company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligations of the Company to such payees.
D. Any hold harmless and indemnity agreement affecting payment under this
Contract shall be considered an endorsement to and therefore part of this
Contract, irrespective of any language to the contrary. Any indemnitee
shall be considered a "payee" within this Article. In no event shall any
reinsurer have double indemnity for any loss or expense under this
Contract, it being the intent that any payments by the reinsurer to any
payee as provided herein shall not be subject to and also collectible in
any liquidation or similar proceeding.
Article XIX - ARBITRATION (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by
the Company, the other by the Reinsurer, and an Umpire shall be chosen by
the two Arbiters before they enter upon arbitration, all of whom shall be
active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's London Underwriters. In the event that
either party should fail to choose an Arbiter within 30 days following a
written request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an
Umpire within 30 days following their appointment, each Arbiter shall
nominate three candidates within 10 days thereafter, two of whom the other
shall decline, and the decision shall be made by drawing lots.
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B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of
the arbitration, all proceedings pursuant hereto shall be governed by the
law of the state in which the Company has its principal office.
ARTICLE XX - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or
of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom
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may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract.
ARTICLE XXI - INTERMEDIARY (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent that such
payments are actually received by the Company.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this ___ day of __________________________________ 199_.
-------------------------------------
Financial Pacific Insurance Company
Page 18
<PAGE> 23
U.S.A.
------
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and either as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on the
site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for processing
substantial quantities of "special nuclear material," and for
reprocessing, salvaging, chemically separating, storing or disposing
of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of
nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor power
plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after lst January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note.-Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st December
1957 shall be free from the application of the other provisions
of this Clause until expiry date or 31st December 1960 whichever
first occurs whereupon all the provisions of this Clause shall
apply.
(b) with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry
date or 31st December 1960 whichever first occurs whereupon all
the provisions of this Clause shall apply.
<PAGE> 24
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(Approved by Lloyd's Underwriters' Fire and Non-Marine Association)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage, to (injury, sickness, disease, death or destruction
with respect to which an insured under the (bodily injury or
property damage policy is also an insured under a nuclear energy
liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or
Nuclear Insurance Association of Canada, or would be an insured
under any such policy but for its termination upon exhaustion of
its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either (a) become effective on or after 1st May,
1960, or (b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided this
paragraph (2) shall not be applicable to Family Automobile
Policies, Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on New York
risks, until 90 days following approval of the Limited Exclusion
Provision by the Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective Liability,
Manufacturers and Contractors Liability, Product Liability, Professional
and Malpractice Liability, Storekeepers Liability, Garage Liability,
Automobile Liability (including Massachusetts Motor Vehicle or Garage
Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage to (injury, sickness, disease, death
or destruction (bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such
policy but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America,
or any agency thereof, under any agreement entered into by
the United States of America, or any agency thereof, with
any person or organization.
<PAGE> 25
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to immediate medical or surgical
relief first aid, to expenses incurred with respect to bodily
injury, sickness, disease or death, bodily injury resulting from
the hazardous properties of nuclear material and arising out of
the operation of a nuclear facility by any person or
organization.
III. Under any Liability Coverage to injury, sickness, disease, death
or destruction bodily injury or property damage resulting from
the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned
by, or operated by or on behalf of, an insured or (2) has
been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the injury, sickness, disease, death or destruction arises
out of the furnishing by an insured bodily injury or
property damage of services, materials, parts or equipment
in connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such
facility is located within the United States of America, its
territories, or possessions or Canada, this exclusion (c)
applies only to injury to or destruction of property at such
nuclear facility property damage to such nuclear facility
and any property there at.
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special
nuclear material or byproduct material; "source material",
"special nuclear material", and "byproduct material" have the
meanings given them in the Atomic Energy Act of 1954 or in any
law amendatory thereof; "spent fuel" means any fuel element or
fuel component, solid or liquid, which has been used or exposed
to radiation in a nuclear reactor; "waste" means any waste
material (1) containing byproduct material and (2) resulting from
the operation by any person or organization of any nuclear
facility included within the definition of nuclear facility under
paragraph (a) or (b) thereof, "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling processing or
packaging waste,
(c) any equipment or device used for the processing, fabricating
or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured
at the premises where such equipment or device is located
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste, and includes
the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for
such operations; "nuclear reactor" means any apparatus
designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass
of fissionable material; ( With respect to injury to or
destruction of property, the word "injury" or "destruction"
"property damage" includes all forms of radioactive
contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on
or after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts, until 90 days following
approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association of the Independent Insurance Conference of Canada.
NOTE. The words printed in italics in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply on relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
<PAGE> 26
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Underwriting Members of Lloyd's
shown in the Signing Schedule attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 64.27% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 725 South Figueroa Street, Suite 1990, Los Angeles, California
90017.
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule
attached hereto.
<PAGE> 27
INTERESTS AND LIABILITIES AGREEMENT
of
Certain Insurance Companies
shown in the Signing Schedule(s) attached hereto
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
CONTINGENT EXCESS OF LOSS
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 35.73% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
In any action, suit or proceeding to enforce the Subscribing Reinsurer's
obligations under the attached Contract, service of process may be made upon
Mendes & Mount, 725 South Figueroa Street, Suite 1990, Los Angeles, California
90017.
The following Article shall apply to the Subscribing Reinsurer's share in the
attached Contract, in lieu of the provisions of Article XVII - Unauthorized
Reinsurers - of the Contract:
"ARTICLE XVII - LOSS RESERVES
(Applicable only if the Reinsurer cannot qualify for credit by any state or
any other governmental authority having jurisdiction over the Company's
loss reserves.)
A. As regards policies or bonds issued by the Company coming within the
scope of this Contract, the Company agrees that, when it shall file
with the Insurance Department or set up on its books reserves for
losses covered hereunder which it shall be required by
Page 1
<PAGE> 28
law to set up, it will forward to the Reinsurer a statement showing
the proportion of such loss reserves which is applicable to the
Reinsurer. The Reinsurer hereby agrees that it will apply for and
secure delivery to the Company of a clean, irrevocable and
unconditional Letter of Credit issued and confirmed, if confirmation
is required by the regulatory authority(ies) having jurisdiction over
the Company's loss reserves, by a bank or banks meeting the NAIC
Securities Valuation Office credit standards for issuers of Letters of
Credit and which is (are) acceptable to said regulatory
authority(ies), in an amount equal to the Reinsurer's proportion of
reserves in respect of known outstanding losses that have been
reported to the Reinsurer and allocated loss expenses relating thereto
as shown in the statement prepared by the Company. Under no
circumstances shall any amount relating to reserves in respect of
Incurred But Not Reported losses be included in the amount of the
Letter of Credit.
B. The Letter of Credit shall be in a form acceptable to insurance
regulatory authority(ies) having jurisdiction over the Company's loss
reserves, shall be issued for a period of not less than one year, and
shall be automatically extended for one year from its date of
expiration or any future expiration date unless thirty (30) days prior
to any expiration date the issuing bank shall notify the Company by
registered mail that the issuing bank elects not to consider the
Letter of Credit extended for any additional period. An issuing bank,
not a member of the federal reserve system or not chartered in New
York State, shall provide sixty (60) days notice to the Company prior
to any expiration in the event of non-extension.
C. Notwithstanding any other provision of this Contract, the Company or
its successors in interest may draw upon such credit at any time,
without diminution because of the insolvency of the Company or of the
Reinsurer, for one or more of the following purposes only:
1. To pay the Reinsurer's share or to reimburse the Company for the
Reinsurer's share of any loss reinsured by this Contract, the
payment of which has been agreed by the Reinsurer and which has
not been otherwise paid;
2. To make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's share of any liability reinsured
by this Contract;
3. In the event of expiration of the Letter of Credit as provided
for above, to establish deposit of the Reinsurer's share of known
and reported outstanding losses and allocated expenses relating
thereto under this Contract. Such cash deposit shall be held in
an interest bearing account separate from the Company's other
assets, and interest thereon shall accrue to the benefit of the
Reinsurer.
The issuing bank shall have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Company or the
disposition of funds withdrawn, except to ensure that withdrawals are
made only upon the order of properly authorized representatives of the
Company.
Page 2
<PAGE> 29
D. At annual intervals, or more frequently as agreed but never more
frequently than quarterly, the Company shall prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of
the Reinsurer's share of known and reported outstanding losses and
allocated expenses relating thereto. If the statement shows that the
Reinsurer's share of such losses and allocated loss expenses exceeds
the balance of credit as of the statement date, the Reinsurer shall,
within thirty (30) days after receipt of notice of such excess, secure
delivery to the Company of an amendment of the Letter of Credit
increasing the amount of credit by the amount of such difference. If,
however, the statement shows that the Reinsurer's share of known and
reported outstanding losses plus allocated loss expenses relating
thereto is less than the balance of credit as of the statement date,
the Company shall, within thirty (30) days after receipt of written
request from the Reinsurer, release such excess credit by agreeing to
secure an amendment to the Letter of Credit reducing the amount of
credit available by the amount of such excess credit."
Signed for and on behalf of the Subscribing Reinsurer in the Signing Schedule(s)
attached hereto.
Page 3
<PAGE> 30
SIGNING PAGE ATTACHING TO AND FORMING PART OF THE INTERESTS AND
LIABILITIES AGREEMENT
CONTINGENT EXCESS OF LOSS REINSURANCE CONTRACT
ISSUED TO AND DULY EXECUTED BY
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
AND
REINSURERS AS PER FOLLOWING SCHEDULE
The Underwriters who are signatories hereto, each for the proport
on underwritten and not for another, namely,
SCHEDULE OF REINSURERS
<TABLE>
<CAPTION>
Percentage Name Number Reference
- ---------- ---- ------ ---------
<S> <C> <C> <C>
11.91% Terra Nova Insurance Company Limited. T3902 097BL11705AA
94L09A8CACY
23.82% St. Paul Reinsurance Co. Ltd. N0435 000661971AXC
</TABLE>
<PAGE> 31
We, the subscribing Reinsurers hereby bind ourselves to the Reinsured for the
performance of this reinsurance contract.
The subscribing Reinsurers' obligations under this contract are several and not
joint and are limited solely to the extent of their individual signed
subscriptions. The subscribing Reinsurers are not responsible for the
subscription of any co-subscribing Reinsurer who for any reason does not
satisfy all or part of its obligations.
In witness whereof the name of the Chief Executive of the LONDON INTERNATIONAL
INSURANCE AND REINSURANCE MARKET ASSOCIATION ("LIRMA") is subscribed on behalf
of each of the LIRMA companies and such companies not being members of LIRMA
who are participating in a qualifying consortium arrangement with LIRMA members
in accordance with the Memorandum and Articles of Association of LIRMA.
Signed /s/ Mari Louise Rossi
----------------------------------
Chief Executive
97032000 52 124
LIRMA1
<PAGE> 1
EXHIBIT 10.19
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
SEMI-AUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
Originally Effective: July 1, 1996
<PAGE> 2
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 3
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
REINSURERS PARTICIPATIONS
Allstate Insurance Company 5.0%
Constitution Reinsurance Corporation 15.0
Gerling Global Reinsurance Corporation, U. S. Branch 25.0
The Mercantile and General Reinsurance Company of America 12.5
St. Paul Reinsurance Management Corporation
(for St. Paul Fire and Marine Insurance Company) 15.0
SOREMA North America Reinsurance Company 7.5
Winterthur Reinsurance Corporation of America 15.0
TOTAL 95.0%
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
Preamble 1
I Application of Contract 1
II Commencement and Termination 2
III Territory 2
IV Exclusions 2
V Attachment of Reinsurer's Liability 6
VI Right of Rejection 6
VII Retention and Limit 7
VIII Definitions 7
IX Claims and Loss Adjustment Expense 8
X Salvage and Subrogation 9
XI Premium 9
XII Commission (BRMA 10A) 9
XIII Offset (BRMA 36C) 10
XIV Access to Records (BRMA ID) 10
XV Liability of the Reinsurer 10
XVI Net Retained Liability 10
XVII Errors and Omissions (BRMA 14F) 10
XVIII Taxes (BRMA 50B) 11
XIX Unauthorized Reinsurers 11
XX Insolvency 12
XXI Arbitration 13
XXII Service of Suit (BRMA 49C) 14
XXIII Intermediary (BRMA 23A) 14
Schedule A
</TABLE>
<PAGE> 5
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing the
Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Reinsurer")
PREAMBLE
A. In consideration of the mutual covenants and agreements expressed herein,
the Reinsurer hereby authorizes the Company to bind facultative reinsurance
under this Contract, subject to all the terms, conditions and limitations
stipulated herein.
B. While the Company is authorized and may bind facultative reinsurance
automatically on any risk subject to this Contract, the Company is not
obligated to do so, nor is the Reinsurer obligated to accept any
reinsurance bound hereunder by the Company, except as provided in Articles
VI and VII.
ARTICLE I - APPLICATION OF CONTRACT
This Contract and the binding authority granted herein, shall apply with respect
to the Company's policies, contracts and binders of insurance (hereinafter
called "policies") issued or renewed thereafter, and classified by the Company
as Excess Liability business, subject to the terms, conditions and limitations
set forth herein and in Schedule A attached to and forming part of this
Contract.
Page 1
<PAGE> 6
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on July 1, 1996, with respect to
policies allocated to underwriting years commencing on or after that date,
and shall continue in force thereafter until terminated.
B. Either party may terminate this Contract at any time by giving the other
party not less than 90 days prior notice by certified mail.
C. Unless the Company elects to reassume the ceded unearned premium in force
on the effective date of termination, and so notifies the Reinsurer prior
to or as promptly as possible after the effective date of termination,
reinsurance hereunder on business in force on the effective date of
termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months, plus odd time, following the
effective date of termination.
ARTICLE III - TERRITORY
This Contract shall only apply to policies issued to insureds domiciled in the
United States of America, its territories and possessions and the District of
Columbia; but this limitation shall not apply to losses if the Company's
policies provide coverage outside the aforesaid territorial limits.
ARTICLE IV - EXCLUSIONS
This Contract does not apply to and specifically excludes the following:
A. The following general exclusions:
1. Business accepted by the Company as reinsurance from other insurers,
except agency reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company is
required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer,
Page 2
<PAGE> 7
or its successors or assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed unable to meet
any claim, debt, charge, fee or other obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped power, or martial law or confiscation by order of any
government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $10,000 or business written to apply specifically
in excess over underlying insurance. However, this exclusion shall not
apply to Umbrella business.
6. Aviation liability including aerospace and satellite business.
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Liquor law liability, except where liquor constitutes less than 50.0%
of sales. Specifically excluded are bars and retail liquor stores.
10. Insurance written for governmental bodies, municipalities, schools and
colleges.
11. Insurance covering damages claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form a part of, or if such
products or property are withdrawn from the market or from use because
of any known or suspected defect or deficiency therein.
12. Liabilities for bodily injury, personal damage and/or property damage
from asbestos and/or asbestos products, including but not limited to
liability arising from the mining, manufacture, installation,
transport, storage, habitation or use of materials, products or
structure containing asbestos.
13. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA) or amendments
thereto.
14. Liability for property damage caused by the subsidence of land and
arising out of or attributable to any operations of the insured.
15. Fidelity and Surety.
B. The following Casualty exclusions:
1. Watercraft liability except for boats less than 50 feet in length.
Page 3
<PAGE> 8
2. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
3. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil drilling
equipment;
e. Manufacture of automobile components critical to automobile
safety.
4. Liability insurance relating to premises or operations primarily
involving:
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any aircraft
or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and racing;
c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerine, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works, or
gas lease operations;
e. Production, refining, handling, shipping or storage of natural or
artificial fuel gases, synthetic or coal or shale based fuel,
butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, and oil and gas
pipelines;
g. Railroad operations, specifically "line" or "on track" operations
of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
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<PAGE> 9
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
1. Ski resorts;
m. Waste disposal and deposit sites except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is crane
rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Existence, construction or maintenance of dams;
q. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
r. Warehousemen's legal liability;
s. Automobile racing and racetracks;
t. Taxis;
u. Blasting contractors;
v. Licensed roofing contractors whose primary business is such;
w. General contractors with revenues in excess of $50,000,000;
x. Wrap up construction projects.
5. Nuclear risks as defined in the "Nuclear Incident Exclusion Clause -
Liability Reinsurance" attached to and forming part of this Contract.
6. Pollution liability as excluded by the Company's policies. It is hereby
warranted that any Commercial General Liability policy issued by the
Company will include ISO pollution exclusion language.
7. Any loss, cost, or expense arising out of any governmental direction or
request that the insured test for, monitor, clean up, remove, contain,
treat, detoxify or neutralize pollutants.
If the Company provides insurance for an insured with respect to any premises,
operations, products or completed operations listed in subparagraphs 3 and 4 of
this paragraph B, except
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subparagraphs 4(c) and 4(d), and if such premises, operations, products or
completed operations constitute only a minor incidental part of the total
premises, operations, products or completed operations of the insured, such
exclusion(s) shall not apply.
If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set forth in
this paragraph B, these exclusions, except those set forth in subparagraphs 2,
4(c), 4(d), 5, 6 and 7, shall be suspended with respect to such business until
65 days (60 days plus 5 mailing days) after an underwriting supervisor of the
Company acquires knowledge of such business.
ARTICLE V - ATTACHMENT OF REINSURER'S LIABILITY
A. The Company shall report each reinsurance cession to the Reinsurer in
writing within 45 working days after the last working day of each month.
Each such report shall include the following information:
1. Name of insured.
2. Company policy number.
3. Policy effective date.
4. Total policy premium.
5. Reinsurer's gross premium.
6. Applicable ceding commission.
7. Net premium payable to the Reinsurer.
8. Policy limit written.
B. Each reinsurance cession reported by the Company shall be deemed to have
been accepted by the Reinsurer unless Gerling Global Reinsurance
Corporation, United States Branch, New York, New York, rejects it in
writing as provided in Article VII.
ARTICLE VI - RIGHT OF REJECTION
Gerling Global Reinsurance Corporation, USB, New York, New York, shall have the
right to reject any reinsurance bound by the Company by notifying the Company in
writing within 15 working days after receipt of the Company's report. However,
the liability of the Reinsurer
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with respect to any submission so rejected shall continue until the Company is
able to cancel the policy involved, subject to insurance code and regulatory
parameters, but not beyond 60 days after the Reinsurer's rejection notice is
received by the Company. The premium for the period any rejected submission is
covered shall be pro rata of what the annual premium would have been had the
submission been accepted.
ARTICLE VII - RETENTION AND LIMIT
A. The Company shall retain and be liable for the first $1,000,000 of
ultimate net loss as respects each risk, each loss. The Reinsurer shall
then be liable for the amount by which such ultimate net loss exceeds the
Company's retention, but the liability of the Reinsurer shall not exceed
$4,000,000 as respects any one risk, each loss.
B. The Company shall be permitted to carry underlying treaty reinsurance,
recoveries under which shall inure solely to the benefit of the Company and
be entirely disregarded in applying all of the provisions of this Contract.
ARTICLE VIII - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums (including
loss in excess of policy limits, extra contractual obligations and any loss
adjustment expense, as hereinafter defined, which reduces the Company's
limit of liability under the policy involved) paid or payable by the
Company in settlement of claims and in satisfaction of judgments rendered
on account of such claims, after deduction of all salvage, all recoveries
and all claims on inuring insurance or reinsurance, whether collectible or
not. Nothing herein shall be construed to mean that losses under this
Contract are not recoverable until the Company's ultimate net loss has been
ascertained.
B. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 90.0% of any amount paid
or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover damages
the insured is legally obligated to pay to a third party claimant
because of the Company's alleged or actual negligence or bad faith in
rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action
against its insured, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 90.0% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid
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or payable by the Company as a result of an action against it by its
insured, its insured's assignee or a third party claimant, which action
alleges negligence or bad faith on the part of the Company in handling
a claim under a policy subject to this Contract. An extra contractual
obligation shall be deemed to have occurred on the same date as the
loss covered or alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
C. "Loss adjustment expense" as used herein shall mean expenses allocable to
the investigation, defense and/or settlement of specific claims, including
litigation expenses and interest on judgments, but not including office
expenses or salaries of the Company's regular employees.
ARTICLE IX - CLAIMS AND LOSS ADJUSTMENT EXPENSE
A. Whenever a claim is reserved by the Company for an amount greater than 50%
of its retention hereunder and/or whenever a claim appears likely to result
in a claim under this Contract, the Company shall notify the Reinsurer. The
Reinsurer shall have the right to participate, at its own expense, in the
defense or control of any claim or suit or proceeding involving this
reinsurance.
B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable upon receipt
of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder, loss adjustment expenses incurred by the
Company in connection therewith which do not reduce the Company's limit of
liability under the policy involved shall be shared by the Company and the
Reinsurer in the proportion the ultimate net loss paid or payable by the
Reinsurer bears to the total loss paid or payable by the Company, prior to
any reinsurance recoveries, but after deduction of all salvage, subrogation
and other recoveries. However, if a verdict or judgment is reduced by any
process other than by the trial court, resulting in an ultimate saving to
the Reinsurer, or a judgment is reversed outright, the expenses incurred in
securing such reduction or reversal shall be shared by the Company and the
Reinsurer in the proportion that each benefits from such reduction or
reversal, and the expenses incurred up to the time of the original verdict
or judgment which do not reduce the Company's limit of liability under the
policy involved shall be shared in proportion to each party's interest in
such original verdict or judgment. The Reinsurer's liability for such loss
adjustment expenses shall be in addition to its liability for ultimate net
loss.
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ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss. The Company hereby agrees to enforce its rights to
salvage or subrogation relating to any loss, a part of which loss was sustained
by the Reinsurer, and to prosecute all claims arising out of such rights.
ARTICLE XI - PREMIUM
A. As premium for the reinsurance provided hereunder, the Company shall pay
the Reinsurer 100% of its excess limits net written premium as calculated
in Schedule A attached hereto.
B. Within 45 days after the end of each month within each underwriting year,
the Company shall report its net written premium for the month. The premium
due the Reinsurer shall be paid by the Company with this report at the rate
shown in paragraph A, multiplied by the actual amount of premium collected
by the Company during the month from policies allocated to the underwriting
year.
C. Within 45 days after the end of each month, the Company shall calculate and
report the unearned reinsurance premium as of the end of the month.
D. "Net written premium" as used herein is defined as gross written premium of
the Company for the classes of business reinsured hereunder, less
cancellations and return premiums, and less premiums ceded by the Company
for reinsurance which inures to the benefit of this Contract.
ARTICLE XII - COMMISSION (BRMA 10A)
A. The Reinsurer shall allow the Company a 35.0% commission on all premiums
ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.
B. It is expressly agreed that the ceding commission allowed the Company
includes provision for all dividends, commissions, taxes, assessments, and
all other expenses of whatever nature, except loss adjustment expense.
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ARTICLE XIII - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XIV - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
ARTICLE XV - LIABILITY OF THE REINSURER
A. The liability of the Reinsurer shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's policies
and any endorsements thereon. However, in no event shall this be construed
in any way to provide coverage outside the terms and conditions set forth
in this Contract.
B. Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer in favor of any third party or any persons not
parties to this Contract.
ARTICLE XVI - NET RETAINED LIABILITY
This Contract shall apply only to that portion of any insurance or reinsurance
the Company retains net for its own account, and in calculating the amount of
any loss hereunder and the amount in excess of which this Contract attaches,
only loss or losses with respect to that portion of any insurance or reinsurance
the Company retains net for its own account shall be included. It is understood
and agreed, however, that the Reinsurer's liability hereunder with respect to
any loss or losses shall not be increased by reason of the inability of the
Company to collect from any other reinsurers, whether specific or general, any
amounts which may be due from them, whether such inability arises from the
insolvency of such other reinsurers or otherwise.
ARTICLE XVII - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such
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delay, error or omission not occurred, provided always that such error or
omission is rectified as soon as possible after discovery.
ARTICLE XVIII - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XIX - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its share
of the Company's ceded unearned premium and outstanding loss and loss
adjustment expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the insurance
regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to insurance
regulatory authorities involved, will be issued for a term of at least one
year and will include an "evergreen clause," which automatically extends
the term for at least one additional year at each expiration date unless
written notice of non-renewal is given to the Company not less than 30 days
prior to said expiration date. The Company and the Reinsurer further agree,
notwithstanding anything to the contrary in this Contract, that said
letters of credit may be drawn upon by the Company or its successors in
interest at any time, without diminution because of the insolvency of the
Company or the Reinsurer, but only for one or more of the following
purposes:
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1. To reimburse itself for the Reinsurer's share of unearned premiums
returned to insureds on account of policy cancellations, unless paid
in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expense paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
4. To fund a cash account in an amount equal to the Reinsurer's share of
any ceded unearned premium and/or outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss reserves)
funded by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or replaced by
the Reinsurer 10 days prior to its expiration date;
5. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded unearned
premium and/or outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(l), B(2) or B(4), or in the case
of B(3), the actual amount determined to be due, the Company shall promptly
return to the Reinsurer the excess amount so drawn.
ARTICLE XX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, with reasonable provision
for verification, on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that
the liquidator, receiver, conservator or statutory successor of the Company
shall give written notice to the Reinsurer of the pendency of a claim
against the Company indicating the policy or bond reinsured which claim
would involve a possible liability on the part of the Reinsurer within a
reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated,
any defense or defenses that it may deem available to the Company or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
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of conservation or liquidation to the extent of a pro rata share of the
benefit which may accrue to the Company solely as a result of the defense
undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this Contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance
Law or except (1) where this Contract specifically provides another payee
of such reinsurance in the event of the insolvency of the Company or (2)
where the Reinsurer with the consent of the direct insured or insureds has
assumed such policy obligations of the Company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligations of the Company to such payees.
ARTICLE XXI - ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by
the Company, the other by the Reinsurer, and an Umpire shall be chosen by
the two Arbiters before they enter upon arbitration, all of whom shall be
active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's London Underwriters. In the event that
either party should fail to choose an Arbiter within 30 days following a
written request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an
Umpire within 30 days following their appointment, each Arbiter shall
nominate three candidates within 10 days thereafter, two of whom neither
shall decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses
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or claims, nor be construed as changing the liability of the reinsurers
participating under the terms of this Contract from several to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of
the arbitration, all proceedings pursuant hereto shall be governed by the
law of the state in which the Company has its principal office.
ARTICLE XXII - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of a court of competent jurisdiction within
the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or
of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract.
ARTICLE XXIII - INTERMEDIARY (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
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Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent that such
payments are actually received by the Company.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this ________________ day of ____________________ 199__.
__________________________________________________________
Financial Pacific Insurance Company
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SCHEDULE A
to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
The ceded excess limits net written premium shall be calculated as follows:
<TABLE>
<CAPTION>
TOTAL INSURED VALUE CEDED PREMIUM
------------------- -------------
<S> <C>
1. $1,000,001 - $2,000,000 (12% - 20% of total primary premium based on
General and/or Auto Liability premium)*
2. $2,000,001 - $3,000,000 1/2 of 1 above not to fall below $750 minimum
3. $3,000,001 - $4,000,000 1/2 of 2 above not to fall below $500 minimum
4. $4,000,001 - $5,000,000 1/2 of 3 above not to fall below $500 minimum
</TABLE>
- ---------------
* Application of 12 % - 20% rate is discretionary but subject to a minimum
premium of $1,000.
<PAGE> 21
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE -- LIABILITY -- REINSURANCE
(Approved by Lloyd's Underwriters' Fire and Non-Marine Association)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this reinsurance all
the original policies of the Reassured (new, renewal and replacement) of the
classes specified in Clause II of this paragraph (2) from the time specified in
Clause III in this paragraph (2) shall be deemed to include the following
provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage, to (injury, sickness, disease, death or destruction
with respect to which an insured under the (bodily injury or
property damage policy is also an insured under a nuclear energy
liability policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability Underwriters or
Nuclear Insurance Association of Canada, or would be an insured
under any such policy but for its termination upon exhaustion of
its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or
policies of a similar nature; and the liability portion of
combination forms related to the four classes of policies stated
above, such as the Comprehensive Dwelling Policy and the
applicable types of Homeowners Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either (a) become effective on or after 1st May,
1960, or (b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided this
paragraph (2) shall not be applicable to Family Automobile
Policies, Special Automobile Policies, or policies or combination
policies of a similar nature, issued by the Reassured on New York
risks, until 90 days following approval of the Limited Exclusion
Provision by the Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage to (injury, sickness, disease, death
or destruction (bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual
Atomic Energy Liability Underwriters or Nuclear Insurance
Association of Canada, or would be an insured under any such
policy but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America,
or any agency thereof, under any agreement entered into by
the United States of America, or any agency thereof, with
any person or organization.
<PAGE> 22
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to (immediate medical or surgical
relief to expenses incurred with respect (first aid, to (bodily
injury, sickness, disease or death resulting from the hazardous
properties of (bodily injury nuclear material and arising out of
the operation of a nuclear facility by any person or
organization.
III. Under any Liability Coverage to (injury, sickness, disease, death
or destruction (bodily injury or property damage resulting from
the hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned
by, or operated by or on behalf of, an insured or (2) has
been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the (injury, sickness, disease, death or destruction arises
out of the furnishing by an insured (bodily injury or
property damage
of services, materials, parts or equipment in connection
with the planning, construction, maintenance, operation or
use of any nuclear facility, but if such facility is located
within the United States of America, its territories, or
possessions or Canada, this exclusion (c) applies only to
(injury to or destruction of property at such nuclear
facility (property damage to such nuclear facility and any
property thereat.
IV. As used in this endorsement: "hazardous properties" include
radioactive, toxic or explosive properties; "nuclear material"
means source material, special nuclear material or byproduct
material; "source material", "special nuclear material", and
"byproduct material" have the meanings given them in the Atomic
Energy Act of 1954 or in any law amendatory thereof; "spent fuel"
means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor;
"waste" means any waste material (1) containing byproduct
material and (2) resulting from the operation by any person or
organization of any nuclear facility included within the
definition of nuclear facility under paragraph (a) or (b)
thereof; "nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling processing or
packaging waste,
(c) any equipment or device used for the processing, fabricating
or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured
at the premises where such equipment or device is located
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste, and includes
the site on which any of the foregoing is located, all
operations conducted on such site and all premises used for
such operations; "nuclear reactor" means any apparatus
designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass
of fissionable material;
(With respect to injury to or destruction of property, the
word "injury" or "destruction"
("property damage" includes all forms of radioactive
contamination of property.
(includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether new,
renewal or replacement, being policies which become effective on
or after 1st May, 1960, provided this paragraph (3) shall not be
applicable to
(i) Garage and Automobile Policies issued by the Reassured on
New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts, until 90 days following
approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association of the Independent Insurance Conference of Canada.
- --------------------------------------------------------------------------------
NOTE. The words printed in italics in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply only relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
<PAGE> 23
- -------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Allstate Insurance Company
Northbrook, Illinois
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 5.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
South Barrington, Illinois, this 25th day of July, 1997.
[SIG]
--------------------------
ALLSTATE INSURANCE COMPANY
E. W. BLANCH CO.
- -------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 24
- -------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Constitution Reinsurance Corporation
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 15.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 5th day of November, 1997.
[SIG]
--------------------------
CONSTITUTION REINSURANCE CORPORATION
E. W. BLANCH CO.
- -------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 25
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 25.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 8th day of July, 1997.
[SIG] VICE PRESIDENT
---------------------------------------
Gerling Global Reinsurance Corporation,
U.S. Branch
By: Gerling Global Offices, Inc.,
U.S. Manager
<PAGE> 26
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 7.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 31st day of July, 1997.
/s/ BARBARA A. CONNELL
--------------------------------------------
SOREMA North America Reinsurance Company
BARBARA A. CONNELL, CPCU, ARA
ASSISTANT VICE PRESIDENT
<PAGE> 27
REINSURANCE CONFIRMATION SIGNING PAGE
E.W. BLANCH CO.
201 California Street, Suite 500 Telephone (415) 398-6380
San Francisco, California 94111 Facsimile (415) 788-6394
COMPANY: Financial Pacific Insurance Company
CONTRACT: Casualty Facultative Semi-Automatic Reinsurance Contract
REINSURER: St. Paul Reinsurance Management Corporation
St. Paul Fire and Marine Insurance Company
On the basis of the terms outlined in E.W. Blanch Co.'s Reinsurance
Confirmation dated September 25, 1996, the undersigned reinsurer confirms its
agreement to accept a share(s) in the Contract(s) listed below effective
July 1, 1996:
<TABLE>
<CAPTION>
Your
Coverage Participation Your Your
Percent Limit Retention Percent Dollar Line Reference No.
------------ ---------- ---------- ------------- ----------- -------------
<S> <C> <C>
Cas Fac Semi-Auto 100.0% $4,000,000 $1,000,000 15% $600,000
</TABLE>
Revisions/Remarks:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Signed: /s/ [SIG]
---------------------------------------------------------
St. Paul Reinsurance Management Corporation
St. Paul Fire and Marine Insurance Company
Date: 11/18/96
---------------------------------------------------------
Please sign and return one copy.
<PAGE> 28
INTERESTS AND LIABILITIES AGREEMENT
of
The Mercantile and General Reinsurance Company
of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 12.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
Morristown, New Jersey, this 25th day of August, 1997.
/s/ MICHAEL P. BLABER
-------------------------------------------
MICHAEL P. BLABER
Vice President
The Mercantile and General
Reinsurance Company of America
<PAGE> 29
- -------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 15.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1996, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 17th day of July, 1997.
[SIG]
--------------------------
WINTERTHUR REINSURANCE COMPANY
E. W. BLANCH CO.
- -------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 30
Addendum No. 1
to the
Interests and Liabilities Agreement
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
with respect to the
Semiautomatic Casualty Facultative
Reinsurance Contract
Effective: July 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
It Is Hereby Agreed that Addendum No. 1 to the Contract shall form part of the
Contract, effective January 1, 1997.
It Is Further Agreed, effective January 1, 1997, that all references in this
Agreement to "Gerling Global Reinsurance Corporation, U.S. Branch" shall be
amended to read "Gerling Global Reinsurance Corporation of America."
In Witness Whereof, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
---- --- ---
[SIG]
- -------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 8th day of July 1997.
--- ---- ---
[SIG] VICE-PRESIDENT
- -------------------------------------------------
Gerling Global Reinsurance Corporation of America
<PAGE> 31
- --------------------------------------------------------------------------------
ADDENDUM NO. 1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Constitution Reinsurance Corporation
New York, New York
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective January 1, 1997.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 5th day of November 1997.
[SIG]
-----------------------------------------------------
Constitution Reinsurance Corporation
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 32
- --------------------------------------------------------------------------------
ADDENDUM NO. 1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective January 1, 1997.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 15.0%
to 10.0%, effective January 1, 1997, with respect to business issued or renewed
on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 17th day of July 1997.
[SIG]
-----------------------------------------------------
Winterthur Reinsurance Corporation of America
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 33
- --------------------------------------------------------------------------------
ADDENDUM NO. 1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective January 1, 1997.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 23rd day of September 1997.
[SIG]
-----------------------------------------------------
SOREMA North America Reinsurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 34
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
SCOR Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 10.0% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
(as amended by Addendum No. 1)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1997, with respect to business issued or renewed on or after that date, and
shall continue in force until terminated in accordance with the provisions of
the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
South Barrington, Illinois, this 28th day of July 1997.
[SIG]
-----------------------------------------------------
SCOR Reinsurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 35
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
Continental Casualty Company
Chicago, Illinois
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 7.5% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
(as amended by Addendum No. 1)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1997, with respect to business issued or renewed on or after that date, and
shall continue in force until terminated in accordance with the provisions of
the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
Chicago, Illinois, this 14th day of August 1997.
[SIG] Assistant Vice President
-----------------------------------------------------
Continental Casualty Company CA6649
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 36
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
Allmerica Re
A Division of
The Hanover Insurance Company
Bedford, New Hampshire
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 10.0% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
(as amended by Addendum No. 1)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1997, with respect to business issued or renewed on or after that date, and
shall continue in force until terminated in accordance with the provisions of
the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
Florham Park, New Jersey, this 11th day of September 1997.
[SIG]
---------------------------------------------------------
Allmerica Re, A Division of The Hanover Insurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 37
- --------------------------------------------------------------------------------
TERMINATION ADDENDUM
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Allstate Insurance Company
Northbrook, Illinois
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that this Agreement and the Subscribing Reinsurer's 5.0%
share in the interests and liabilities of the "Reinsurer" under the Contract
shall be terminated on December 31, 1996, in accordance with the "runoff"
provisions of paragraph C of Article II - Commencement and Termination.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
South Barrington, Illinois, this 25 day of July 1997.
[SIG]
-----------------------------------------------------
Allstate Insurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 38
- --------------------------------------------------------------------------------
TERMINATION ADDENDUM
to the
INTERESTS AND LIABILITIES AGREEMENT
of
The Mercantile and General Reinsurance Company
of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
SEMIAUTOMATIC CASUALTY FACULTATIVE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1996
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that this Agreement and the Subscribing Reinsurer's 12.5%
share in the interests and liabilities of the "Reinsurer" under the Contract
shall be terminated on December 31, 1996, in accordance with the "runoff"
provisions of paragraph C of Article II - Commencement and Termination.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 14th day of May 1997.
[SIG]
-----------------------------------------------------
Financial Pacific Insurance Company
Morristown, New Jersey, this 25 day of August 1997.
/s/ MICHAEL P. WEBER
-----------------------------------------------------
Michael P. Weber
Vice President
The Mercantile and General Reinsurance Company
of America
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 1
EXHIBIT 10.20
FINANCIAL PACIFIC INSURANCE COMPANY
(M. L. OATES INSURANCE COMPANY)
SACRAMENTO, CALIFORNIA
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
Originally Effective: July 1, 1993
<PAGE> 2
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
TERMS EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 3
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
Genamerica Management Corp.
(for Generali - U.S. Branch) 12.5%
Gerling Global Reinsurance Corporation, U. S. Branch 34.5
Great Lakes Re Management Corporation
(for The Great Lakes Reinsurance Company,
United States Branch) 13.0
SOREMA North America Reinsurance Company 20.0
Winterthur Reinsurance Corporation of America 20.0
TOTAL 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
I Classes of Business Reinsured 1
II Commencement and Termination 1
III Territory 2
IV Exclusions 2
V Retention and Limit 6
VI Loss in Excess of Policy Limits/ECO 6
VII Other Reinsurance 7
VIII Losses and Loss Adjustment Expenses 7
IX Alternate Payee 8
X Salvage and Subrogation 8
XI Original Conditions 9
XII Provisional Ceding Commission 9
XIII Commission Adjustment 9
XIV Reports and Remittances 11
XV Offset (BRMA 36C) 11
XVI Access to Records (BRMA 1D) 11
XVII Errors and Omissions (BRMA 14F) 12
XVIII Taxes (BRMA 50B) 12
XIX Unauthorized Reinsurers 12
XX Insolvency 13
XXI Arbitration (BRMA 6J) 14
XXII Service of Suit (BRMA 49C) 15
XXIII Intermediary (BRMA 23A) 16
</TABLE>
<PAGE> 5
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurers Whose Respective
Interests and Liabilities Agreements
Are Attached Hereto
(hereinafter referred to as the "Reinsurer")
ARTICLE I - CLASSES OF BUSINESS REINSURED
A. By this Contract the Company obligates itself to cede to the Reinsurer and
the Reinsurer obligates itself to accept quota share reinsurance of the
Company's net liability under policies, contracts and binders of insurance
or reinsurance (hereinafter called "policies") issued or renewed on or
after the effective date hereof, and classified by the Company as
Commercial Multiple Peril (Section I) and Inland Marine business.
B. "Net liability" as used herein is defined as the Company's gross
liability remaining after cessions, if any, to other pro rata reinsurers.
C. The liability of the Reinsurer with respect to each cession hereunder shall
commence obligatorily and simultaneously with that of the Company, subject
to the terms, conditions and limitation hereinafter set forth.
ARTICLE II - COMMENCEMENT AND TERMINATION
A. This Contract shall become effective on July 1, 1993, with respect to
losses occurring under policies allocated to underwriting years commencing
on or after that date, and shall continue in force thereafter until
terminated.
B. Either party may terminate this Contract on any December 31 by giving the
other party not less than 90 days prior notice by certified mail.
Page 1
<PAGE> 6
C. Unless the Company elects to reassume the ceded unearned premium in force
on the effective date of termination, and so notifies the Reinsurer prior
to or as promptly as possible after the effective date of termination,
reinsurance hereunder on business in force on the effective date of
termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
D. "Underwriting year" as used herein shall mean the period from July 1, 1993
through December 31, 1994, and each subsequent 12-month period shall be a
separate underwriting year. However, in the event this Contract is
terminated, the final underwriting year shall be from the beginning of the
then current underwriting year through the effective date of termination.
All premiums and losses from policies allocated to an underwriting year
shall be credited or charged, respectively, to such underwriting year,
regardless of the date said premiums earn or such losses occur, it being
understood that a policy will be allocated to the underwriting year which
is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Such policies shall remain in the same underwriting year, as originally
allocated, until the next renewal date or premium anniversary date, at
which time such policies shall be reallocated to the underwriting year in
effect as of such date as provided in subparagraphs 2 and 3 above.
ARTICLE III - TERRITORY
The liability of the Reinsurer shall be limited to losses under policies
covering property located within the territorial limits of the United States of
America, its territories or possessions, and the District of Columbia; but this
limitation shall not apply to moveable property if the Company's policies
provide coverage when said moveable property is outside the aforesaid
territorial limits.
ARTICLE IV - EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Business accepted by the Company as reinsurance from other insurers
except Agency Reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
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2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company is
required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has been
declared by any competent authority to be insolvent, or which is
otherwise deemed unable to meet any claim, debt, charge, fee or other
obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion, hostilities,
acts of foreign enemies, civil war, rebellion, insurrection, military
or usurped power, or martial law or confiscation by order of any
government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $100,000.
6. Aviation liability including aerospace and satellite business.
7. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
8. Liquor law liability except where liquor constitutes less than 50% of
sales. Specifically excluded are bars and retail liquor stores.
9. Insurance written for governmental bodies, municipalities, schools and
colleges.
10. Insurance covering damages claims for the withdrawal, inspection,
repair, replacement or loss of use of the insured's products or of any
property of which such products form a part of, or if such products or
property are withdrawn from the market or from use because of any
known or suspected defect or deficiency therein.
11. Liabilities for property damage from asbestos and/or asbestos
products, including but not limited to liability arising from the
mining, manufacture, installation, transport, storage, habitation or
use of materials, products or structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or amendments
thereto.
13. Insurance against earthquake, when written as such.
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14. Insurance on growing crops.
15. Insurance against flood, surface water, waves, tidal water or tidal
wave, overflow of streams or other bodies of water or spray from any
of the foregoing, all whether driven by wind or not, when written as
such.
16. Liability under coverage specifically afforded for loss or damages
resulting from misappropriation, secretion, conversion, infidelity or
any dishonest act on the part of the insured or other party of
interest, his/her or their employees or agents, or any person or
persons to whom merchandise may be entrusted (carriers for hire
excepted).
17. Liability under coverage afforded for loss or damage resulting from
failure to account or pay for any goods or merchandise sold on credit,
delivered under deferred payment agreements, consigned for sale or
delivered under any trust or floor plan agreements, except under
standard accounts receivable policies.
18. Boiler and Machinery, when written as such.
19. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled, providing coverage to an insured with respect to its
mortgage interest in property or its owner interest in foreclosed
property except that physical and consequential damage will be covered
and not considered mortgage impairment when physical loss, damage or
extra expense is caused by perils insured under the Company's policy
to all real and personal property against which the Company's insured
has granted a mortgage or to which the insured has taken title, or
property in which the insured retains an interest when sold under a
conditional sales agreement, a deed of trust, or any other instrument
whereby title remains in the insured, or the insured's interest in
co-operative loans.
20. Difference in conditions insurance and similar kinds of insurance,
howsoever styled.
21. Risks which have a total insurable value of more than $250,000,000.
22. Mobile homes.
23. Loss and/or damage and/or costs and/or expenses arising from seepage
and/or pollution and/or contamination, other than contamination from
smoke. Nevertheless, this exclusion does not preclude payment of the
cost of removing debris of property damaged by a loss otherwise
covered hereunder, subject always to a limit of 25% of the Company's
property loss under the applicable original policy.
24. Fidelity and Surety Business.
25. Grain elevators.
26. Satellites.
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27. Ocean Marine when written as such.
28. Inland Marine business with respect to the following:
a. All bridges and tunnels;
b. Cargo insurance when written as such with respect to ocean, lake,
or inland waterways vessels;
c. Commercial negative film insurance and cast insurance;
d. Stationary drilling rigs;
e. Furriers' customers' policies;
f. Garment contractors' policies;
g. Insurance on livestock under so-called "mortality policies";
h. Motor Truck Cargo as respects long haul trucking;
i. Jewelers' block policies and furriers' block policies;
j. Mining equipment;
k. Radio and television broadcasting towers;
l. Registered mail insurance when the limit of any one addressee on
any one day is more than $50,000;
m. Watercraft other than watercraft insured under property floaters,
yacht and/or outboard policies provided they are less than 50
feet in length;
n. Petrochemical and utility risks;
o. Transmission and distribution lines.
29. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause-Physical Damage-Reinsurance" attached to and forming part of
this Contract.
30. Railroad business, specifically insurance for "line" or "track"
operations of actual railroads.
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31. Oil and gas risks, by which is meant drilling rigs, exploration risks,
cracking plants, refineries and depots, oil and gas pipelines,
offshore oil and gas properties.
32. As respects aviation, hull and ingestion.
33. Any liability for property damage caused by the subsidence of land and
arising out or attributable to any operations of the insured.
34. Business classified by the Company as Automobile Physical Damage.
B. If, without the knowledge of a member of the Company's underwriting
department, the Company becomes bound on a risk specifically excluded from
this Contract, such reinsurance as would have been afforded for the risk by
this Contract if the risk had not been excluded shall nevertheless apply to
such risk with respect to losses occurring prior to the 31st day after
discovery by a member of such underwriting department of the existence of
the hazard which makes the exclusion applicable. In case, within such
30-day period, the Company shall have forwarded to the Reinsurer complete
underwriting information and shall have received from the Reinsurer written
notice of its approval of the risk for the policy period reported, the risk
shall be covered hereunder in the same manner as if such risk were not so
excluded, subject, however, to the terms of such notice of approval.
ARTICLE V - RETENTION AND LIMIT
As respects business subject to this Contract, the Company shall retain and be
liable for 30% of its net liability. The Company shall cede to the Reinsurer and
the Reinsurer agrees to accept 70% of the Company's net liability.
ARTICLE VI - LOSS IN EXCESS OF POLICY LIMITS/ECO
A. In the event the Company pays or is held liable to pay an amount of loss in
excess of its policy limit (bailee coverage only), but otherwise within the
terms of its policy (hereinafter called "loss in excess of policy limits")
or any punitive, exemplary, compensatory or consequential damages, other
than loss in excess of policy limits (hereinafter called "extra contractual
obligations") because of alleged or actual bad faith or negligence on its
part in rejecting a settlement within policy limits, or in discharging its
duty to defend or prepare the defense in the trial of an action against its
policyholder, or in discharging its duty to prepare or prosecute an appeal
consequent upon such an action, or in otherwise handling a claim under a
policy subject to this Contract, 90% of the loss in excess of policy limits
and/or 90% of the extra contractual obligations shall be added to the
(Company's loss, if any, under the policy involved, and the sum thereof
(not exceeding, however, $1,000,000) shall be subject to the provisions of
Article V.
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B. An extra contractual obligation shall be deemed to have occurred on the
same date as the loss covered or alleged to be covered under the policy.
C. Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
D. Recoveries from any form of insurance or reinsurance which protects the
Company against claims the subject matter of this Article shall inure to
the benefit of this Contract.
ARTICLE VII - OTHER REINSURANCE
A. The Company shall have the option to purchase excess of loss reinsurance to
protect its net, recoveries under which to inure solely to the benefit of
the Company and be entirely disregarded in applying all of the provisions
of this Contract.
B. The Company shall purchase or be deemed to have purchased inuring excess
facultative reinsurance to limit its loss subject hereto (inclusive of loss
in excess of policy limits and extra contractual obligations) to $1,000,000
each risk, each loss. However, in the event such reinsurance is purchased,
the Company shall maintain a minimum of 5% of the placement, subject to a
maximum dollar line of $250,000.
ARTICLE VIII - LOSSES AND LOSS ADJUSTMENT EXPENSES
A. Losses shall be reported by the Company in summary form as hereinafter
provided, however, whenever a loss is reserved by the Company for an amount
greater than $100,000, the Company shall notify the Reinsurer. The
Reinsurer shall have the right to participate in the adjustment of losses
subject to this Contract at its own expense.
B. All loss settlements made by the Company, whether under strict policy
conditions or by way of compromise, shall be binding upon the Reinsurer,
and the Reinsurer agrees to pay or allow, as the case may be, its
proportion of each such settlement in accordance with Article XIV. It is
agreed, however, that if the Company's gross loss is equal to or greater
than $100,000, the Reinsurer shall pay its share of said loss as promptly
as possible after receipt of reasonable evidence of the amount paid (or
scheduled to be paid) by the Company.
C. In the event of a claim under a policy subject hereto, the reinsurer shall
be liable for its proportionate share of loss adjustment expenses incurred
by the Company in connection therewith, and shall be credited with its
proportionate share of any recoveries of such expense.
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D. "Loss adjustment expense" means all costs and expenses allocable to a
specific claim that are incurred by the Company 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 1) prejudgment interest, unless included as part of
the award or judgment; 2) postjudgment interest; 3) legal expenses and
costs incurred in connection with coverage questions and legal actions
connected thereto; and 4) a pro rata share of salaries and expenses of
Company field employees, and expenses of other Company employees who have
been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract. Loss
adjustment expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense includes, but is not limited to,
salaries and expenses of employees, other than (4) above and office and
other overhead expenses.
ARTICLE IX - ALTERNATE PAYEE
A. It is understood that in order to make the Company's policies generally
acceptable to certain mortgagees and lending institutions, Gerling Global
Reinsurance Corporation, U.S. Branch, New York, New York (hereinafter
referred to as "Gerling Global") has agreed to issue supplemental
reinsurance endorsements which guarantee that Gerling Global will pay valid
claims under any of the Company's policies to which said endorsements are
attached if the Company fails to pay because of its insolvency.
B. Now, therefore, it is agreed that if Gerling Global, under the provisions
of a supplemental reinsurance endorsement, pays or becomes liable to pay
any claim or claims under any policy or policies subject to this Contract,
Gerling Global shall be substituted for the Company as payee of any
reinsurance recoverable hereunder in respect of such claim or claims, and
the Reinsurer, upon notice from Gerling Global, shall make payment thereof
directly to Gerling Global.
C. In the event the foregoing provisions apply, all the other provisions of
this Contract shall apply to Gerling Global in the same manner as if
Gerling Global were substituted for the Company as the reinsured party
hereunder, and to the extent this Contract reinsures Gerling Global,
coverage hereunder shall be excluded as respects the Company.
ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with its proportionate share of salvage (i.e.,
reimbursement obtained or recovery made by the Company, less the actual cost,
excluding salaries officials and employees of the Company and sums paid to
attorneys as retainer, of obtaining such reimbursement or making such recovery)
on account of claims and settlements involving reinsurance hereunder. The
Company hereby agrees to enforce its rights to salvage or subrogation relating
to any loss, a part of which loss was sustained by the Reinsurer, and to
prosecute all claims arising out of such rights.
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ARTICLE XI - ORIGINAL CONDITIONS
A. All reinsurance under this Contract shall be subject to the same rates,
terms, conditions and waivers, and to the same modifications and
alterations as the respective policies of the Company. The Reinsurer shall
be credited with its exact proportion of the original premiums collected by
the Company, prior to disbursement of any dividends, but after deduction of
premiums, if any, ceded by the Company for inuring reinsurance.
B. Except as provided in Article IX, nothing herein shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of
any third party or any persons not parties to this Contract.
ARTICLE XII - PROVISIONAL CEDING COMMISSION
The Reinsurer shall allow the Company a 30.0% provisional commission on all
premiums ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.
ARTICLE XIII - COMMISSION ADJUSTMENT
A. The provisional commission allowed the Company shall be adjusted
periodically for each underwriting year in accordance with the provisions
set forth herein. The adjusted commission rate shall be calculated as
follows and be applied to premiums earned for the underwriting year under
consideration:
1. If the ratio of losses incurred to premiums earned is 69.0% or
greater, the adjusted commission rate for the underwriting year under
consideration shall be 23.5%;
2. If the ratio of losses incurred to premiums earned is less than 69.0%,
but not less than 62.5%, the adjusted commission rate for the
underwriting year under consideration shall be 23.5%, plus the
difference in percentage points between 69.0% and the actual ratio of
losses incurred to premiums earned;
3. If the ratio of losses incurred to premiums earned is less than
62.5%, but not less than 47.5%, the adjusted commission rate for the
underwriting year under consideration shall be 30.0%, plus one-half
the difference in percentage points between 62.5% and the actual ratio
of losses incurred to premiums earned;
4. If the ratio of losses incurred to premiums earned is 47.5%, but not
less than 41.0%, the adjusted commission rate for the underwriting
year under consideration shall be 37.5%,
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plus the difference in percentage points between 47.5% and the actual
ratio of losses incurred to premiums earned;
5. If the ratio of losses incurred to premiums earned is 41.0% or less,
the adjusted commission rate for the underwriting year under
consideration shall be 44.0%.
B. If the ratio of losses incurred to premiums, earned for any underwriting
year is greater than 69.0%, the difference in percentage points between the
actual ratio of losses incurred to premiums earned and 69.0% shall be,
multiplied by premiums earned for the underwriting year and the product
shall be carried forward to the next underwriting year as a debit
(addition) to losses incurred. If the ratio of losses incurred to premiums
earned for any underwriting year is less than 41.0%, the difference in
percentage points between 41.0% and the actual ratio of losses incurred to
premiums earned shall be multiplied by premiums earned for the underwriting
year and the product shall be carried forward to the next underwriting year
as a credit to (subtraction from) losses incurred.
C. Within 45 days after the end of each underwriting year the Company shall
calculate and report the adjusted commission on premiums earned for the
underwriting year. If the adjusted commission on premiums earned is less
than commissions previously allowed by the Reinsurer on premiums earned for
the underwriting year, the Company shall remit the difference to the
Reinsurer with its report. If the adjusted commission on premiums earned is
greater than commissions previously allowed by the Reinsurer on premiums
earned for the underwriting year, the Reinsurer shall remit the difference
to the Company as promptly as possible after receipt and verification of
the Company's report.
D. In the event the adjusted commission calculation for any underwriting year
is based partly on ceded reserves for losses and/or loss adjustment
expenses, the adjusted commission shall be recalculated within 45 days
after the end of each subsequent 12-month period until all losses under
policies with effective or renewal dates during the underwriting year have
been settled. Any balance shown to be due either party as a result of any
such recalculation shall be remitted promptly by the other party.
E. "Losses incurred" as used herein shall mean ceded losses and loss
adjustment expenses paid as of the effective date of calculation, plus the
ceded reserves for losses and loss adjustment expenses outstanding as of
the same date, plus (minus) the debit (credit) from the preceding
underwriting year, it being understood and agreed that all losses and
related loss adjustment expenses under policies allocated to the
underwriting year shall be charged to that underwriting year, regardless of
the date said losses actually occur, unless this Contract is terminated on
a "cutoff" basis, in which event the Reinsurer shall have no liability for
losses occurring after the effective date of termination.
F. "Premiums earned" as used herein shall mean ceded net written premiums for
policies allocated to the underwriting year, less the unearned portion
thereof as of the effective date of calculation, it being understood and
agreed that all premiums for policies allocated to an underwriting year
shall be credited to that underwriting year, unless this Contract is
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terminated on a "cutoff" basis, in which event the unearned reinsurance
premium (less previously allowed provisional ceding commission) as of the
effective date of termination shall be returned by the Reinsurer to the
Company.
G. It is expressly agreed that the ceding commission allowed the Company
includes provision for all dividends, commissions and taxes, and all board,
exchange and bureau assessments, and all other expenses of whatever nature,
except loss adjustment expenses.
ARTICLE XIV - REPORTS AND REMITTANCES
A. Within 45 days after the end of each month, the Company shall report to the
Reinsurer:
1. Ceded net written premium for the month by underwriting year;
2. Collected subject premium for the month by underwriting year;
3. Provisional ceding commission allowed on (2) above;
4. Ceded losses and loss adjustment expenses paid during the month (net
of any recoveries during the calendar month under the "cash call"
provisions of Article VIII);
5. Ceded unearned premiums and ceded outstanding loss reserves as of the
end of the month.
The positive balance of (2) less (3) less (4) shall be remitted by the
Company with its report. Any balance shown to be due the Company shall be
remitted by the Reinsurer as promptly as possible after receipt and
verification of the Company's report.
B. Annually, the Company shall furnish the Reinsurer with such information as
the Reinsurer may require to complete its Annual Convention Statement.
ARTICLE XV - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XVI - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
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ARTICLE XVII - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery.
ARTICLE XVIII - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XIX - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its share
of the Company's ceded unearned premium and outstanding loss and loss
adjustment expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit and
acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the insurance
regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to insurance
regulatory authorities involved, will be issued for a term of at least one
year and will include an "evergreen clause," which automatically extends
the term for at least one additional year at each expiration date unless
written notice of non-renewal is given to the Company not less than 30 days
prior to said expiration date. The Company and the Reinsurer further agree,
notwithstanding anything to
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the contrary in this Contract, that said letters of credit may be drawn
upon by the Company or its successors in interest at any time, without
diminution because of the insolvency of the Company or the Reinsurer, but
only for one or more of the following purposes:
1. To reimburse itself for the Reinsurer's share of unearned premiums
returned to insureds on account of policy cancellations, unless paid
in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expenses paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
4. To fund a cash account in an amount equal to the Reinsurer's share of
any ceded unearned premium and/or outstanding loss and loss adjustment
expense reserves (including incurred but not reported loss reserves)
funded by means of a letter of credit which is under non-renewal
notice, if said letter of credit has not been renewed or replaced by
the Reinsurer 10 days prior to its expiration date;
5. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded unearned
premium and/or outstanding loss and loss adjustment expense reserves
(including incurred but not reported loss reserves), if so requested
by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(1), B(2) or B(4), or in the case
of B(3), the actual amount determined to be due, the Company shall promptly
return to the Reinsurer the excess amount so drawn.
ARTICLE XX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, with reasonable provision
for verification, on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that
the liquidator, receiver, conservator or statutory successor of the Company
shall give written notice to the Reinsurer of the pendency of a claim
against the Company indicating the policy or bond reinsured which claim
would involve a possible liability on the part of the Reinsurer within a
reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where such claim is to be adjudicated,
any
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defense or defenses that it may deem available to the Company or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this Contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except as provided by Section 4118(a) of the New York Insurance
Law or except (a) where this Contract specifically provides another payee
of such reinsurance in the event of the insolvency of the Company or (b)
where the Reinsurer with the consent of the direct insured or insureds has
assumed such policy obligations of the Company as direct obligations of the
Reinsurer to the payees under such policies and in substitution for the
obligations of the Company to such payees.
D. Any hold harmless and indemnity agreement affecting payment under this
Contract shall be considered an endorsement to and therefore part of this
Contract, irrespective of any language to the contrary. Any indemnitee
shall be considered a 'payee' within this Article. In no event shall any
reinsurer have double indemnity for any loss or expense under this
Contract, it being the intent that any payments by the reinsurer to any
payee as provided herein shall not be subject to and also collectible in
any liquidation or similar proceeding.
ARTICLE XXI - ARBITRATION (BRMA 6J)
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by
the Company, the other by the Reinsurer, and an Umpire shall be chosen by
the two Arbiters before they enter upon arbitration, all of whom shall be
active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's London Underwriters. In the event that
either party should fail to choose an Arbiter within 30 days following a
written request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an
Umpire within 30 days following their appointment, each Arbiter shall
nominate three candidates within 10 days thereafter, two of whom the other
shall decline, and the decision shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Contract as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial
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formalities and may abstain from following the strict rules of law. The
decision of the Arbiters shall be final and binding on both parties; but
failing to agree, they shall call in the Umpire and the decision of the
majority shall be final and binding upon both parties. Judgment upon the
final decision of the Arbiters may be entered in any court of competent
jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Contract, but notwithstanding the location of
the arbitration, all proceedings pursuant hereto shall be governed by the
law of the state in which the Company has its principal office.
ARTICLE XXII - SERVICE OF SUIT (BRMA 49C) (Applicable if the Reinsurer is not
domiciled in the United States of America, and/or is not authorized in any
State, Territory or District of the United States where authorization is
required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or
of any state in the United States.
B. Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute, or
his successor or successors in office, as its true and lawful attorney upon
whom may be served any lawful process in any action, suit or proceeding
instituted by or on behalf of the Company or any beneficiary hereunder
arising out of this Contract.
Page 15
<PAGE> 20
ARTICLE XXIII - INTERMEDIARY (BRMA 23A)
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be
deemed to constitute payment to the Company only to the extent that such
payments are actually received by the Company.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this 23rd day of December 1994.
---- --------- --
/s/ [SIG]
-----------------------------
M. L. OATES INSURANCE COMPANY
Page 16
<PAGE> 21
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph (1) of this
Clause, this Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on the
site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or for processing
substantial quantities of "special nuclear material," and for
reprocessing, salvaging, chemically separating, storing or disposing
of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III above using
substantial quantities of radioactive isotopes or other products of
nuclear fission.
3. Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate
(a) where Reassured does not have knowledge of such nuclear reactor power
plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operations of paragraphs (1), (2) and
(3) hereof, this Reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and (b) the extent of installation, plant or
site.
Note.-Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that
(a) all policies issued by the Reassured on or before 31st December 1957
shall be free from the application of the other provisions of this
Clause until expiry date or 31st December 1960 whichever first occurs
whereupon all the provisions of this Clause shall apply.
(b) with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry date
or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
<PAGE> 22
INTERESTS AND LIABILITIES AGREEMENT
of
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
TERMS EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 12.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1993, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 6th day of March 1995.
---- ----- ---
[SIG] VICE PRESIDENT,
--------------------------------------------
Generali - U.S. Branch
(also known as General Insurance Company #3874
of Trieste and Venice, U.S. Branch)
By: Genamerica Management Corp.
<PAGE> 23
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
TERMS EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 34.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1993, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 14 day of April 1995.
--- -------- ---
[SIG] [SIG]
------------------------------------------------
Gerling Global Reinsurance Corporaion, U.S. Branch
By: Gerling Global Offices, Inc., U.S. Manager
<PAGE> 24
INTERESTS AND LIABILITIES AGREEMENT
of
The Great Lakes Reinsurance Company
(United States Branch)
New York, New York
by
Great Lakes Re Management Corporation
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
TERMS EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 13.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1993, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 17th day of February 1995.
----- -------- ---
[SIG]
-----------------------------------------
The Great Lakes Reinsurance Company
(United States Branch)
By: Great Lakes Re Management Corporation
<PAGE> 25
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
TERMS EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 20.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1993, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 9TH day of January 1997.
--- -------- ---
[SIG]
-------------------------------------------------
SOREMA North America Reinsurance Company
THOMAS P. ASQUINO
VICE President & Manager
Treaty Property
<PAGE> 26
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
TERMS EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 20.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on July 1, 1993, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 5th day of April 1995.
--- ------ ---
[SIG]
-------------------------------------------------
Winterthur Reinsurance Corporation of America
<PAGE> 27
ANCILLARY AGREEMENT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Reinsurer")
SECTION 1 - SCOPE OF AGREEMENT
A. In order to make policies of the Company generally acceptable to certain
mortgagees or lending institutions, the Reinsurer hereby authorizes the
Company to attach to its policies a supplemental reinsurance endorsement
reciting, in effect, that the Reinsurer guarantees payment of any valid
first party claim under such policies should the Company fail to pay
because of its insolvency. A copy of the form of supplemental reinsurance
endorsement to be used by the Company is attached to and forms part of this
Agreement.
B. The authority granted herein by the Reinsurer is specifically limited to
property policies (including the property sections of multiple peril
policies) with physical damage limits not exceeding $2,000,000, unless
otherwise mutually agreed, provided such policies are subject to the
Company's Property Quota Share Reinsurance Contract, effective July 1,
1993.
C. The Company shall be responsible for all supplemental reinsurance
endorsements entrusted to it by the Reinsurer, whether issued or not, and
shall only issue supplemental reinsurance endorsements in series.
D. The Company shall investigate and settle or conduct the defense in any and
all claims, or cause the investigation and settlement or defense in any and
all claims to be made according to the terms of its policies in the same
manner as if no supplemental reinsurance endorsement were attached.
However, in the event of the insolvency of the Company, its liquidator,
receiver, conservator or statutory successor shall promptly notify the
Reinsurer of any claim filed against the Company in the conservation or
liquidation proceeding or in the receivership if such claim might involve
liability on the part of the Reinsurer because of the attachment of a
supplemental reinsurance endorsement to a Company policy. During the
Page 1 of 4
<PAGE> 28
pendency of such claim, the Reinsurer may investigate such claim and
interpose at its own expense in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the
Company or its liquidator, receiver, conservator or statutory successor.
E. Should the Reinsurer, as a result of the attachment of a supplemental
reinsurance endorsement to a Company policy, be required to pay a loss
directly to an insured of the Company, the Company or its liquidator,
receiver, conservator or statutory successor agrees to hold the Reinsurer
harmless with respect to such loss and reimburse and indemnify the
Reinsurer for the amount of its net loss (i.e., after all reinsurance
recoveries and salvage).
SECTION 2 - COMMENCEMENT AND TERMINATION
A. This Agreement shall become effective on July 1, 1993, and shall continue
in force thereafter until terminated.
B. This Agreement shall terminate automatically upon termination of the
Company's Property Quota Share Reinsurance Contract, and may be terminated
at any underwriting year anniversary by either party giving the other party
not less than 90 days prior notice by certified mail.
C. In the event that this Agreement is terminated, the Reinsurer shall remain
liable under all supplemental reinsurance endorsements in force on the
effective date of termination until such time as the policies associated
with such supplemental reinsurance endorsements are allocated to a new
underwriting year as set forth in the Property Quota Share Reinsurance
Contract.
SECTION 3 - REINSURANCE WARRANTY
A. The Company warrants that during the currency of this Agreement it will
purchase and maintain in force the following reinsurance on every policy to
which a supplemental reinsurance endorsement is attached:
1. Property Quota Share Reinsurance of 7O% of $1,000,000 any one risk.
2. Excess per risk treaty reinsurance for $200,000 excess of $100,000 any
one risk.
3. Excess per risk treaty reinsurance for $1,000,000 excess of $1,000,000
any one risk.
B. The Company also warrants that the reinsurance referred to in paragraph A
above will in every case include or be endorsed to include provisions
similar in intent to the following:
1. If the Reinsurer, under the provisions of a supplemental reinsurance
endorsement, pays or becomes liable to pay any claim or claims under
any policy or policies subject to the
Page 2 of 4
<PAGE> 29
reinsurance, the Reinsurer shall be substituted for the Company as
payee of any reinsurance recoverable thereunder in respect of such
claim or claims, and the reinsurer, upon notice from the Reinsurer,
shall make payment thereof directly to the Reinsurer;
2. In the event the foregoing provisions apply, all the other provisions
of the reinsurance shall apply to the Reinsurer in the same manner as
if the Reinsurer were substituted for the Company as the reinsured
party thereunder, and to the extent the reinsurance reinsures the
Reinsurer, coverage thereunder shall be excluded as respects the
Company.
SECTION 4 - REPORTS AND REMITTANCES
A. Within 45 days after the end of each calendar quarter, the Company shall
prepare and submit a report to the Reinsurer, on forms mutually acceptable,
setting forth the following:
1. Supplemental reinsurance endorsements issued during the calendar
quarter;
2. Supplemental reinsurance endorsements issued and outstanding as of the
end of the calendar quarter.
B. Within 45 days after the end of each calendar quarter, the Company shall
send the Reinsurer a copy of each supplemental reinsurance endorsement
issued, voided or cancelled during the calendar quarter.
SECTION 5 - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
SECTION 6 - ARBITRATION (BMRA 6J)
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to this
Agreement, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by
the Company, the other by the Reinsurer, and an Umpire shall be chosen by
the two Arbiters before they enter upon arbitration, all of whom shall be
active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's London Underwriters. In the event that
either party should fail to choose an Arbiter within 30 days following a
written request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an
Umpire within 30 days following their appointment, each Arbiter shall
nominate three candidates within 10 days thereafter, two of whom the other
shall decline, and the decision shall be made by drawing lots.
Page 3 of 4
<PAGE> 30
B. Each party shall present its case to the Arbiters within 30 days following
the date of appointment of the Umpire. The Arbiters shall consider this
Agreement as an honorable engagement rather than merely as a legal
obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Agreement from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this Agreement, but notwithstanding the location of
the arbitration, all proceedings pursuant hereto shall be governed by the
law of the state in which the Company has its principal office.
SECTION 7 - INTERMEDIARY
E. W. Blanch Co., Reinsurance Services, 3500 West 80th Street, Minneapolis,
Minnesota 55431, is hereby recognized as the intermediary by whom this Agreement
was negotiated and through whom all communications relating hereto shall be
transmitted to both parties.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this 23rd day of December 1994.
---- -------- ---
[SIG]
---------------------------------------------------
M.L. Oates Insurance Company
New York, New York, this 10th day of October 1995.
--- -------- --
[SIG]
---------------------------------------------------
Gerling Global Reinsurance Corporation, U.S. Branch
By: Gerling Global Offices, Inc., U.S. Manager
Page 4 of 4
<PAGE> 31
Supplemental Reinsurance Endorsement
Issued By
GERLING GLOBAL REINSURANCE CORPORATION, U.S. BRANCH
New York, New York
This endorsement forms a part of policy no. issued by M. L. Oates Insurance
Company (hereinafter referred to as the "Company") to the Insured named below:
Named Insured: _________________________________________________________
Insured's Address: _____________________________________________________
Policy Amount: __________________________________________________________
Policy Term: Effective Date: _________ Expiration Date: ______________
Mortgagee: _______________________________________________________________
Mortgagee's Address: _____________________________________________________
For value received, Gerling Global Reinsurance Corporation, U.S. Branch
(hereinafter referred to as the "Reinsurer") agrees that in the event of the
insolvency of the Company, the Reinsurer will immediately become liable for 100%
of any physical damage loss payable by the Company to the Mortgagee under the
policy to which this endorsement is attached (it being understood and agreed
that when this endorsement is attached to a multiple peril policy, it applies
only to Property Coverage Parts thereof). The Reinsurer will make payment
thereof directly to the Mortgagee or Beneficiary under any present or future
mortgage or trust deed, both contingent upon receipt of the proportionate
share(s) of all other participating reinsurers, if any, in the accounts of the
undersigned Reinsurer, subject always to the other terms of the policy. As a
condition precedent to payment hereunder, the Reinsurer shall be subrogated to
all the rights of the Mortgagee or Beneficiary to the extent of such payment.
The Company and the Reinsurer covenant that the provisions of this endorsement
take precedence over any other reinsurance agreement, contract or arrangement
between them to the extent the Reinsurer shall not be subject to duplicate
liability because of any payment or payments made under the terms hereof.
Cancellation of the policy shall automatically and simultaneously cancel this
Endorsement.
The Reinsurer reserves the right to cancel this endorsement upon 30 days prior
notice in writing to the Company, the Insured and the Mortgagee.
M. L. Oates Insurance Company Gerling Global Reinsurance Corporation,
U.S. Branch
By: _______________________________ BY: ________________________________
Title: ___________________________ Title: ______________________________
White-Mortgagee Pink-Insured Blue-M. L. Oates Yellow/Green-Reinsurer
<PAGE> 32
ADDENDUM NO. 1
to the
ANCILLARY AGREEMENT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
by
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
IT IS HEREBY AGREED, effective December 31, 1993, that all references in this
Agreement to "M. L. Oates Insurance Company" shall be amended to read "Financial
Pacific Insurance Company."
The provisions of this Agreement shall remain otherwise unchanged.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this 23rd day of December 1994.
---- ---------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 10th day of October 1995.
------ -------- --
[SIG]
-------------------------------------------------
Gerling Global Reinsurance Corporation, U.S. Branch
By: Gerling Global Offices, Inc., U.S. Manager
<PAGE> 33
SUPPLEMENTAL REINSURANCE ENDORSEMENT
Issued By
GERLING GLOBAL REINSURANCE CORPORATION, U. S. BRANCH
New York, New York
This endorsement forms a part of policy no. issued by Financial Pacific
Insurance Company (hereinafter referred to as the "Company") to the Insured
named below:
Name Insured: ____________________________________________________________
Insured's Address: _______________________________________________________
Policy Amount: ___________________________________________________________
Policy Term: Effective Date: ___________ Expiration Date: ____________
Mortgagee: _______________________________________________________________
Mortgagee's Address: _____________________________________________________
For value received, Gerling Global Reinsurance Corporation, U.S. Branch
(hereinafter referred to as the "Reinsurer") agrees that in the event of the
insolvency of the Company, the Reinsurer will immediately become liable for 100%
of any physical damage loss payable by the Company to the Mortgagee under the
policy to which this endorsement is attached (it being understood and agreed
that when this endorsement is attached to a multiple peril policy, it applies
only to Property Coverage Parts thereof). The Reinsurer will make payment
thereof directly to the Mortgagee or Beneficiary under any present or future
mortgage or trust deed, both contingent upon receipt of the proportionate
shares(s) of all other participating reinsurers, if any, in the accounts of the
undersigned Reinsurer, subject always to the other terms of the policy. As a
condition precedent to payment hereunder, the Reinsurer shall be subrogated to
all the rights of the Mortgagee or Beneficiary to the extent of such payment.
The Company and the Reinsurer covenant that the provisions of this endorsement
take precedence over any other reinsurance agreement, contract or arrangement
between them to the extent the Reinsurer shall not be subject to duplicate
liability because of any payment or payments made under the terms hereof.
Cancellation of the policy shall automatically and simultaneously cancel this
Endorsement.
The Reinsurer reserves the right to cancel this endorsement upon 30 days prior
notice in writing to the Company, the Insured and the Mortgagee.
Financial Pacific Insurance Company Gerling Global Reinsurance Corporation
U. S. Branch
By: ________________________________ By: __________________________________
Title: _____________________________ Title: _______________________________
White-Mortgagee Pink-Insured Blue-Financial Pacific Yellow/Green-Reinsurer
<PAGE> 34
(Revised: January 1, 1994)
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
Genamerica Management Corp.
(for Generali - U.S. Branch) 12.5%
Gerling Global Reinsurance Corporation, U. S. Branch 30.0
San Francisco Reinsurance Company 12.5
SOREMA North America Reinsurance Company 20.0
Sydney Reinsurance Corporation 5.0
Winterthur Reinsurance Corporation of America 20.0
Total 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 35
ADDENDUM NO.1
to the
INTERESTS AND LIABILITIES AGREEMENT
Of
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
New York, New York
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective December 31, 1993.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 23rd day of December 1994.
------ --------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 6th day of MARCH 1995
--- ---------------
[SIG] VICE PRESIDENT
-------------------------------------------------
Generali - U.S. Branch
(also known as General Insurance Company #3874
of Trieste and Venice, U.S. Branch)
By: Genamerica Management Corp.
<PAGE> 36
ADDENDUM NO.1
to the
INTERESTS AND LIABILITIES AGREEMENT
OF
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective December 31, 1993.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 34.5%
to 30.0%, effective January 1, 1994, with respect to business issued or renewed
on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 23rd day of DECEMBER 1994
------ ------------ --
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 14th day of April 1995
--- ------- ---
[SIG]
-------------------------------------------------
Gerling Global Reinsurance Corporation, U.S. Branch
By: Gerling Global Offices, Inc., U.S. Manager
<PAGE> 37
TERMINATION ADDENDUM
to the
INTERESTS AND LIABILITIES AGREEMENT
OF
The Great Lakes Reinsurance Company
(United States Branch)
New York, New York
by
Great Lakes Re Management Corporation
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
IT IS HEREBY AGREED, effective December 31, 1993, that all references in the
Contract to "M. L. Oates Insurance Company" shall be amended to read "Financial
Pacific Insurance Company."
IT IS FURTHER AGREED that this Agreement and the Subscribing Reinsurer's 13.0%
share in the interests and liabilities of the "Reinsurer" under the Contract
shall be terminated on December 31, 1993, in accordance with the "runoff"
provisions of paragraph C of Article II -- Commencement and Termination.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 23rd day of December 1994
------ -------- --
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 17th day of February 1995.
----- -------- --
[SIG]
-------------------------------------------------
The Great Lakes Reinsurance Company
(United States Branch)
By: Great Lakes Re Management Corporation
<PAGE> 38
INTERESTS AND LIABILITIES AGREEMENT
of
San Francisco Reinsurance Company
San Francisco, California
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addendum No. 1)
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 12.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1994, with respect to
business issued or renewed on or after that date, and shall continue in force
until terminated in accordance with the provisions of the attached Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
San Francisco, California, this 1st day of December 1995.
---- -------- --
[SIG]
-------------------------------------------------
San Francisco Reinsurance Company
<PAGE> 39
Addendum No.1
to the
Interests and Liabilities Agreement
of
SOREMA North America Reinsurance Company
New York, New York
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective December 31, 1993.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 23rd day of December 1994.
---- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 9th day of January 1992.
--- ------- --
[SIG]
-------------------------------------------------
SOREMA North America Reinsurance Company
THOMAS P. ASQUINO
Vice President & Manager
Treaty Property
<PAGE> 40
INTERESTS AND LIABILITIES AGREEMENT
of
Sydney Reinsurance Corporation
Philadelphia, Pennsylvania
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addendum No. 1)
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 5.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1994, with respect to
business issued or renewed on or after that date, and shall continue in force
until terminated in accordance with the provisions of the attached Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Agreement as of the date undermentioned at:
New York, New York, this 6th day of June 1995.
--- ---- ---
[SIG]
-------------------------------------------------
Sydney Reinsurance Corporation
<PAGE> 41
ADDENDUM NO.1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 1 to the Contract shall form part of the
Contract, effective December 31, 1993.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 23rd day of December l994.
---- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 5th day of April 1995.
--- ---- ---
[SIG]
-------------------------------------------------
Winterthur Reinsurance Corporation of America
<PAGE> 42
(Revised: January 1, 1995)
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
Genamerica Management Corp.
(for Generali - U.S. Branch) 15.0%
Gerling Global Reinsurance Corporation, U. S. Branch 30.0
The Mercantile and General Reinsurance Company of America 10.0
SOREMA North America Reinsurance Company 20.0
Sydney Reinsurance Corporation 5.0
Winterthur Reinsurance Corporation of America 20.0
TOTAL 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 43
ADDENDUM NO.2
to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED, effective January 1, 1995, with respect to policies
allocated to underwriting years commencing on or after that date, that this
Contract shall be amended as follows:
1. Article V - Retention and Limit - shall be deleted and the following
substituted therefor:
"ARTICLE V - RETENTION AND LIMIT
A. As respects business subject to this Contract, the Company shall
retain and be liable for 30.0% of its net liability. The Company shall
cede to the Reinsurer and the Reinsurer agrees to accept 70.0% of the
Company's net liability.
B. Notwithstanding the provisions of paragraph A above, the liability of
the Reinsurer for loss hereunder shall not exceed $15,000,000 each
loss occurrence.
C. The term 'loss occurrence' shall mean the sum of all individual losses
directly occasioned by any one disaster, accident or loss or series of
disasters, accidents or losses arising out of one event which occurs
within the area of one state of the United States or province of
Canada and states or provinces contiguous thereto and to one another.
However, the duration and extent of any one 'loss occurrence' shall be
limited to all individual losses sustained by the Company occurring
during any period of 168 consecutive hours arising out of and directly
occasioned by the same event, except that the term "loss occurrence"
shall be further defined as follows:
1. As regards windstorm, hail, tornado, hurricane, cyclone,
including ensuing collapse and water damage, all individual
losses sustained by the Company occurring during any period of 72
consecutive hours arising out of and directly occasioned by the
same event. However, the event need not be limited to one state
or province or states or provinces contiguous thereto.
Page 1
<PAGE> 44
2. As regards riot, riot attending a strike, civil commotion,
vandalism and malicious mischief, all individual losses sustained
by the Company occurring during any period of 72 consecutive
hours within the area of one municipality or county and the
municipalities or counties contiguous thereto arising out of and
directly occasioned by the same event. The maximum duration of 72
consecutive hours may be extended in respect of individual losses
which occur beyond such 72 consecutive hours during the continued
occupation of an assured's premises by strikers, provided such
occupation commenced during the aforesaid period.
3. As regards earthquake (the epicentre of which need not
necessarily be within the territorial confines referred to in
paragraph A of this Article) and fire following directly
occasioned by the earthquake, only those individual fire losses
which commence during the period of 168 consecutive hours may be
included in the Company's 'loss occurrence.'
4. As regards 'freeze,' only individual losses directly occasioned
by collapse, breakage of glass and water damage (caused by
bursting frozen pipes and tanks and melting snow) may be included
in the Company's 'loss occurrence.'
Except for those 'loss occurrences' referred to in subparagraphs 1 and
2 above, the Company may choose the date and time when any such period
of consecutive hours commences, provided that it is not earlier than
the date and time of the occurrence of the first recorded individual
loss sustained by the Company arising out of that disaster, accident
or loss, and provided that only one such period of 168 consecutive
hours shall apply with respect to one event.
However, as respects those 'loss occurrences' referred to in
subparagraphs 1 and 2 above, if the disaster, accident or loss
occasioned by the event is of greater duration than 72 consecutive
hours, then the Company may divide that disaster, accident or loss
into two or more 'loss occurrences,' provided that no two periods
overlap and no individual loss is included in more than one such
period, and provided that no period commences earlier than the date
and time of the occurrence of the first recorded individual loss
sustained by the Company arising out of that disaster, accident or
loss.
It is understood that losses arising from a combination of two or more
perils as a result of the same event shall be considered as having
arisen from one 'loss occurrence.' Notwithstanding the foregoing, the
hourly limitations as stated above shall not be exceeded as respects
the applicable perils and no single 'loss occurrence' shall encompass
a time period greater than 168 consecutive hours."
2. Article XII - Provisional Ceding Commission - shall be deleted and the
following substituted therefor:
"The Reinsurer shall allow the Company a 35.0% provisional commission on
all premiums ceded to the Reinsurer hereunder. The Company shall allow the
Reinsurer return commission on return premiums at the same rate."
Page 2
<PAGE> 45
3. Subparagraphs 2, 3, 4 and 5 of paragraph A and paragraph B of Article XIII
- ComMission Adjustment - shall be deleted and the following substituted
therefor:
"2. If the ratio of losses incurred to premiums earned is less than 69.0%,
but not less than 57.5%, the adjusted commission rate for the
underwriting year under consideration shall be 23.5%, plus the
difference in percentage points between 69.0% and the actual ratio of
losses incurred to premiums earned;
3. If the ratio of losses incurred to premiums earned is less than 57.5%,
but not less than 42.5%, the adjusted commission rate for the
underwriting year under consideration shall be 35.0%, plus one-half
the difference in percentage points between 57.5% and the actual ratio
of losses incurred to premiums earned;
4. If the ratio of losses incurred to premiums earned is 42.5% or less,
the adjusted commission rate for the underwriting year under
consideration shall be 42.5%."
"B. If the ratio of losses incurred to premiums earned for any
underwriting year is greater than 69.0%, the difference in percentage
points between the actual ratio of losses incurred to premiums earned
and 69.0% shall be multiplied by premiums earned for the underwriting
year, and the product shall be carried forward to the next
underwriting year as a debit (addition) to losses incurred. If the
ratio of losses incurred to premiums earned for any underwriting year
is less than 42.5%, the difference in percentage points between 42.5%
and the actual ratio of losses incurred to premiums earned shall be
multiplied by premiums earned for the underwriting year, and the
product shall be carried forward to the next underwriting year as a
credit to (subtraction from) losses incurred."
The provisions of this Contract shall remain otherwise unchanged.
Page 3
<PAGE> 46
ADDENDUM NO.2
TO THE
INTERESTS AND LIABILITIES AGREEMENT
OF
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 2 to the Contract shall form part of the
Contract, effective January 1, 1995.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be increased from 12.5%
to 15.0%, effective January 1, 1995, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 24th day of February 1996.
---- -------- -
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this day of MAR - 6 1996 199 .
--- -------------- --
Ian G Davey
[SIG] Senior Vice President
-------------------------------------------------
Generali - U.S. Branch
(also known as General Insurance Company # 3874
of Trieste and Venice, U.S. Branch)
By: Genamerica Management Corp.
<PAGE> 47
ADDENDUM NO. 2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 2 to the Contract shall form part of the
Contract, effective January 1, 1995.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 26th day of February 1996.
---- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 18th day of March 1996.
---- ----- ---
[SIG] VICE PRESIDENT
-------------------------------------------------
Gerling Global Reinsurance Corporation, U.S. Branch
By: Gerling Global Offices, Inc., U.S. Manager
<PAGE> 48
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
The Mercantile and General Reinsurance Company
of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 10.0% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addenda Nos. 1 and 2)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1995, with respect to policies allocated to underwriting years commencing on or
after that date, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this 26th day of February 1996.
---- -------- --
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
Morristown, New Jersey, this 13th day of July 1996.
---- ---- --
[SIG]
-------------------------------------------------
The Mercantile and General Reinsurance Company
of America
<PAGE> 49
ADDENDUM NO. 2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 2 to the Contract shall form part of the
Contract, effective January 1, 1995.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 26th day of February 1996.
---- -------- --
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 9th day of January 1997.
--- ------- --
[SIG]
-------------------------------------------------
SOREMA North America Reinsurance Company
THOMAS P. ASQUINO
Vice President & Manager
Treaty Property
<PAGE> 50
ADDENDUM NO. 1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Sydney Reinsurance Corporation
Philadelphia, Pennsylvania
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 2 to the Contract shall form part of the
Contract, effective January 1, 1995.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 26th day of February 1996.
---- -------- --
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 5th day of April 1996.
--- ----- --
[SIG]
-------------------------------------------------
Sydney Reinsurance Corporation Our Ref #31337
<PAGE> 51
ADDENDUM NO. 2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 2 to the Contract shall form part of the
Contract, effective January 1, 1995.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 26th day of February 1996.
---- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 23rd day of September 1996.
---- --------- ---
[SIG]
-------------------------------------------------
Winterthur Reinsurance Corporation of America
<PAGE> 52
TERMINATION ADDENDUM
to the
INTERESTS AND LIABILITIES AGREEMENT
of
San Francisco Reinsurance Company
Novato, California
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that this Agreement and the Subscribing Reinsurer's 12.5%
share in the interests and liabilities of the "Reinsurer" under the Contract
shall be terminated on December 31, 1994, in accordance with the "runoff"
provisions of paragraph C of Article II -- Commencement and Termination.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 26th day of February 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
Novato, California, this 7th day of March 1996.
--- ----- ---
[SIG]
-------------------------------------------------
San Francisco Reinsurance Company
<PAGE> 53
(Revised: January 1, 1996)
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
M. L. Oates Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
Constitution Reinsurance Corporation 7.5%
Folksamerica Reinsurance Company 7.5
Genamerica Management Corp.
(for Generali - U.S. Branch) 7.5
Gerling Global Reinsurance Corporation, U. S. Branch 25.0
The Mercantile and General Reinsurance Company of America 12.5
St. Paul Reinsurance Management Corporation
(for St. Paul Fire and Marine Insurance Company) 7.5
SOREMA North America Reinsurance Company 17.5
Winterthur Reinsurance Corporation of America 15.0
Total 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 54
ADDENDUM NO.3
to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED, effective January 1, 1996, that subparagraph 4 of paragraph
A and paragraph B of Article XIII - Commission Adjustment (as amended by
Addendum No. 2) - shall be deleted and the following substituted therefor:
"4. If the ratio of losses incurred to premiums earned is less than
42.50%, but not less than 40.0%, the adjusted commission rate for the
underwriting year under consideration shall be 42.50%, plus the
difference in percentage points between 42.50% and the actual ratio of
losses incurred to premiums earned;
5. If the ratio of losses incurred to premiums earned is 40.0% or less,
the adjusted commission rate for the underwriting year under
consideration shall be 45.0%."
"B. If the ratio of losses incurred to premiums earned for any
underwriting year is greater than 69.0%, the difference in percentage
points between the actual ratio of losses incurred to premiums earned
and 69.0% shall be multiplied by premiums earned for the underwriting
year, and the product shall be carried forward to the next
underwriting year as a debit (addition) to losses incurred. If the
ratio of losses incurred to premiums earned for any underwriting year
is less than 40.0%, the difference in percentage points between 40.0%
and the actual ratio of losses incurred to premiums earned shall be
multiplied by premiums earned for the underwriting year, and the
product shall be carried forward to the next underwriting year as a
credit to (subtraction from) losses incurred."
The provisions of this Contract shall remain otherwise unchanged.
<PAGE> 55
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
Constitution Reinsurance Corporation
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 7.5% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addenda Nos. 1, 2 and 3)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1996, with respect to policies allocated to underwriting years commencing on or
after that date, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 24th day of February 1997.
---- -------- ---
[SIG]
-------------------------------------------------
Constitution Reinsurance Corporation
<PAGE> 56
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
Folksamerica Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 7.5% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addenda Nos. 1, 2 and 3)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1996, with respect to policies allocated to underwriting years commencing on or
after that date, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- --
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 29th day of January 1997.
---- ------- ---
[SIG]
-------------------------------------------------
Folksamerica Reinsurance Company
<PAGE> 57
ADDENDUM NO.3
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 3 to the Contract shall form part of the
Contract, effective January 1, 1996.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 15.0%
to 7.5%, effective January 1, 1996, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 8th day of January 1997.
--- ------- ----
[SIG]
-------------------------------------------------
Generali - U.S. Branch (also known as General Insurance
Company of Trieste and Venice, U.S. Branch)
By: Genamerica Management Corp.
<PAGE> 58
ADDENDUM NO. 3
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 3 to the Contract shall form part of the
Contract, effective January 1, 1996.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 30.0%
to 25.0%, effective January 1, 1996, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 18th day of February 1997.
---- -------- ---
[SIG]
-------------------------------------------------
Gerling Global Reinsurance Corporation, U.S. Branch
By: Gerling Global Offices, Inc., U.S. Manager
<PAGE> 59
ADDENDUM NO.1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
The Mercantile and General Reinsurance Company
of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 3 to the Contract shall form part of the
Contract, effective January 1, 1996.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be increased from 10.0%
to 12.5%, effective January 1, 1996, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
Morristown, New Jersey, this 21st day of February 1997.
---- -------- ---
[SIG]
-------------------------------------------------
The Mercantile and General Reinsurance Company
of America
<PAGE> 60
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
St. Paul Fire and Marine Insurance Company
St. Paul, Minnesota
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 7.5% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addenda Nos. 1, 2 and 3)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1996, with respect to policies allocated to underwriting years commencing on or
after that date, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 13th day of January 1997.
---- ------- ---
[SIG]
-------------------------------------------------
St. Paul Fire and Marine Insurance Company
St. Paul Reinsurance Management Corporation,
Reinsurance Managers
<PAGE> 61
ADDENDUM NO.3
to the
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 3 to the Contract shall form part of the
Contract, effective January 1, 1996.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 20.0%
to 17.5%, effective January 1, 1996, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 26th day of July 1997.
---- ---- ---
[SIG]
-------------------------------------------------
SOREMA North America Reinsurance Company
THOMAS P. ASQUINO
Vice President & Manager
Treaty Property
<PAGE> 62
ADDENDUM NO.3
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 3 to the Contract shall form part of the
Contract, effective January 1, 1996.
It IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 20.0%
to 15.0%, effective January 1, 1996, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 11th day of March 1997.
---- ----- ---
[SIG]
-------------------------------------------------
Winterthur Reinsurance Corporation of America
<PAGE> 63
TERMINATION ADDENDUM
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Sydney Reinsurance Corporation
Philadelphia, Pennsylvania
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 3 to the Contract shall form part of the
Contract, effective January 1, 1996.
IT IS FURTHER AGREED that this Agreement and the Subscribing Reinsurer's 5.0%
share in the interests and liabilities of the "Reinsurer" under the Contract
shall be terminated on December 31, 1995, in accordance with the "runoff"
provisions of paragraph C of Article II -- Commencement and Termination.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this 5th day of December 1996.
--- -------- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
New York, New York, this 24th day of March 1997.
---- ----- ---
[SIG]
-------------------------------------------------
Sydney Reinsurance Corporation
<PAGE> 64
ADDENDUM NO.4
to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
IT IS HEREBY AGREED, effective July 1, 1996, with respect to policies allocated
to underwriting years commencing on or after that date, that this Contract shall
be amended as follows:
1. Paragraph A of Article I - Classes of Business Reinsured - shall be deleted
and the following substituted therefor:
"A. By this Contract the Company obligates itself to cede to the Reinsurer
and the Reinsurer obligates itself to accept quota share reinsurance
of the Company's net liability under policies, contracts and binders
of insurance or reinsurance (hereinafter called 'policies') issued or
renewed on or after the effective date hereof, and classified by the
Company as Commercial Multiple Peril (Section I), Automobile Physical
Damage and Inland Marine business."
2. Subparagraph 22 of paragraph A of Article IV - Exclusions - shall be
deleted and the following substituted therefor:
"22. Mobile Homes unless written as part of a commercial multiple peril
policy."
3. Subparagraph 34 of paragraph A of Article IV - Exclusions - shall be
deleted from this Contract.
4. Paragraph A of Article VI - Loss in Excess of Policy Limits/ECO - shall be
deleted and the following substituted therefor:
"A. In the event the Company pays or is held liable to pay an amount of
loss in excess of its policy limit (bailee coverage only), but
otherwise within the terms of its policy (hereinafter called 'loss in
excess of policy limits') or any punitive, exemplary, compensatory or
consequential damages, other than loss in excess of policy limits
(hereinafter called 'extra contractual obligations') because of
alleged or actual bad faith or negligence on its part in rejecting a
settlement within policy limits, or in discharging
Page 1 of 2
<PAGE> 65
its duty to defend or prepare the defense in the trial of an action
against its policyholder, or in discharging its duty to prepare or
prosecute an appeal consequent upon such an action, or in otherwise
handling a claim under a policy subject to this Contract, 90% of the
loss in excess of policy limits and/or 90% of the extra contractual
obligations shall be added to the (Company's loss, if any, under the
policy involved, and the sum thereof (not exceeding, however,
$2,000,000) shall be subject to the provisions of Article V."
5. Paragraph B of Article VII - Other Reinsurance - shall be deleted and the
following substituted therefor:
"B. The Company shall purchase or be deemed to have purchased inuring
excess facultative reinsurance to limit its loss subject hereto
(inclusive of loss in excess of policy limits and extra contractual
obligations) to $2,000,000 each risk, each loss."
IT IS FURTHER AGREED that the Company shall remit to the Reinsurer the ceded
unearned premium in force at 12:01 a.m., October 1, 1996, (less provisional
commission allowed thereon), with respect to Automobile Physical Damage business
in force on October 1, 1995, or issued or renewed on or after October 1, 1995,
as promptly as possible after that date.
The provisions of this Contract shall remain otherwise unchanged.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Addendum as of the date undermentioned at:
Sacramento, California, this 12th day of June 1997.
---- ---- ---
[SIG]
-------------------------------------------------
Financial Pacific Insurance Company
Page 2 of 2
<PAGE> 66
ADDENDUM NO.1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Constitution Reinsurance Corporation
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 29th day of July 1997.
---- ---- ---
[SIG]
-------------------------------------------------
Constitution Reinsurance Corporation
<PAGE> 67
ADDENDUM NO. 1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Folksamerica Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 1st day of July 1997.
--- ---- ----
[SIG]
-------------------------------------------------
Folksamerica Reinsurance Company
<PAGE> 68
ADDENDUM NO.4
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 8th day of July 1997.
--- ---- ---
[SIG]
-------------------------------------------------
Generali-U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
By: Genamerica Management Corp.
<PAGE> 69
ADDENDUM NO.4
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 8th day of July 1997.
--- ---- ---
[SIG]
-------------------------------------------------
VICE PRESIDENT
Gerling Global Reinsurance Corporation, U.S. Branch
By: Global Offices, Inc., U.S. Manager
<PAGE> 70
ADDENDUM NO.4
to the
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 25th day of July 1997.
---- ---- ---
[SIG]
-------------------------------------------------
SOREMA North America Reinsurance Company
THOMAS P. ASQUINO
Vice President & Manager
Treaty Property
<PAGE> 71
ADDENDUM NO.1
to the
INTERESTS AND LIABILITIES AGREEMENT
of
St. Paul Fire and Marine Insurance Company
St. Paul, Minnesota
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 9th day of July 1997.
--- ---- ---
[SIG]
-------------------------------------------------
St. Paul Fire and Marine Company
St. Paul Reinsurance Management Corporation,
Reinsurance Managers
<PAGE> 72
ADDENDUM NO.2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
The Mercantile and General Reinsurance Company
of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
Morristown, New Jersey, this 25th day of August 1997.
---- ------ ---
[SIG]
-------------------------------------------------
MICHAEL P. BLABER
VICE PRESIDENT
The Mercantile and General Reinsurance Company
of America
<PAGE> 73
ADDENDUM NO.4
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 4, as duly executed by the
Company, as part of the Contract, effective July 1, 1996.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this 16th day of July 1997.
---- ---- ---
[SIG]
-------------------------------------------------
Winterthur Reinsurance Corporation of America
<PAGE> 74
(Revised: January 1, 1997)
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
Allmerica Re, A Division of The Hanover Insurance Company 10.0%
Constitution Reinsurance Corporation 7.5
Folksamerica Reinsurance Company 7.5
Genamerica Management Corp.
(for Generali - U.S. Branch) 5.0
Gerling Global Reinsurance Corporation of America 25.0
St. Paul Reinsurance Management Corporation
(for St. Paul Fire and Marine Insurance Company) 7.5
SCOR Reinsurance Company 10.0
SOREMA North America Reinsurance Company 17.5
Winterthur Reinsurance Corporation of America 10.0
TOTAL 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
<PAGE> 75
ADDENDUM NO.5
to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED, effective January 1, 1997, with respect to policies
allocated to underwriting years commencing on or after that date, that this
Contract shall be amended as follows:
1. Subparagraphs 5, 6, 7, 8, 9, 10, 11, 12, 16 and 17 of paragraph A of
Article IV - Exclusions - shall be deleted from this Contract.
2. Subparagraph 19 of paragraph A of Article IV - Exclusions - shall be
deleted and the following substituted therefor:
"19. Mortgage impairment insurance and similar kinds of insurance,
howsoever styled."
3. Subparagraph 25, 28(h), 28(k), 32 and 33 of paragraph A of Article IV -
Exclusions - shall be deleted from this Contract.
4. Paragraph B of Article IV - Exclusions - shall be deleted and the following
substituted therefor:
"B. If, without the knowledge of a member of the Company's underwriting
department, the Company becomes bound on a risk specifically excluded
from this Contract, such reinsurance as would have been afforded for
the risk by this Contract if the risk had not been excluded shall
nevertheless apply to such risk with respect to losses occurring prior
to the 66th day (60 discovery days plus 5 mailing days) after
discovery by a member of such underwriting department of the existence
of the hazard which makes the exclusion applicable. In case, within
such 65 day period (60 discovery days plus 5 mailing days), the
Company shall have forwarded to the Reinsurer complete underwriting
information and shall have received from the Reinsurer written notice
of its approval of the risk for the policy period reported, the risk
shall be covered hereunder in the same manner as if such risk were not
so excluded, subject, however, to the terms of such notice of
approval."
Page 1
<PAGE> 76
IT IS FURTHER AGREED, effective January 1, 1997, that this Contract shall be
amended as follows:
1. Paragraph A of Article IX - Alternate Payee - shall be deleted and the
following substituted therefor:
"A. It is understood that in order to make the Company's policies
generally acceptable to certain mortgagees and lending institutions,
Gerling Global Reinsurance Corporation of America, New York, New York
(hereinafter referred to as 'Gerling Global') has agreed to issue
supplemental reinsurance endorsements which guarantee that Gerling
Global will pay valid claims under any of the Company's policies to
which said endorsements are attached if the Company fails to pay
because of its insolvency."
2. Article X - Salvage and Subrogation - shall be deleted and the following
substituted therefor:
"ARTICLE X - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with its proportionate share of salvage
(i.e., reimbursement obtained or recovery made by the Company, less the
actual cost, excluding salaries officials and employees of the Company and
sums paid to attorneys as retainer, of obtaining such reimbursement or
making such recovery) on account of claims and settlements involving
reinsurance hereunder."
IT IS ALSO AGREED, effective January 1, 1997, with respect to policies allocated
to underwriting years commencing on or after that date, that Article XII -
Provisional Ceding Commission (as amended by Addendum No. 2) - shall be deleted
and the following substituted therefor:
"ARTICLE XII - PROVISIONAL CEDING COMMISSION
The Reinsurer shall allow the Company a 37.5% provisional commission on all
premiums ceded to the Reinsurer hereunder. The Company shall allow the
Reinsurer return commission on return premiums at the same rate."
IT IS ALSO AGREED, effective January 1, 1997, that this Contract shall be
amended as follows:
1. Subparagraphs 1,2,3,4, and 5 of paragraph A and paragraph B of Article XIII
- Commission Adjustment (as amended by Addendum Nos. 2 and 3) - shall be
deleted and the following substituted therefor:
"1. If the ratio of losses incurred to premiums earned is 67.5% or
greater, the adjusted commission rate for the underwriting year
under consideration shall be 25.0%;
2. If the ratio of losses incurred to premiums earned is less than
67.5%, but not less than 55.0%, the adjusted commission rate for
the underwriting year under
Page 2
<PAGE> 77
consideration shall be 25.0%, plus the difference in percentage
points between 67.5% and the actual ratio of losses incurred to
premiums earned;
3. If the ratio of losses incurred to premiums earned is less than
55.0%, but not less than 45.0%, the adjusted commission rate for
the underwriting year under consideration shall be 37.5%, plus
one-half the difference in percentage points between 55.0% and
the actual ratio of losses incurred to premiums earned;
4. If the ratio of losses incurred to premiums earned is less than
45.0%, but not less than 40.0%, the adjusted commission rate for
the underwriting year under consideration shall be 42.5%, plus
the difference in percentage points between 45.0% and the actual
ratio of losses incurred to premiums earned;
5. If the ratio of losses incurred to premiums earned is 40.0% or
less, the adjusted commission rate for the underwriting year
under consideration shall be 47.5%.
B. If the ratio of losses incurred to premiums, earned for any
underwriting year is greater than 67.5%, the difference in percentage
points between the actual ratio of losses incurred to premiums earned
and 67.5% shall be, multiplied by premiums earned for the underwriting
year and the product shall be carried forward to the next underwriting
year as a debit (addition) to losses incurred. If the ratio of losses
incurred to premiums earned for any underwriting year is less than
40.0%, the difference in percentage points between 40.0% and the
actual ratio of losses incurred to premiums earned shall be multiplied
by premiums earned for the underwriting year and the product shall be
carried forward to the next underwriting year as a credit to
(subtraction from) losses incurred."
2. The title portion and paragraph E of Article XXI - Arbitration (BRMA 6J) -
shall be deleted and the following substituted therefor:
"ARTICLE XXI - ARBITRATION"
"E. Any arbitration proceedings shall take place in Sacramento,
California, but notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the law of the State
of California."
3. Article XXIII - Intermediary (BRMA 23A) shall be deleted and the following
substituted therefor:
"ARTICLE XXIII - INTERMEDIARY
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions,
taxes, losses, loss adjustment expense, salvages and loss settlements)
relating thereto shall be transmitted to the Company or the Reinsurer
Page 3
<PAGE> 78
through E. W. Blanch Co., Reinsurance Services, 3500 West 80th Street,
Minneapolis, Minnesota 55431. Payments by the Company to the Intermediary
shall be deemed to constitute payment to the Reinsurer. Claims notice by
the Company to the Intermediary shall be deemed to constitute notice to the
Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to
constitute payment to the Company only to the extent that such payments are
actually received by the Company."
The provisions of this Contract shall remain otherwise unchanged.
Page 4
<PAGE> 79
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
Allmerica Re
A Division of
The Hanover Insurance Company
Bedford, New Hampshire
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 10.0% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addenda Nos. 1 through 5)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1997, with respect to policies allocated to underwriting years commencing on or
after that date, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this ___ day of ______________ 199__.
_________________________________________________
Financial Pacific Insurance Company
Florham Park, New Jersey, this ___ day of ____________ 199__.
_________________________________________________
Allmerica Re, A Division of The Hanover
Insurance Company
<PAGE> 80
ADDENDUM NO. 2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Constitution Reinsurance Corporation
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 5, as duly executed by the
Company, as part of the Contract, effective January 1, 1997.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this ___ day of _______________________ 199__.
_________________________________________________
Constitution Reinsurance Corporation
<PAGE> 81
ADDENDUM NO. 2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Folksamerica Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 5, as duly executed by the
Company, as part of the Contract, effective January 1, 1997.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this ___ day of __________________________ 199__.
_________________________________________________
Folksamerica Reinsurance Company
<PAGE> 82
ADDENDUM NO. 5
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 5 to the Contract shall form part of the
Contract, effective January 1, 1997.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 7.5%
to 5.0%, effective January 1, 1997, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this ___ day of ____________________ 199__.
_________________________________________________
Financial Pacific Insurance Company
New York, New York, this ___ day of ____________________ 199__.
_________________________________________________
Generali - U.S. Branch
(also known as General Insurance Company
of Trieste and Venice, U.S. Branch)
By: Genamerica Management Corp.
<PAGE> 83
ADDENDUM NO.5
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance Corporation,
U.S. Branch
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 5, as duly executed by the
Company, as part of the Contract, effective January 1, 1997.
Effective January 1, 1997, all references in this Agreement to "Gerling Global
Reinsurance Corporation, U.S. Branch" shall be amended to read "Gerling Global
Reinsurance Corporation of America."
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this ___ day of ____________________ 199__.
_________________________________________________
Gerling Global Reinsurance Corporation of America
<PAGE> 84
ADDENDUM NO.2
to the
INTERESTS AND LIABILITIES AGREEMENT
of
St. Paul Fire and Marine Insurance Company
St. Paul, Minnesota
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 5, as duly executed by the
Company, as part of the Contract, effective January 1, 1997.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this ___ day of ____________________ 199__.
_________________________________________________
St. Paul Fire and Marine Insurance Company
St. Paul Reinsurance Management Corporation,
Reinsurance Managers
<PAGE> 85
INTERESTS AND LIABILITIES AGREEMENT
entered into by and between
Financial Pacific Insurance Company
Sacramento, California
and
SCOR Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
IT IS HEREBY AGREED that the Subscribing Reinsurer shall have a 10.0% share in
the interests and liabilities of the "Reinsurer" as set forth in the attached
Contract entitled:
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
(as amended by Addenda Nos. 1 through 5)
IT IS FURTHER AGREED that this Agreement shall become effective on January 1,
1997, with respect to policies allocated to underwriting years commencing on or
after that date, and shall continue in force until terminated in accordance with
the provisions of the attached Contract.
IT IS ALSO AGREED that the Subscribing Reinsurer's share in the attached
Contract shall be separate and apart from the shares of the other reinsurers,
and shall not be joint with the shares of the other reinsurers, it being
understood that the Subscribing Reinsurer shall in no event participate in the
interests and liabilities of the other reinsurers.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Agreement as of the dates undermentioned at:
Sacramento, California, this ___ day of ____________________ 199__.
_________________________________________________
Financial Pacific Insurance Company
South Barrington, Illinois, this ___ day of ____________________ 199__.
_________________________________________________
SCOR Reinsurance Company
<PAGE> 86
ADDENDUM NO.5
to the
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
The Subscribing Reinsurer hereby accepts Addendum No. 5, as duly executed by the
Company, as part of the Contract, effective January 1, 1997.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representative has executed this Addendum as of the date undermentioned at:
New York, New York, this ___ day of ____________________ 199__.
_________________________________________________
SOREMA North America Reinsurance Company
<PAGE> 87
ADDENDUM NO.5
to the
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that Addendum No. 5 to the Contract shall form part of the
Contract, effective January 1, 1997.
IT IS FURTHER AGREED that the Subscribing Reinsurer's share in the interests and
liabilities of the "Reinsurer" under the Contract shall be decreased from 15.0%
to 10.0%, effective January 1, 1997, with respect to policies allocated to
underwriting years commencing on or after that date.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this this ___ day of ____________________ 199__.
_________________________________________________
Financial Pacific Insurance Company
New York, New York, this ___ day of ____________________ 199__.
_________________________________________________
Winterthur Reinsurance Corporation of America
<PAGE> 88
TERMINATION ADDENDUM
to the
INTERESTS AND LIABILITIES AGREEMENT
of
The Mercantile and General Reinsurance Company
of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
PROPERTY QUOTA SHARE
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1993
issued to
Financial Pacific Insurance Company
Sacramento, California
IT IS HEREBY AGREED that this Agreement and the Subscribing Reinsurer's 12.5%
share in the interests and liabilities of the "Reinsurer" under the Contract
shall be terminated on December 31, 1996, in accordance with the "runoff"
provisions of paragraph C of Article II - Commencement and Termination.
IN WITNESS WHEREOF, the parties hereto by their respective duly authorized
representatives have executed this Addendum as of the dates undermentioned at:
Sacramento, California, this ___ day of ____________________ 199__.
_________________________________________________
Financial Pacific Insurance Company
Morristown, New Jersey, this ___ day of ____________________ 199__.
_________________________________________________
The Mercantile and General Reinsurance Company
of America
<PAGE> 1
EXHIBIT 10.21
- --------------------------------------------------------------------------------
FINANCIAL PACIFIC INSURANCE COMPANY
SACRAMENTO, CALIFORNIA
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
Originally Effective: January 1, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
- --------------------------------------------------------------------------------
<PAGE> 3
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
<TABLE>
<CAPTION>
REINSURERS PARTICIPATIONS
<S> <C>
Allmerica Re, A Division of The Hanover Insurance Company 5.0%
Constitution Reinsurance Corporation 15.0
Continental Casualty Company 7.5
Gerling Global Reinsurance Corporation of America 25.0
St. Paul Reinsurance Management Corporation
(for St. Paul Fire and Marine Insurance Company) 15.0
SCOR Reinsurance Company 10.0
SOREMA North America Reinsurance Company 12.5
Winterthur Reinsurance Corporation of America 10.0
TOTAL 100.0%
</TABLE>
E. W. Blanch Co.
Reinsurance Services
3500 West 80th Street
Minneapolis, Minnesota 55431
- --------------------------------------------------------------------------------
<PAGE> 4
TABLE OF CONTENTS
ARTICLE PAGE
I Classes of Business Reinsured 1
II Commencement and Termination 1
III Territory 3
IV Exclusions 3
V Retention and Limit 6
VI Definitions 7
VII Claims and Loss Adjustment Expenses 9
VIII Salvage and Subrogation 9
IX Provisional Premium 10
X Premium Adjustment 10
XI Commission (BRMA 10A) 12
XII Offset (BRMA 36C) 12
XIII Access to Records (BRMA 1D) 12
XIV Liability of the Reinsurer 12
XV Net Retained Liability 12
XVI Errors and Omissions (BRMA 14F) 13
XVII Taxes (BRMA 50B) 13
Will Unauthorized Reinsurers 13
XIX Insolvency 14
XX Arbitration 15
XXI Service of Suit (BRMA 49C) 16
XXII Intermediary 16
<PAGE> 5
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JANUARY 1, 1997
issued to
Financial Pacific Insurance Company
Sacramento, California
(hereinafter referred to as the "Company")
by
The Subscribing Reinsurer(s) Executing
the Interests and Liabilities Agreement(s)
Attached Hereto
(hereinafter referred to as the "Subscribing Reinsurers")
ARTICLE I -- CLASSES OF BUSINESS REINSURED
A. By this Contract the Reinsurer agrees to reinsure the excess liability
which may accrue to the Company under its policies, contracts and binders
of insurance or reinsurance (hereinafter called "policies") issued or
renewed on or after the effective date hereof, and classified by the
Company as Commercial Multiple Peril (Section II) and Automobile Liability
business, subject to the terms, conditions and limitations hereinafter set
forth.
B. It is understood that the classes of business reinsured under this
Contract are deemed to include:
1. Coverages required for non-resident drivers under the motor vehicle
financial responsibility law or the motor vehicle compulsory
insurance law or any similar law of any state or province, following
the provisions of the Company's policies when they include or are
deemed to include so-called "Out of State Insurance" provisions;
2. Coverages required under Section 30 of the Motor Carrier Act of 1980
and/or any amendments thereto.
ARTICLE 11 -- COMMENCEMENT AND TERMINATION
A. This Contract shall become originally effective on January 1, 1997, with
respect to losses arising under policies allocated to underwriting years
commencing on or after that date, and shall continue in force thereafter
until terminated.
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<PAGE> 6
B. Either party may terminate this Contract on December 31, 1998 or any other
December 31 thereafter, by giving the other party not less than 90 days
prior notice by certified mail.
C. Notwithstanding the provisions of paragraph B, it is understood and agreed
that this Contract may be terminated on a "runoff" or "cutoff" basis, as
defined in paragraph D below, by giving 30 days notice prior to each
quarter end by certified mail to the other party upon the happening of any
one of the following circumstances:
1. Either party may terminate this Contract if the other party is sold
during the 1997 calendar year;
2. Either party may terminate this Contract if the other party's A. M.
Best rating drops below A-;
3. The Company may terminate any reinsurers participation at any time
if the policyholders surplus of that respective reinsurer drops more
than 10% from the prior year end surplus level;
4. The Reinsurer may terminate this Contract at any time if the
Company's policyholders surplus drops below $5 million.
D. Unless the Company elects to reassume the ceded unearned premium in force
on the effective date of termination, and so notifies the Reinsurer prior
to or as promptly as possible after the effective date of termination,
reinsurance hereunder on business in force on the effective date of
termination shall remain in full force and effect until expiration,
cancellation or next premium anniversary of such business, whichever first
occurs, but in no event beyond 12 months following the effective date of
termination.
E. "Underwriting year" as used herein shall mean the period from January 1,
1997 through December 31, 1997, and each subsequent 12-month period shall
be a separate underwriting year. However, in the event this Contract is
terminated, the final underwriting year shall be from the beginning of the
then current underwriting year through the effective date of termination.
All premiums and losses from policies allocated to an underwriting year
shall be credited or charged, respectively, to such underwriting year,
regardless of the date said premiums earn or such losses occur, it being
understood that a policy will be allocated to the underwriting year which
is in effect as of:
1. As respects all new policies, the effective date of such policies;
2. As respects renewals of one year or less term policies, the renewal
date of such policies;
3. As respects continuous or greater than one year term policies, the
premium anniversary date of such policies.
Page 2
<PAGE> 7
Such policies shall remain in the same underwriting year, as originally
allocated, until the next renewal date or premium anniversary date, at
which time such policies shall be reallocated to the underwriting year in
effect as of such date as provided in subparagraphs 2 and 3 above.
ARTICLE III - TERRITORY
This Contract shall only apply to policies issued to insureds domiciled in the
United States of America, its territories and possessions and the District of
Columbia; but this limitation shall not apply to losses if the Company's
policies provide coverage outside the aforesaid territorial limits.
ARTICLE IV - EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Business accepted by the Company as reinsurance from other insurers
except agency reinsurance where risk underwriting and all servicing,
including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or indirectly
from any insurance written by or through any pool or association
including pools or associations in which membership by the Company
is required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency Fund" includes any
guarantee fund, insolvency fund, plan, pool, association, fund or
other arrangement, howsoever denominated, established or governed,
which provides for any assessment of or payment or assumption by the
Company of part or all of any claim, debt, charge, fee, or other
obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent, or which
is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.
5. Business written to apply in excess of a deductible or self-insured
amount of more than $100,000, including Umbrella business.
6. Aviation liability including aerospace and satellite business.
Page 3
<PAGE> 8
7. Workers' Compensation business, including Longshoremen's and Harbor
Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or Fiduciary
Insurance.
9. Retail liquor law liability except where liquor constitutes less
than 50% of sales. Specifically excluded are bars and retail liquor
stores.
10. Insurance covering damage claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or of
any property of which such products form a part of, or if such
products or property are withdrawn from the market or from use
because of any known or suspected defect or deficiency therein.
11. Liabilities for bodily injury, personal damage and/or property
damage from asbestos and/or asbestos products, including but not
limited to liability arising from the mining, manufacture,
installation, transport, storage, habitation or use of materials,
products or structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or
amendments thereto.
13. Fidelity and Surety.
14. Watercraft liability except for boats less than 50 feet in length.
15. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
16. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products;
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil
drilling equipment.
17. Liability insurance relating to premises or operations primarily involving:
a. Aircraft or airports, as respects coverage for all liability
arising out of the ownership, maintenance, or use of any
aircraft or flight operations;
b. Amusement parks, carnivals, circuses, speed contests and
racing;
Page 4
<PAGE> 9
c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerin, celluloid, pyroxylin or explosive substances
intended for use as an explosive;
d. Gas or public utility companies, gas or public utility works,
or gas lease operations;
e. Production, refining, handling, shipping or storage of natural
or artificial fuel gases, synthetic or coal or shale based
fuel, butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs,
exploration risks, cracking plants, refineries and depots, and
oil and gas pipelines;
g. Railroad operations, specifically "line" or "on track"
operations of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
l. Ski resorts;
m. Waste disposal and deposit sites except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is
crane rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
q. Warehousemen's legal liability;
r. Automobile racing and racetracks;
s. Taxis;
t. Blasting contractors;
u. Licensed roofing contractors whose primary business is such;
Page 5
<PAGE> 10
v. Wrap up construction projects.
18. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause-Liability Reinsurance" attached to and forming part of this
Contract.
19. Pollution liability as excluded by the Company's policies. It is
hereby warranted that any Commercial General Liability policy issued
by the Company will include ISO pollution exclusion language.
B. If the Company provides insurance for an insured with respect to any
premises, operations, products or completed operations listed in
subparagraphs 16 and 17 of paragraph A above, except subparagraphs 17(c)
and 17(d), and if such premises, operations, products or completed
operations constitute only a minor incidental part of the total premises,
operations, products or completed operations of the insured, such
exclusion(s) shall not apply.
C. If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business falling within the scope of one or more of the exclusions set
forth in subparagraphs 14 through 19 of paragraph A above, these
exclusions, except those set forth in subparagraphs; 15, 17(c), 17(d), 18
and 19 shall be suspended with respect to such business until 65 days (60
discovery days plus 5 mailing days) after an underwriting supervisor of
the Company acquires knowledge of such business.
ARTICLE V - RETENTION AND LIMIT
A. If the Company's ultimate net loss as respects any one insured, any one
occurrence is less than or equal to $1,000,000, the following provisions
shall apply:
1. The Company shall retain and be liable for the first $250,000 of
ultimate net loss (whether involving any one or any combination of
the classes of business covered hereunder, regardless of the number
of policies under which such loss is payable) as respects each
insured, each occurrence. The Reinsurer shall then be liable for the
amount by which such ultimate net loss exceeds the Company's
retention, but the liability of the Reinsurer shall not exceed
$750,000 each insured, each occurrence.
2. If the Company's losses arising out of any one occurrence involve
losses under policies allocated to more than one underwriting year,
the Company's retention applicable to such occurrence for each
underwriting year shall be reduced to that portion of the Company's
retention determined by dividing the Company's losses arising out of
the occurrence by the number of underwriting years to which such
policies are allocated with pro rata consideration given depending
on the primary policy limits or reinsurance retention of the
underwriting years affected. The Reinsurer's limit of liability
Page 6
<PAGE> 11
applicable to such occurrence for each such underwriting year shall
be arrived at in the same manner.
B. If the Company's ultimate net loss as respects any one insured, any one
occurrence exceeds $1,000,000, the Company shall retain and be liable for
the first amount of policy period ultimate net loss (whether involving any
one or any combination of the classes of business covered hereunder,
regardless of the number of policies under which such loss is payable)
equal to 25% of such policy period ultimate net loss, subject to a maximum
retention of $250,000 each insured, each occurrence, per each underwriting
year affected. The Reinsurer shall then be liable for 75% of such policy
period ultimate net loss, but the liability of the Reinsurer shall not
exceed $750,000 (being 75% of $1,000,000) each insured, each occurrence,
per each underwriting year affected.
Article VI - DEFINITIONS
A. "Ultimate net loss" as used herein is defined as the sum or sums
(including loss in excess of policy limits, extra contractual obligations
and loss adjustment expenses, as hereinafter provided) paid or payable by
the Company in settlement of claims and in satisfaction of judgments
rendered on account of such claims, after deduction of all salvage, all
recoveries and all claims on inuring insurance or reinsurance, whether
collectible or not. Nothing herein shall be construed to mean that losses
under this Contract are not recoverable until the Company's ultimate net
loss has been ascertained. Ultimate net loss shall include the following
loss adjustment expenses, as hereinafter defined:
1. Ultimate net loss shall include loss adjustment expenses which
reduce the Company's limit of liability involved;
2. If the Company's ultimate net loss exclusive of loss adjustment
expenses as respects each insured, each occurrence is less than
$250,000, ultimate net loss shall include loss adjustment expenses
incurred by the Company which do not reduce the Company's limit of
liability under the policy involved, but the amount of such loss
adjustment expenses to be included in ultimate net loss shall not
exceed $750,000 as respects each insured, each occurrence.
B. "Policy period ultimate net loss" as used herein is defined as the
Company's ultimate net loss as respects each insured, each occurrence,
divided by the number of policy periods involved in that occurrence.
C. "Policy period" as used herein shall mean the period from the inception or
renewal date of the primary policy through the expiration, termination or
first premium anniversary date of the policy, whichever first occurs. As
respects continuous or greater than one year term policies, each premium
anniversary date shall be considered the beginning of a new policy period.
Page 7
<PAGE> 12
D. "Loss in excess of policy limits" and "extra contractual obligations" as
used herein shall be defined as follows:
1. "Loss in excess of policy limits" shall mean 90.0% of any amount
paid or payable by the Company in excess of its policy limits, but
otherwise within the terms of its policy, as a result of an action
against it by its insured or its insured's assignee to recover
damages the insured is legally obligated to pay to a third party
claimant because of the Company's alleged or actual negligence or
bad faith in rejecting a settlement within policy limits, or in
discharging its duty to defend or prepare the defense in the trial
of an action against its insured, or in discharging its duty to
prepare or prosecute an appeal consequent upon such an action.
2. "Extra contractual obligations" shall mean 90.0% of any punitive,
exemplary, compensatory or consequential damages, other than loss in
excess of policy limits, paid or payable by the Company as a result
of an action against it by its insured, its insured's assignee or a
third party claimant, which action alleges negligence or bad faith
on the part of the Company in handling a claim under a policy
subject to this Contract. An extra contractual obligation shall be
deemed to have occurred on the same date as the loss covered or
alleged to be covered under the policy.
Notwithstanding anything stated herein, this Contract shall not apply to
any loss in excess of policy limits or any extra contractual obligation
incurred by the Company as a result of any fraudulent and/or criminal act
by any officer or director of the Company acting individually or
collectively or in collusion with any individual or corporation or any
other organization or party involved in the presentation, defense or
settlement of any claim covered hereunder.
E. "Occurrence" as used herein is defined as an accident or occurrence or a
series of accidents or occurrences arising out of or caused by one event.
However, as respects policies where the Company's limit of liability for
Products and Completed Operations coverages is determined on the basis of
the insured's aggregate losses during a policy period, all such losses
proceeding from or traceable to the same causative agency shall, at the
Company's option, be deemed to have been caused by one occurrence
commencing at the beginning of the policy period, it being understood and
agreed that each renewal or annual anniversary date of the policy involved
shall be deemed the beginning of a new policy period.
F. "Loss adjustment expense" means all costs and expenses allocable to a
specific claim that are incurred by the Company 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 1) prejudgment interest, unless included as part of
the award or judgment; 2) postjudgment interest; 3) legal expenses and
costs incurred in connection with coverage questions and legal actions
connected thereto; and 4) a pro rata share of salaries and expenses of
Company field employees, and expenses of other Company employees who have
been temporarily diverted from their normal and customary duties and
assigned to the field adjustment of losses covered by this Contract. Loss
adjustment expense does not include unallocated loss adjustment expense.
Unallocated loss adjustment expense
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<PAGE> 13
includes, but is not limited to, salaries and expenses of employees, other
than (4) above, and office and other overhead expenses.
ARTICLE VII - CLAIMS AND LOSS ADJUSTMENT EXPENSES
A. Whenever a claim is reserved by the Company for an amount greater than
50.0% of its retention hereunder and/or whenever a claim appears likely to
result in a claim under this Contract, the Company shall notify the
Reinsurer. The Reinsurer shall leave the right to participate, at its own
expense, in the defense or control of any claim or suit or proceeding
involving this reinsurance.
B. All claim settlements made by the Company, provided they are within the
terms of this Contract, shall be binding upon the Reinsurer, and the
Reinsurer agrees to pay all amounts for which it may be liable upon
receipt of reasonable evidence of the amount paid by the Company.
C. In the event of loss hereunder for which the Company's ultimate net loss
exclusive of loss adjustment expenses as respects each insured, each
occurrence is greater than or equal to $250,000, loss adjustment expenses
incurred by the Company in connection therewith which do not reduce the
Company's limit of liability under the policy involved shall be shared by
the Company and the Reinsurer in the proportion the ultimate net loss paid
or payable by the Reinsurer bears to the total loss paid or payable by the
Company, prior to any reinsurance recoveries, but after deduction of all
salvage, subrogation and other recoveries. However, if a verdict or
judgment is reduced by any process other than by the trial court,
resulting in an ultimate saving to the Reinsurer, or a judgment is
reversed outright, the expenses incurred in securing such reduction or
reversal shall be shared by the Company and the Reinsurer in the
proportion that each benefits from such reduction or reversal, and the
expenses incurred up to the time of the original verdict or judgment which
do not reduce the Company's limit of liability under the policy involved
shall be shared in proportion to each party's interest in such original
verdict or judgment. The Reinsurer's liability for such loss adjustment
expenses shall be in addition to its liability for ultimate net loss.
ARTICLE VIII - SALVAGE AND SUBROGATION
The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or
recovery made by the Company, less the actual cost, excluding salaries of
officials and employees of the Company and sums paid to attorneys as retainer,
of obtaining such reimbursement or making such recovery) on account of claims
and settlements involving reinsurance hereunder. Salvage thereon shall always be
used to reimburse the excess carriers in the reverse order of their priority
according to their participation before being used in any way to reimburse the
Company for its primary loss.
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<PAGE> 14
ARTICLE IX - PROVISIONAL PREMIUM
A. As provisional premium for the reinsurance provided hereunder for each
underwriting year, the Company shall pay the Reinsurer 16.0% of its net
written premium for the underwriting year.
B. Within 45 days after the end of each month within each underwriting year,
the Company shall report its net written premium for the month. The
provisional premium due the Reinsurer shall be paid by the Company with
its report at the rate shown in paragraph A, multiplied by the actual
amount of premium collected by the Company during the month from policies
allocated to the underwriting year.
ARTICLE X - PREMIUM ADJUSTMENT
A. The provisional premium paid by the Company shall be adjusted periodically
in accordance with the provisions set forth herein. The first adjustment
period shall be from the effective date of this Contract through December
31, 1999, and each subsequent 36-month period shall be a separate
adjustment period, unless this Contract is terminated, in which event the
final adjustment period shall be from the beginning of the then current
adjustment period through the date of termination.
B. The adjusted premium for each adjustment period shall be equal to the
Reinsurer's losses incurred for the adjustment period, plus 5.20% of the
Company's net earned premium for the first underwriting year, plus 4.80%
of the Company's net earned premium for each underwriting year thereafter.
However, the adjusted premium for any one adjustment period shall not
exceed an amount equal to 25.60% of the Company's net earned premium for
the adjustment period.
C. The Company shall calculate and report the adjusted premium for each
adjustment period at the following times:
1. Within 45 days after the end of each underwriting year within the
adjustment period;
2. Within 45 days after the end of the adjustment period; and
3. Within 45 days after the end of each 12-month period after the end
of the adjustment period until all losses arising out of occurrences
commencing during the adjustment period (including a proportion of
losses covered on an aggregate basis, based on the unexpired portion
of the underlying policy year as of the beginning of the adjustment
period) have been finally settled.
Each such calculation shall be based on the Reinsurer's losses incurred
and the Company's net earned premium for the adjustment period as of the
date of the calculation.
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<PAGE> 15
D. As respects calculations made in accordance with subparagraph (b) or (c)
of subparagraph 3 above, if the adjusted premium is less than reinsurance
premiums previously paid for the adjustment period, the Reinsurer shall
remit the difference to the Company within 45 days after receipt and
verification of the Company's report, subject to the following schedule:
1. 33.33% of the adjusted premium shown to be due as of the calculation
due within 45 days after the end of the adjustment period;
2. 66.67% of the adjusted premium shown to be due as of the calculation
due within 45 days after 12 months after the end of the adjustment
period (less any adjustment premium amounts previously paid);
3. 100.0% of the adjusted premium shown to be due as of the calculation
due within 45 days after 24 months after the end of the adjustment
period (less any adjustment premium amounts previously paid) and as
of the calculation due within 45 days after the end of any 12-month
period thereafter.
It is further agreed that all payments under the provisions of this
paragraph shall be net of ceding commission allowed thereon.
E. "Net written premium" as used herein is defined as gross written premium
of the Company for the Casualty classes of business reinsured hereunder,
less cancellations and return premiums, and less premiums ceded by the
Company for excess facultative reinsurance or other reinsurance which
inures to the benefit of this Contract.
F. "Losses incurred" as used herein shall mean losses and loss adjustment
expense paid by the Reinsurer as of the effective date of calculation,
plus the ceded reserves for losses and loss adjustment expense outstanding
as of the same date, it being understood and agreed that all losses under
policies allocated to underwriting years within an adjustment period shall
be charged to that adjustment period, regardless of the date said losses
actually occur, unless this Contract is terminated on a "cutoff' basis, in
which event the Reinsurer shall have no liability for losses arising out
of occurrences commencing after the effective date of termination under
policies allocated to underwriting years within the final adjustment
period.
G. "Net earned premium" as used herein is defined as the Company's net
written premium for policies allocated to underwriting years within the
adjustment period, less the unearned portion thereof as of the effective
date of calculation, it being understood and agreed that all premiums for
policies allocated to underwriting years within an adjustment period shall
be credited to that adjustment period, unless this Contract is terminated
on a "cutoff' basis, in which event the unearned reinsurance premium as of
the effective date of termination shall be returned by the Reinsurer to
the Company.
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<PAGE> 16
ARTICLE XI - COMMISSION (BRMA 10A)
A. The Reinsurer shall allow the Company a 37.5% commission on all premiums
ceded to the Reinsurer hereunder. The Company shall allow the Reinsurer
return commission on return premiums at the same rate.
B. It is expressly agreed that the ceding commission allowed the Company
includes provision for all dividends, commissions, taxes, assessments, and
all other expenses of whatever nature, except loss adjustment expense.
ARTICLE XII - OFFSET (BRMA 36C)
The Company and the Reinsurer shall have the right to offset any balance or
amounts due from one party to the other under the terms of this Contract. The
party asserting the right of offset may exercise such right any time whether the
balances due are on account of premiums or losses or otherwise.
ARTICLE XIII - ACCESS TO RECORDS (BRMA 1D)
The Reinsurer or its designated representatives shall have access at any
reasonable time to all records of the Company which pertain in any way to this
reinsurance.
ARTICLE XIV - LIABILITY OF THE REINSURER
A. The liability of the Reinsurer shall follow that of the Company in every
case and be subject in all respects to all the general and specific
stipulations, clauses, waivers and modifications of the Company's policies
and any endorsements thereon. However, in no event shall this be construed
in any way to provide coverage outside the terms and conditions set forth
in this Contract.
B. Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer in favor of any third party or any persons
not parties to this Contract.
ARTICLE XV - NET RETAINED LIABILITY
This Contract shall apply only to that portion of any insurance or reinsurance
the Company retains net for its own account, and in calculating the amount of
any loss hereunder and the amount in excess of which this Contract attaches,
only loss or losses with respect to that portion of any insurance or reinsurance
the Company retains net for its own account shall be included. It is understood
and agreed, however, that the Reinsurer's liability hereunder with respect to
any loss or losses shall not be increased by reason of the inability of the
Company to collect from any
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<PAGE> 17
other reinsurers, whether specific or general, any amounts which may be due from
them, whether such inability arises from the insolvency of such other reinsurers
or otherwise.
ARTICLE XVI - ERRORS AND OMISSIONS (BRMA 14F)
Inadvertent delays, errors or omissions made in connection with this Contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission will be rectified as soon as
possible after discovery.
ARTICLE XVII - TAXES (BRMA 50B)
In consideration of the terms under which this Contract is issued, the Company
will not claim a deduction in respect of the premium hereon when making tax
returns, other than income or profits tax returns, to any state or territory of
the United States of America or the District of Columbia.
ARTICLE XVIII - UNAUTHORIZED REINSURERS
A. If the Reinsurer is unauthorized in any state of the United States of
America or the District of Columbia, the Reinsurer agrees to fund its
share of the Company's ceded unearned premium and outstanding loss and
loss adjustment expense reserves (including incurred but not reported loss
reserves) by:
1. Clean, irrevocable and unconditional letters of credit issued and
confirmed, if confirmation is required by the insurance regulatory
authorities involved, by a bank or banks meeting the NAIC Securities
Valuation Office credit standards for issuers of letters of credit
and acceptable to said insurance regulatory authorities; and/or
2. Escrow accounts for the benefit of the Company; and/or
3. Cash advances;
if, without such funding, a penalty would accrue to the Company on any
financial statement it is required to file with the insurance regulatory
authorities involved. The Reinsurer, at its sole option, may fund in other
than cash if its method and form of funding are acceptable to the
insurance regulatory authorities involved.
B. With regard to funding in whole or in part by letters of credit, it is
agreed that each letter of credit will be in a form acceptable to
insurance regulatory authorities involved, will be issued for a term of at
least one year and will include an "evergreen clause," which automatically
extends the term for at least one additional year at each expiration date
unless written notice of non-renewal is given to the Company not less than
30 days prior to said
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<PAGE> 18
expiration date. The Company and the Reinsurer further agree,
notwithstanding anything to the contrary in this Contract, that said
letters of credit may be drawn upon by the Company or its successors in
interest at any time, without diminution because of the insolvency of the
Company or the Reinsurer, but only for one or more of the following
purposes:
1. To reimburse itself for the Reinsurer's share of unearned premiums
returned to insureds on account of policy cancellations, unless paid
in cash by the Reinsurer;
2. To reimburse itself for the Reinsurer's share of losses and/or loss
adjustment expenses paid under the terms of policies reinsured
hereunder, unless paid in cash by the Reinsurer;
3. To reimburse itself for the Reinsurer's share of any other amounts
claimed to be due hereunder, unless paid in cash by the Reinsurer;
4. To fund a cash account in an amount equal to the Reinsurer's share
of any ceded unearned premium and/or outstanding loss and loss
adjustment expense reserves (including incurred but not reported
loss reserves) funded by means of a letter of credit which is under
non-renewal notice, if said letter of credit has not been renewed or
replaced by the Reinsurer 10 days prior to its expiration date;
5. To refund to the Reinsurer any sum in excess of the actual amount
required to fund the Reinsurer's share of the Company's ceded
unearned premium and/or outstanding loss and loss adjustment expense
reserves (including incurred but not reported loss reserves), if so
requested by the Reinsurer.
In the event the amount drawn by the Company on any letter of credit is in
excess of the actual amount required for B(l), B(2) or B(4), or in the
case of B(3), the actual amount determined to be due, the Company shall
promptly return to the Reinsurer the excess amount so drawn.
ARTICLE XIX - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver,
conservator or statutory successor immediately upon demand, with
reasonable provision for verification, on the basis of the liability of
the Company without diminution because of the insolvency of the Company or
because the liquidator, receiver, conservator or statutory successor of
the Company has failed to pay all or a portion of any claim. It is agreed,
however, that the liquidator, receiver, conservator or statutory successor
of the Company shall give written notice to the Reinsurer of the pendency
of a claim against the Company indicating the policy or bond reinsured
which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such
claim and interpose, at its own expense, in the proceeding where such
claim is to be adjudicated, any
Page 14
<PAGE> 19
defense or defenses that it may deem available to the Company or its
liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable, subject to the approval of
the Court, against the Company as part of the expense of conservation or
liquidation to the extent of a pro rata share of the benefit which may
accrue to the Company solely as a result of the defense undertaken by the
Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency
of the Company, the reinsurance under this Contract shall be payable
directly by the Reinsurer to the Company or to its liquidator, receiver or
statutory successor, except as provided by Section 4118(a) of the New York
Insurance Law or except (a) where this Contract specifically provides
another payee of such reinsurance in the event of the insolvency of the
Company or (b) where the Reinsurer with the consent of the direct insured
or insureds has assumed such policy obligations of the Company as direct
obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
ARTICLE XX - ARBITRATION
A. As a condition precedent to any right of action hereunder, in the event of
any dispute or difference of opinion hereafter arising with respect to
this Contract, it is hereby mutually agreed that such dispute or
difference of opinion shall be submitted to arbitration. One Arbiter shall
be chosen by the Company, the other by the Reinsurer, and an Umpire shall
be chosen by the two Arbiters before they enter upon arbitration, all of
whom shall be active or retired disinterested executive officers of
insurance or reinsurance companies or Lloyd's London Underwriters. In the
event that either party should fail to choose an Arbiter within thirty
(30) days following a written request by the other party to do so, the
requesting party may choose two Arbiters who shall in turn choose an
Umpire before entering upon arbitration. If the two Arbiters fail to agree
upon the selection of an Umpire within thirty (30) days following their
appointment, each Arbiter shall nominate three candidates within ten (10)
days thereafter, two of whom the other shall decline, and the decision
shall be made by drawing lots.
B. Each party shall present its case to the Arbiters within thirty (30) days
following the date of appointment of the Umpire. The Arbiters shall
consider this Contract as an honorable engagement rather than merely as a
legal obligation and they are relieved of all judicial formalities and may
abstain from following the strict rules of law. The decision of the
Arbiters shall be final and binding on both parties; but failing to agree,
they shall call in the Umpire and the decision of the majority shall be
final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
Page 15
<PAGE> 20
C. If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this
Article and communications shall be made by the Company to each of the
reinsurers constituting one party, provided, however, that nothing herein
shall impair the rights of such reinsurers to assert several, rather than
joint, defenses or claims, nor be construed as changing the liability of
the reinsurers participating under the terms of this Contract from several
to joint.
D. Each party shall bear the expense of its own Arbiter, and shall jointly
and equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party,
as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two parties.
E. Any arbitration proceedings shall take place in Sacramento, California,
but notwithstanding the location of the arbitration, all proceedings
pursuant hereto shall be governed by the law of the State of California.
ARTICLE XXI - SERVICE OF SUIT (BRMA 49C)
(Applicable if the Reinsurer is not domiciled in the United States of America,
and/or is not authorized in any State, Territory or District of the United
States where authorization is required by insurance regulatory authorities)
A. It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company,
will submit to the jurisdiction of any court of competent jurisdiction
within the United States. Nothing in this Article constitutes or should be
understood to constitute a waiver of the Reinsurer's rights to commence an
action in any court of competent jurisdiction in the United States, to
remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States
or of any state in the United States.
B Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereby
designates the party named in its Interests and Liabilities Agreement, or
if no party is named therein, the Superintendent, Commissioner or Director
of Insurance or other officer specified for that purpose in the statute,
or his successor or successors in office, as its true and lawful attorney
upon whom may be served any lawful beneficiary hereunder arising out of
this Contract.
ARTICLE XXII - INTERMEDIARY
E. W. Blanch Co. is hereby recognized as the Intermediary negotiating this
Contract for all business hereunder. All communications (including but not
limited to notices, statements, premium, return premium, commissions, taxes,
losses, loss adjustment expense, salvages and loss settlements) relating thereto
shall be transmitted to the Company or the Reinsurer through E. W. Blanch Co.,
Reinsurance Services, 3500 West 80th Street, Minneapolis, Minnesota 55431.
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<PAGE> 21
Payments by the Company to the Intermediary shall be deemed to constitute
payment to the Reinsurer. Claims notice by the Company to the Intermediary shall
be deemed to constitute notice to the Reinsurer. Payments by the Reinsurer to
the Intermediary shall be deemed to constitute payment to the Company only to
the extent that such payments are actually received by the Company.
IN WITNESS WHEREOF, the Company by its duly authorized representative has
executed this Contract as of the date undermentioned at:
Sacramento, California, this ________ day of ____________________________199___.
-----------------------------------------------
Financial Pacific Insurance Company
Page 17
<PAGE> 22
U.S.A.
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(Approved by Lloyd's Underwriters' Fire and Non-Marine Association)
(1) This reinsurance does not cover any loss or liability accruing to
the Reassured as a member of, or subscriber to, any association of insurers or
reinsurers formed for the purpose of covering nuclear energy risks or as a
direct or indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of
this Clause it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal and
replacement) of the classes specified in Clause II of this paragraph (2) from
the time specified in Clause III in this paragraph (2) shall be deemed to
include the following provision (specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any
liability coverage, to
(injury, sickness, disease, death
(or destruction
(bodily injury or property damage
with respect to which the insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but
for its termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles, liability
only), Farmers Comprehensive Personal Liability Policies
(liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the
liability portion of combination forms related to the four
classes of policies stated above, such as the Comprehensive
Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the
Limited Exclusion Provision set out above; provided this
paragraph (2) shall not be applicable to Family Automobile
Policies, Special Automobile Policies, or policies or
combination policies of a similar nature, issued by the
Reassured on New York risks, until 90 days following approval
of the Limited Exclusion Provision by the Governmental
Authority having jurisdiction thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of paragraph (1)
of this Clause, it is understood and agreed that for all purposes of this
reinsurance the original liability policies of the Reassured (new, renewal and
replacement) affording the following coverages:
Owners, Landlords and Tenants Liability, Contractual Liability, Elevator
Liability, Owners or Contractors (including railroad) Protective
Liability, Manufacturers and Contractors Liability, Product Liability,
Professional and Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor Vehicle or
Garage Liability)
shall be deemed to include, with respect to such coverages, from the time
specified in Clause V of this paragraph (3), the following provision (specified
as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage to
(injury, sickness, disease, death
(or destruction
(bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but
for its termination upon exhaustion of its limit of liability;
or
(b) resulting from the hazardous properties of nuclear material
and with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America,
or any agency thereof, under any agreement entered into by the
United States of America, or any agency thereof, with any
person or organization.
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<PAGE> 23
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to (immediate medical or surgical relief
(first aid, to expenses incurred with respect to (bodily injury,
sickness, disease or death (bodily injury resulting from the
hazardous properties of nuclear material and arising out of the
operation of a nuclear facility by any person or organization.
III. Under any Liability Coverage to (injury, sickness, disease, death or
destruction (bodily injury or property damage resulting from the
hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by,
or operated by or on behalf of, an insured or (2) has been
discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at
any time possessed, handled, used, processed, stored,
transported or disposed of by or on behalf of an insured; or
(c) the (injury, sickness, disease, death or destruction (bodily
injury or property damage arises out of the furnishing by an
insured of services, materials, parts or equipment in
connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such facility
is located within the United States of America, its
territories, or possessions or Canada, this exclusion (c)
applies only to (injury to or destruction of property at such
nuclear facility (property damage to such nuclear facility and
any property thereat.
IV. As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive
properties; "nuclear material" means source material, special
nuclear material or byproduct material; "source material", "special
nuclear material", and "byproduct material" have the meanings given
them in the Atomic Energy Act of 1954 or in any law amendatory
thereof; "spent fuel" means any fuel element or fuel component,
solid or liquid, which has been used or exposed to radiation in a
nuclear reactor; "waste" means any waste material (1) containing
byproduct material and (2) resulting from the operation by any
person or organization of any nuclear facility included within the
definition of nuclear facility under paragraph (a) or (b) thereof,
"nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating
the isotopes of uranium or plutonium, (2) processing or
utilizing spent fuel, or (3) handling processing or packaging
waste,
(c) any equipment or device used for the processing, fabricating
or alloying of special nuclear material if at any time the
total amount of such material in the custody of the insured at
the premises where such equipment or device is located
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250 grams
of uranium 235,
(d) any structure, basin, excavation, premises or place prepared
or used for the storage or disposal of waste, and includes the
site on which any of the foregoing is located, all operations
conducted on such site and all premises used for such
operations; "nuclear reactor" means any apparatus designed or
used to sustain nuclear fission in a self-supporting chain
reaction or to contain a critical mass of fissionable
material;
( With respect to injury to or destruction of property, the
word "injury" or "destruction"
( "property damage" includes an forms of radioactive
contamination of property.
( includes all forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3) whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured
on New York risks, or
(ii) statutory liability insurance required under Chapter 90,
General Laws of Massachusetts, until 90 days following
approval of the Broad Exclusion Provision by the
Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above are not
applicable to original liability policies of the Reassured in Canada and that
with respect to such policies this Clause shall be deemed to include the Nuclear
Energy Liability Exclusion Provisions adopted by the Canadian Underwriters'
Association of the Independent Insurance Conference of Canada.
- ----------
NOTE. The words printed in italics in the Limited Exclusion Provision and in the
Broad Exclusion Provision shall apply only in relation to original liability
policies which include a Limited Exclusion Provision or a Broad Exclusion
Provision containing those words.
<PAGE> 24
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Allmerica Re
A Division of
The Hanover Insurance Company
Bedford, New Hampshire
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 5.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
Florham Park, New Jersey, this 11th day of September 1997.
[SIG]
-------------------------------------------------------
Allmerica Re, A Division of The Hanover Insurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 25
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Constitution Reinsurance Corporation
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 15.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
New York, New York, this 29th day of July 1997.
[SIG]
-------------------------------------------------------
Constitution Reinsurance Corporation
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 26
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Continental Casualty Company
Chicago, Illinois
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 7.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate and
apart from the shares of the other reinsurers, and shall not be joint with the
shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
Chicago, Illinois, this 14th day of August 1997.
[SIG] Assistant Vice President
-------------------------------------------------------
Continental Casualty Company CA6648
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 27
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Gerling Global Reinsurance
Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 25.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
New York, New York, this 8 day of July 1997.
[SIG] Vice-President
-------------------------------------------------------
Gerling Global Reinsurance Corporation of America
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 28
REINSURANCE CONFIRMATION SIGNING PAGE
E.W. BLANCH CO.
201 California Street, Suite 500 Telephone (415) 398-6380
San Francisco, California 94111 Facsimile (415) 788-6394
COMPANY: Financial Pacific Insurance Company
CONTRACT: Property/Casualty Reinsurance Program
REINSURER: St. Paul Reinsurance Management Corporation
St. Paul Fire and Marine Insurance Company
On the basis of the terms outlined in E.W. Blanch Co.'s Reinsurance
Confirmation dated February 28, 1997, the undersigned reinsurer confirms its
agreement to accept a share(s) in the Contract(s) listed below effective
January 1, 1997:
<TABLE>
<CAPTION>
Your
Participation Your
Percent Reference No.
------------- -------------
<S> <C> <C>
First XOL 15.0% TP 9418093
Cas Fac Semi-Auto 15.0% TP 9609468
</TABLE>
Revisions/Remarks:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Signed: /s/ [SIG]
---------------------------------------------------------
St. Paul Reinsurance Management Corporation
St. Paul Fire and Marine Insurance Company
Date: March 4, 1997
---------------------------------------------------------
Please sign and return one copy.
<PAGE> 29
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
SCOR Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 10.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
South Barrington, Illinois, this 15th day of September, 1997.
[SIG]
-------------------------------------------------------
SCOR Reinsurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 30
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
SOREMA North America Reinsurance Company
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 12.5% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
New York, New York, this 23rd day of September 1997.
[SIG]
-------------------------------------------------------
SOREMA North America Reinsurance Company
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 31
- --------------------------------------------------------------------------------
INTERESTS AND LIABILITIES AGREEMENT
of
Winterthur Reinsurance Corporation of America
New York, New York
(hereinafter referred to as the "Subscribing Reinsurer")
with respect to the
FIRST EXCESS CASUALTY
REINSURANCE CONTRACT
EFFECTIVE: JULY 1, 1997
issued to and duly executed by
Financial Pacific Insurance Company
Sacramento, California
The Subscribing Reinsurer hereby accepts a 10.0% share in the interests and
liabilities of the "Reinsurer" as set forth in the attached Contract captioned
above.
This Agreement shall become effective on January 1, 1997, and shall continue in
force until terminated in accordance with the provisions of the attached
Contract.
The Subscribing Reinsurer's share in the attached Contract shall be separate
and apart from the shares of the other reinsurers, and shall not be joint with
the shares of the other reinsurers, it being understood that the Subscribing
Reinsurer shall in no event participate in the interests and liabilities of the
other reinsurers.
IN WITNESS WHEREOF, the Subscribing Reinsurer by its duly authorized
representatives has executed this Agreement as of the date undermentioned at:
New York, New York, this 17th day of July 1997.
[SIG]
-------------------------------------------------------
Winterthur Reinsurance Corporation of America
E. W. BLANCH CO.
- --------------------------------------------------------------------------------
Reinsurance Services
<PAGE> 1
EXHIBIT 10.22
PRODUCER AGREEMENT - #MAUMR10011
AMERICAN UNDERWRITING MANAGERS AGENCY, INC., GLEN ALLEN, VIRGINIA, hereinafter
designated as Manager, and
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
SACRAMENTO, CALIFORNIA
hereafter designated as Producer, pursuant to the Producer's request for
underwriting facilities and other services of the Manager, agree as follows:
This Agreement shall become effective on the 1st day of October, 1995.
Whereas the Manager is organized for the purpose of underwriting risks of
insurance under contract, for insurance companies, subject to the statutes of
the various states of the United States of America where such business is
domiciled; and
Whereas the Producer (subject to restrictions imposed upon the Producer by law
in the state(s) in which the Producer is authorized to write) is desirous of
placing contracts of insurance for insureds or principals named in such
contracts of insurance:
1. OWNERSHIP OF THE BUSINESS
The Manager expressly recognizes the independent ownership by the Producer
of the insurance business covered by this Agreement and agrees in the event
of termination of this Agreement, the Producer having promptly accounted
for an paid over premiums for which he is liable, the Producer's records,
use and control of these expirations, shall remain the property of the
Producer, and be left in his undisputed possession; the Manager's record or
knowledge of names of insureds and expiration dates shall not be referred
or communicated by the Manager to any other agent or Producer or person.
If the Producer has not properly accounted for and paid all premiums due to
the Manager in accordance with the payment terms of this Agreement, the
ownership and control of the Producer's expirations shall be vested in the
Manager. If the Manager assumes control of the Producer's expirations, the
Manager shall have the sole right to use and control such expirations and
commissions, if any, received by the Manager from the expirations, less
applicable expenses, will be credited against balances due the Manager from
the Producer. Upon payment of any settlement of outstanding balances,
expirations will revert to Producer. If the Producer furnishes collateral
that is acceptable to the Manager in the amount of the balances due the
Manager from the Producer, the expirations will remain with the Producer.
1
<PAGE> 2
2. BINDING AUTHORITY
Unless added by Addendum, the Producer has no authority, either in his own
name or in the name of the Manager, or any companies for which the Manager
is providing underwriting services, to make, alter, bind or discharge any
contract of insurance.
3 COMMISSIONS
The Manager shall pay the Producer as commission, a percentage rate of the
premium on each license bond written and paid for under this Agreement, at
the rate of commission from time to time as agreed to by the Manager and
Producer. Return commissions shall be credited at the same rate on any
return premiums.
4. REVISION OF AGREEMENT
This Agreement may be revised by the Manager after it gives the Producer at
least sixty (60) days written advance notice of the proposed revision and
the effective date. Such notice will be communicated by the Manager to the
Producer in writing and will provide an opportunity to discuss the
revisions and reasons for such changes.
5. CANCELLATION OF INSURANCE
Nothing in the Agreement shall be construed as limiting or restricting the
right of the Manager to cancel any binder, policy or contract.
The Producer is authorized to cancel on behalf of the Manager or any
company for which the Manager is providing underwriting services, any
contracts, certificates, binders or policies of insurance that they have
issued or caused to be issued for the Manager.
6. ACCOUNTING AND REMITTANCE
A. All business received by the Producer must be reported to the Manager
within 10 calendar days of each month-end in which the bond becomes
effective. Premiums, net of commissions are to be remitted, to the
Manager no later than 20 days after each month-end.
The Producer hereby guarantees all premiums due the Company on all
insurances effective under this Agreement or any Addendum to this
Agreement. The Producer shall be liable for earned premium whether or
not collected from the insured.
D. Until the Producer receives written notice to the contrary, he shall
remit all accounts and premium to American Underwriting Managers,
Inc., P.O. Box 4919, Glen Allen, Virginia 23058-4919.
2
<PAGE> 3
7. EXPENSES
The Manager shall not be responsible for any Producer's expenses
whatsoever.
8. SUPPLIES
All supplies furnished to the Producer by the Manager shall always remain
the property of the Manager and shall be returned to the Manager or its
representative promptly upon demand.
9. CLAIMS
The Producer agrees to cooperate fully with the Manager to facilitate the
investigation, adjustment, settlement and payment of any claim when and as
requested by the Manager, and under any rules or regulations as may be
agreed upon from time to time.
10. ADVERTISING
The Producer shall not limit any advertisement referring to the Manager or
any company for which the Manager is providing underwriting services, or
issue or cause to have issued any circular, letter, pamphlet or other
publication or statement referring to the Manager or any company for which
the Manager is providing underwriting services without the express written
consent of the Manager. In the event the Manager or any company for which
the Manager is providing underwriting services shall be subject to loss or
expense arising out of any unauthorized advertisement, statement or
publication of the Producer, the Producer shall be liable for all resulting
damages and costs.
11. TERMINATION OF AGREEMENT
This Agreement supersedes all previous Agreements, whether oral or written,
between the Manager and the Producer.
This Agreement may be canceled at any time by either party giving ninety
(90) days written notice to the other. After the date of cancellation of
this Agreement, unless otherwise stipulated at the option of the Manager,
the Producer shall complete the collection and account to the Manager for
all premiums, commissions and other transactions unaccounted for on the
date of cancellation or arising thereafter in respect to outstanding
insurances.
In case the Manager shall find it necessary to perform any duty otherwise
required of the Producer under this Agreement, the Producer shall be liable
for all cost incidental thereto.
3
<PAGE> 4
12. UNDERWRITING MANAGER
This Agreement pertains only to business written through AMERICAN
UNDERWRITING MANAGERS AGENCY, INCORPORATED, underwriting Managers, for the
insurance company(ies) as shown below:
MARKEL AMERICAN INSURANCE COMPANY
MARKEL INSURANCE COMPANY
who has the authority to act for the company(ies) in all matters pertaining
to this Agreement;
13. ASSIGNMENT
This Agreement shall not be transferred or assigned by either party,
without the prior written consent of the other.
14. DOUBLE BROKERING
The writing of business produced by another wholesaler or surplus fines
general agent, through the Producer, is not permitted without the prior
consent of the Manager, and may be considered as grounds for the immediate
termination of this Agreement.
15. CONFORMITY OF STATUTE
Terms of the Agreement which are in conflict with the statutes of the state
wherein this Agreement applies are hereby amended to conform to such
applicable statutes.
16. APPLICABLE LAW
The law applicable to this Agreement shall be the law of the Commonwealth
of Virginia.
17. ARTICLE VII, ARBITRATION
A. In the event of a conflict or dispute hereunder which cannot be
amicably settled between the parties, such dispute shall be submitted
to arbitration. The Manager and the Producer shall each nominate an
arbiter and the two named arbiters shall then select an umpire. The
arbiters and umpire shall be disinterested persons familiar with the
insurance business. Each party shall submit its case to its arbiter
within 30 days of the decision to refer to arbitration. Should either
party fail to name its arbiter
4
<PAGE> 5
within 30 days of the date it is requested to do so, that arbiter
shall be appointed by the Bureau of Insurance of the State of
Virginia.
B. The arbiter shall consider the dispute and shall submit any issues
upon which they disagree to the umpire. The umpire's written decision
thereon shall be binding upon the parties. The arbiters and umpire
shall be relieved from judicial formalities and may abstain from
following strict rules of evidence, interpreting this Agreement as an
honorable engagement and not merely as a legal obligation. The
procedural laws of the Commonwealth of Virginia shall govern the
interpretation and application of this Agreement and the enforcement
of the arbitration award. The venue of the arbitration shall be in
Richmond, Virginia and each party shall pay the fee of its own arbiter
and half the fee of the umpire. The remaining costs of the arbitration
shall be paid as the arbiters or umpire shall direct.
C. In the event of any actions or proceeding subsequent to the
arbitration to enforce any rights under this Agreement, the prevailing
party shall be entitled to recover its reasonable attorneys' fees.
IN WITNESS WHEREOF the Manager and the Producer have executed this Agreement
this 1st day of October, 1995.
WITNESS AMERICAN UNDERWRITING MANAGERS,
AGENCY, INCORPORATED
BY /s/ MARK J. RICKEY
- ----------------------------- --------------------------------------
Mark J. Rickey, President
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
/s/ ANN SCHREMP
- -----------------------------
Ann Schremp
BY /s/ ROBERT T. KINGSLEY
--------------------------------------
Robert T. Kingsley
5
<PAGE> 6
Addendum No. 1 to
Agreement No. MAUMR10011 between
AMERICAN UNDERWRITING MANAGERS AGENCY, INCORPORATED
(Hereafter called the Manager)
and
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
(Hereafter called the Producer)
Effective October 1, 1995, the following Addendum is hereby added to and made a
part of this Agreement:
BINDING AUTHORITY
The Producer is hereby authorized to bind and issue policies on behalf of the
Manager for the Company(ies) as specified below. The Producer agrees to adhere
strictly to the authority provided and acknowledges that any written or implied
authority granted may only be exercised by the individual(s) designated below
and shall not be delegated to any other person, firm or corporation, other than
the Producer's own underwriters.
Designated individual(s):
Robert T. Kingsley
The Producer may bind and issue policies in the following company(ies), subject
to any special conditions indicated:
Company(ies): MARKEL AMERICAN INSURANCE COMPANY
MARKEL INSURANCE COMPANY
In addition to the other terms and conditions shown in this Addendum, special
conditions apply as indicated:
Special Conditions: Authority is granted only to license and permit bond
products of a class and in those states authorized in writing, by the manager.
1. INCEPTION AND PERIOD OF INSURANCE
Any policy bound under this Addendum shall become effective during the
currency of this Addendum and in no case shall any risk be bound for a
period of greater than 30 days, unless prior approval is obtained from the
Manager.
All certificates issued under this Addendum shall become effective during
the currency of this Addendum and in no case shall any policy be issued for
a period greater than 36 months, unless prior approval is obtained from the
Manager.
6
<PAGE> 7
2. TERRITORIAL LIMITATION
All insurance bound shall be domiciled or located within the United States
of America subject to the following exceptions: As file approved and
authorized from time to time by the Manager.
3. CANCELLATION OF INSURANCE
A. All policies bound hereunder shall include an appropriate Cancellation
Clause with a maximum period of written notice to the Insured not to
exceed 30 days required to effect cancellation, unless otherwise
required by statute and approved in advance by the Manager.
B. The Manager shall have the right any time to cancel any insurance
bound under this Addendum, The Producer shall return to the Manager
legal evidence of all cancellations.
4. INSPECTIONS AND AUDITS
A. The Producer shall maintain policy and certificate files for each
issued policy and certificate, in a fashion agreed to by the Manager
and the Producer. These policy files should be available for audit
from time to time, by the Manager, at the premises of the Producer.
B. The Manager or its duly authorized representatives may inspect or
audit any insurance bound or the subject matter thereof
C. The Producer shall be responsible for the prompt adjustment of any
auditable insurance bound under this Addendum and for reporting to the
Manager any additional and/or return premium which may become due as a
result of such adjustment.
5. SPECIAL CONDITIONS
This Addendum will continue in force until terminated:
1. By either party upon written notice to the other party.
2. By termination of the Producer Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF the Manager and the Producer have executed this Addendum this
1st DAY of October, 1995.
WITNESS AMERICAN UNDERWRITING MANAGERS
AGENCY, INCORPORATED
BY /s/ MARK J. RICKEY
- ----------------------------- --------------------------------------
Mark J. Rickey, President
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
/s/ ANN SCHREMP
- -----------------------------
Ann Schremp
BY /s/ ROBERT T. KINGSLEY
--------------------------------------
Robert T. Kingsley
8
<PAGE> 9
Addendum No. 3 to
Agreement No. MAUMR10011 between
AMERICAN UNDERWRITING MANAGER, INCORPORATED
(Hereafter called the Manager)
and
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
(Hereafter called the Producer)
LICENSE & PERMIT BOND
CONTINGENCY COMMISSION PLAN ADDENDUM
Effective October 1, 1995, the following Addendum is hereby added to and made a
part of this Agreement:
1. REPORTING OF RESULTS
Within 90 days after December 31, 1996 ("Accounting Date"), Company shall render
an accounting for the calendar year ended the previous December 31 (subject
year) to the Producer reflecting the experience on an earned premium basis for
premiums written under this Agreement, showing the following:
A. Subject period's earned premiums.
B. Subject period's incurred losses (as defined below).
C. Development for periods before subject period.
2. SUBJECT PERI0D INCURRED LOSSES DEFINED
Subject Period Incurred Losses shall be defined as the total amount of all
claims paid, plus all Manager allocated claim expenses (legal fees,
investigation fees, court costs, et cetera), plus Claim Reserves (which includes
claim reported and unpaid, and continuing claims determined in accordance with
the Manager's normal accounting practice) for the subject year period premium.
1
<PAGE> 10
3. CONTINGENT COMMISSION CRITERIA
The threshold for calculating the Contingent Commission shall be a loss ratio
below that determined according to the following calculation: A Written Premium
Volume greater than $1,000,000 in the preceding 12 months is required.
Contingency Commission Threshold Calculation
100% Net Earned Premium Volume
-57% Commission attributable to the Producer
-12% Attributable to the Manager
-X% Premium Tax
-X% All commissions and fees payable to any resident agents,
etc., as agreed to between the Producer and the Manager
---
Difference = Contingent Commission Threshold
4. CONTINGENT COMMISSION CALCULATION
a. The current period loss ratio shall be calculated by dividing the
subject period incurred losses as defined in Section 2, by the earned
premium for the subject period.
The contingent commission will be equal to the contingent commission
threshold minus the actual loss ratio, divided by 2 and multiplied by
the subject period earned premium.
If the result of this calculation is positive, the amount will be paid
90 days after the end of the subject period. If the result is
negative, the negative amount will be carried forward into the
calculation of the subsequent period contingent commission.
2
<PAGE> 11
b. Each period's calculation will, be updated annually. The payment
amount due will be adjusted if there has been any development, either
positive or negative. In the event that a given period has had
negative development resulting in a total due amount lower than the
amount already paid, that overpayment will be deducted from the
payment due for other periods until it has been recovered. If there
are not sufficient payments due in the correct period's payments to
offset the overpayment, there will be no payment made to the Producer
for that period. The negative amount will be carried forward to the
next period and subtracted from any amounts that otherwise become
payable to the Producer under the aforesaid formula until all
overpayments are recovered.
IN WITNESS WHEREOF the Manager and the Producer have executed this
addendum this 1st day of October, 1995.
WITNESS AMERICAN UNDERWRITING MANAGERS, INC.
[SIG] BY /s/ MARK J. RICKEY
- ----------------------------- --------------------------------------
Mark J. Rickey, President
FINANCIAL PACIFIC
INSURANCE AGENCY, INC.
/s/ ANN SCHREMP /s/ ROBERT T. KINGSLEY
- ------------------------------ ----------------------------------------
Ann Schremp Robert T. Kingsley
3
<PAGE> 1
EXHIBIT 10.23
CLAIMS MANAGEMENT AGREEMENT
between
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
(The "Producer")
and
AMERICAN UNDERWRITING MANAGERS
(the "Manager")
Recitals
A. Whereas the Manager is organized for the purpose of underwriting risks of
insurance under contract, for insurance companies, subject to the statutes
of the various states of the United States of America where such business
is domiciled; and
B. The Producer is experienced and skilled in the sales, production and
customer service of the Insurance Product and desires to serve in this
capacity as the Producer of the Product.
In consideration of the foregoing and the mutual agreements below, the
parties agree as follows:
ARTICLE I. GENERAL PRINCIPALS
1.1 The Manager. The Manager, relying upon the expertise of the Producer,
grants the authority described in this Agreement to the Producer.
Nonetheless, the Manager, being at risk and having ultimate responsibility
for the policies issued on its behalf, at all times shall have the
ultimate authority with respect to all matters pertaining to the business
serviced under this Agreement and to the general welfare of the Manager.
1.2 The Producer. The Producer shall manage the affairs of the Manager in an
ethical, legal and professional manner.
1.3 Unfair Claims Practices. The Producer shall be solely responsible for
compliance with all pertinent Unfair Claims Practices statutes, however
named, and does agree to indemnify the Manager for any fines, judgements,
penalties or similar payments resulting from the Producer's failure to do
so.
ARTICLE II. CLAIMS AUTHORITY
2.1 Claims Management. The Manager grants to the Producer authority to adjust,
settle, and compromise, claims arising out of policies of the Insurance
Product. The Producer shall pursue diligently and supervise the prompt,
fair and just settlement or defense of all claims in the Manager's best
interests.
2.2 Claims Adjusters. The Manager will appoint or grants to the Producer the
authority to appoint and supervise professional adjusters and to
investigate, adjust, settle and compromise such claims as deemed necessary
by the Producer.
1
<PAGE> 2
2.3 Attorneys. The Producer is not granted authority to appoint or supervise
attorneys, defend or litigate on behalf of the Manager in any matter
without prior written consent. All suit papers shall be immediately
forwarded to the Manager along with a complete copy of the Producer's
file regarding the particular claim on issue. If Producer is a named
party in the suit, the Producer has the right to defend or litigate, to
protect its interest.
2.4 Recoveries. The Manager grants to the Producer authority to and the
Producer will pursue diligently and secure all rights of subrogation,
salvage or recoveries on behalf of the Manager and any deductible
recoveries where applicable. The Producer shall deposit all recoveries
hereunder, in the Manager's Claims Account established pursuant to
Section 2.8.
2.5 Settlement Authority. The Producer is not granted authority to settle or
pay, any claim or claims. The Producer will forward to the Manager, all
claims ready for settlement within three (3) business days of completion
of the Producer's investigation. The Manager will be responsible for
paying all valid claims after review of the Producer's claim fill.
2.6 Notification Obligations. The Producer shall notify the Manager in the
following instances according to the time frames specified below:
(a) any loss or claim whose value in part or in total exceeds
$5,000.00 prior to payment, for Manager approval; (within 30
calendar days of Loss)
(b) any loss or claim resulting in legal action being instituted
against the Producer or the Manager, or suits requesting
punitive damages in accordance with Addendum 1;
(c) any loss or claim causing a complaint to be filed with any
regulatory authority or a threat to file a complaint with a
regulatory authority according to the procedure prescribed by
the Manager; in accordance with Addendum 1;
(d) any inquiry from a regulatory authority that involves a claim or
claims even if no complaint causes the inquiry according to the
procedure prescribed by the Manager (Addendum 1); in accordance
with Addendum 1;
(e) any claims the Producer deems appropriate to deny; (within 30
calendar days)
(f) any claim over which the Producer intends to file suit on behalf
of the Manager before such suit is filed;
It is understood and agreed that the Producer shall undertake to accept
and act upon subsequent instructions from the Manager resulting from a
claim or loss being brought to the attention of the Manager in
accordance with this Section 2.6 or for any other cause.
2.7 Manager Claims Account. For the purposes of depositing subrogation and
salvage collected and settling and paying claims, the Manager shall
establish on behalf of the Manager account (the "Manager Claims
Account") at a financial institution mutually acceptable to the Manager
and the Producer. The Manager shall own and have ultimate control over
the Manager Claims Account but shall grant the Producer power and
authority to deposit, and withdraw funds from such account for purposes
of fulfilling its obligations under this Agreement. The Manager agrees
to maintain a minimum balance agreed upon the by the Manager and the
Producer in the Manager Claims Account for the purpose of avoiding
service fees. Interest income from the Manager Claims Account shall be
payable to the Manager.
2
<PAGE> 3
2.8 Payment of Claims. To the extent authorized in Sections 2.5 and 2.6 the
producer may pay claims and settlements out of funds in the Manager Claims
Account. The Manager agrees to maintain sufficient funds in the Manager
Claims Account to pay claims under the program.
ARTICLE III. RECORDS, REPORTS, REMITTANCES AND PROCEDURES
3.1 Maintenance of Records. The Producer shall maintain complete and orderly
files, records and accounts of all transaction involving the Manager
and/or the Program in accordance with generally accepted insurance and
accounting practices. All such files shall be the property of the Manager
and subject to review by the Manager, by Manager-authorized
representatives and by regulatory authorities at all reasonable times.
All such files shall be returned to the Manager upon demand at the
Manager's expense. No lien may be claimed nor may said files be held as
security for any lien claimed by the Producer. Notwithstanding the
ownership of such records, the Manager recognizes the Producer's right to
free and open access to the records. The Manager acknowledges that the
Producer's filing methods were acceptable to the Manager on the date this
Agreement was signed.
3.2 Inspection and Availability of Records
(a) The Manager or its authorized representatives shall have the right
at all reasonable times to inspect, review, analyze, copy or
abstract all books and records, including but not limited to,
accounting records, statistical records, databases,or other general
business records of the Producer pertaining to the Program and the
Insurance Product. Additionally, the Manager shall have the right
to conduct periodic audits of all books and records relating to the
Program.
(b) The Producer shall make available to the Department of Insurance of
the State of or other states or their respective designees all
books, records, and documents pertaining to the Insurance Product.
3.3 Reports.
(a) Monthly. Within 10 days after the close of each calender month, the
Producer shall render to the Manager reports of transactions for
said month in formats acceptable to the Manager. The reports shall
include, but not necessarily be limited to, an accounting of all
claims and claims expenses reserved, paid, incurred and outstanding,
claims closed, claims re-opened, all salvage and subrogation and all
transactions and balances related to the Manager Claims Account. The
Producer shall, by fax, render to the Manager reports including, but
not limited to, a listing of all checks drawn against the Manager
Claims Account during said month or since the previous listing, a
listing of all salvage or subrogation or similar recoveries
deposited into the Manager Claims Account, and a listing of all
claims newly known or suspected to exceed $10,000.00 in total value.
These reports shall be in a format acceptable to the Manager.
3.4 Operational Procedure Manual. The producer shall establish and maintain a
written operational procedure manual satisfactory to the Manger to handle
all business written under this Agreement. The Producer shall submit said
operational procedure manual to the Manager in draft form as soon as
possible and in final form not later than January 1, 1996.
3.5 Records Retention. The Producer will maintain permanent copies of all
claim files or correspondence related to these claims hereunder either in
hard copies or microfiche or archived on fixed and/or movable media as
agreed upon by the Manager. All such copies shall be the property of the
Manager. The Producer will not destroy these permanent copies without the
written permission of the Manager and of the Department of Insurance of
the appropriate State(s).
3
<PAGE> 4
ARTICLE IV. EXPENSES
4.1 Producer's Expenses. The Producer shall accept and pay all expenses
incurred in connection with the administration and servicing of the claim
hereunder, including but not limited to the following:
(a) Expenses incurred in pursuing and securing the Manager's rights of
subrogation, salvage and recoveries except any incentive
compensation arrangements that the Manager and the Producer may from
time to time agree upon with respect to subrogation recoveries;
(b) The Producer's general office expenses, including rent, salaries,
utilities, transportation, furniture, fixtures, equipment, supplies,
telephone, postage, and other general overhead expenses;
(c) Preparation and printing of documents required to fulfill the
obligations of the Producer under this Agreement.
4.2 Manager's Expenses. The Manager shall absorb and pay directly the
following direct and indirect claims expenses:
(a) Expenses associated with regulatory audits conducted by any
Departments of Insurance, personnel, costs and related costs of the
Manager's internal management and review of the Program and expenses
of administering or internally auditing the Program. In the event
that a follow-up audit is conducted attributed to the fault of the
Producer, the cost of said audit or its proportional share shall be
borne by the Producer.
4.3 Manager Employee. The Manager and the Producer may mutually determine it
necessary or desirable for one of the Manager's employees to work in the
Program under the direct supervision of the Producer. In such event, the
salary and benefits attributable to such employee, which shall be mutually
agreed upon by the Manager and the Producer, would be billed to the
Producer on a monthly basis.
ARTICLE V. ANNUAL REVIEW
5.1 The Manager and the Producer shall, within 30 days of each anniversary
date of this Agreement, review the terms and conditions of this Agreement,
review the terms and conditions of this Agreement and make any necessary
or desirable amendments pursuant to Section 10.4. If the parties are
unable to agree on amended terms and conditions and until any amendments
are made pursuant to Section 10.4, the then existing terms of this
Agreement will continue to govern.
ARTICLE VI. TERMINATION
6.1 Manager Termination. The Manager may terminate this Agreement upon 90
days written notice to the Producer.
6.2 Producer Termination. The Producer may terminate this Agreement upon 90
days written notice to the Manager.
4
<PAGE> 5
6.3 Immediate Termination. This Agreement will terminate immediately if:
(a) the Manager gives the Producer written notice of termination following
the cancellation or non-renewal of the Producer's license in the State
of Domicile;
(b) either party gives written notice to the other in the event of fraud,
gross and willful misconduct or insolvency, bankruptcy or an
assignment for the benefit of creditors on the part of such other
party; or
(c) on the effective date of sale, transfer or merger of the Producer's
business without the Manager's prior written consent, not to be
unreasonably withheld.
(d) the Production Agreement between the Manager and Financial Pacific
Insurance Agency is terminated, but only at the Manager's option.
6.4 Effect of Termination. In the event of termination of this Agreement:
(a) The obligations of the Merger and the Producer in Article IV shall
survive termination of this Agreement.
(b) No party shall have a claim upon the other for loss of prospective
profit or damage to its business arising therefrom.
(c) The Producer shall cooperate fully with the Manager in providing all
necessary or appropriate notice to any and all third parties,
including without limitation, insureds, producers, sub-producers,
intermediaries, and regulatory authorities.
(d) The Producer shall promptly return to the Manager any checks, forms or
other supplies imprinted with the Manager's name regardless of who
incurred the cost for same or any policies, forms or other supplies
furnished to the Producer by the Manager.
(e) The Manager agrees to maintain sufficient funds in the Manager Claims
Account to pay claims during any run-off period.
ARTICLE VII. ARBITRATION
(a) In the event of a conflict or dispute hereunder which cannot be
amicably settled between the parties, such dispute shall be submitted
to arbitration. The Manager and the Producer shall each nominate an
arbiter and the two named arbiters shall then select an umpire. The
arbiters and umpire shall be disinterested persons familiar with the
insurance business. Each party shall submit its case to its arbiter
within 30 days of the decision to refer to arbitration. Should either
party fail to name its arbiter within 30 days of the date it is
requested to do so, that arbiter shall be appointed by the Bureau of
Insurance of the State of Virginia.
5
<PAGE> 6
(b) The arbiter shall consider the dispute and shall submit any issues
upon which they disagree to the umpire. The umpire's written decision
thereon shall be binding upon the parties. The arbiters and umpire
shall be relieved from judicial formalities and may abstain from
following strict rules of evidence, interpreting this Agreement as an
honorable engagement and not merely as a legal obligation. The
procedural laws of the Commonwealth of Virginia shall govern the
interpretation and application of this Agreement and the enforcement
of the arbitration award. The venue of the arbitration shall be in
Richmond, Virginia and each party shall pay the fee of its own arbiter
and half of the fee of the umpire. The remaining costs of the
arbitration shall be paid as the arbiters or umpire shall direct.
(c) In the event of any action or proceeding subsequent to the arbitration
to enforce any rights under this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees.
ARTICLE VIII. INSURANCE COVERAGE
The Producer shall at all times during the terms of this Agreement and at its
expense maintain at a minimum:
(a) A Fidelity Bond providing coverage for all officers and other
employees of the Producer (including but not limited to "money and
securities" coverage, employee dishonesty, and mysterious
disappearances), issued by an insurer reasonably acceptable to the
Manager in an amount not less than $1,000,000;
(b) General Liability insurance issued by an insurer reasonably acceptable
to the Manager with a policy limit in an amount not less than
$2,000,000 in the aggregate and $1,000,000 per occurrence; and
(c) Automobile Liability insurance issued by an insurer reasonably
acceptable to the Manager with a policy limit in an amount not less
than $1,000,000.
(d) Errors and Omissions insurance with not less than a $1,000,000 per
claim limit.
The Manager shall be provided with evidence of the above insurance coverage
in the form of a properly executed Certificate of Insurance, which at all
times during the term of this policy shall be kept current.
ARTICLE IX. GENERAL PROVISIONS
9.1 Effective Date. This Agreement shall become effective upon October 1, 1995.
9.2 Independent Contractor Status. The Producer is an independent contractor of
the Manager for the purposes set forth in this Agreement with all the
rights, powers, and duties as such. Nothing herein shall create the
relationship of employer and employee, joint ventures, partners or
associates between the Manager and the Producer.
9.3 Assignment. The Producer shall not assign, sell or otherwise transfer all
or part of this Agreement or the rights hereunder without the prior written
consent of the Manager.
9.4 Amendment. This Agreement may be amended only by written agreement signed
by both parties hereto.
9.5 Regulatory Issues. If either the Producer or the Manager receives an
inquiry or complaint from an regulatory authority, prompt notice shall be
given to the other party. If a response affecting the Manager is required,
the Producer shall draft a response and submit the draft to the Manager for
prior approval within five business days. The Manager may instruct the
Producer to reply on behalf of the Manager.
6
<PAGE> 7
9.6 Licenses and Compliance with Laws.
(a) The Manager and the Producer will maintain all licenses and regulatory
approvals necessary to conduct business in the State(s) in which the
program is marketed.
(b) The Manager is responsible for ensuring that all forms, procedures,
practices, and licenses necessary to fulfill its obligations under
this Agreement are in compliance with all state laws and regulations.
(c) The Producer is responsible for carrying out the Program in accordance
with the policies and guidelines approved by the Manager.
9.7 Advertising. The Producer shall not insert or permit any advertisement
referring to the Manager or the business written on its behalf or issue or
cause to be issued or permit a producer to issue any circular, pamphlet or
other publication about the Manager or the business written on its behalf
without the expresses prior written approval of the Manager. The Producer
shall require its producers to see the Producer's approval in writing to
use the Producer's or the Manager's name in any advertisement or the
promotional material in connection with the Program or the Insurance
Product.
9.8 Non-Waiver. The failure of the Manager or the Producer to insist on strict
compliance with this Agreement, or to exercise any right or remedy under
this Agreement, shall not constitute a waiver of any rights contained
herein or estop the parties from thereafter demanding full and complete
compliance therewith nor prevent the parties from exercising such remedy in
the future.
9.9 Notices. Any notice require or permitted to be given under this Agrement
shall be in writing and shall be deemed duly given if delivered personally,
by overnight express or certified mail (return receipt) to the party for
whom it is intended at the following address or such other address as the
party may designate from time to time.
For the Producer:
Financial Pacific Insurance Agency
8583 Elder Creek Road
Suite 100
Sacramento, CA 95828
Attention: Robert T. Kingsley
For the Manager:
Markel American Insurance Company/Markel Insurance Company
4551 Cox Road
Glen Allen, VA 23060
Attention: Mark Rickey
9.10 Legality. If any provision of this Agreement should be invalid under or in
conflict with any law, this Agreement shall be deemed amended to comply
with the minimum requirements of such laws without affecting the remaining
provisions of this Agreement.
9.11 Governing Law. This Agreement shall be interpreted under and pursuant to
the laws of the Commonwealth of Virginia.
9.12 Successors and Assigns. This Agreement shall bind and benefit the
successors and assigns (if permitted) of the parties.
7
<PAGE> 8
9.13 Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter of this Agreement and may
only be supplemented, amended or revised in a further written document
signed by both parties hereto. All previous agreements and/or
understanding, whether oral or written, between the Manager and the
Producer as to the subject matter hereof are superseded by this
Agreement.
The parties executed this Agreement this 28th day of November, 1995.
AMERICAN UNDERWRITING MANAGERS
By: /s/ MARK J. RICKEY Attest:
-------------------------- ----------------------
Mark J. Rickey
Title: President
--------------------------
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
By: /s/ ROBERT T. KINGSLEY Attest: /s/ ANN SCHREMP
-------------------------- ----------------------
Robert T. Kingsley Ann Schremp
Title: Executive Vice President
--------------------------
8
<PAGE> 9
ADDENDUM 1 TO
CLAIMS MANAGEMENT AGREEMENT BETWEEN
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
(THE "PRODUCER")
AND
AMERICAN UNDERWRITING MANAGERS
(THE "MANAGERS")
Compliant Handling Log. The Producer will retain a complete log of all formal
Insurance Commission complaints received by The Producer. The log will contain
information for tracking purposes. A copy of the log will be sent to The Manager
at the end of each month. The log will include columns that contain the
following information:
o the name of the insured and the complainant,
o the policy number and claim number;
o the date the compliant was received and the final disposition date;
o a brief synopsis of the file explanation of the final disposition; and
o a short note as to the negligence issues.
Compliant Handling Procedures. The Producer will do the following upon receipt
of a complaint:
o within 24 hours of receipt of the compliant, forward a copy of the
complaint by facsimile machine to The Manager;
o within 72 hours of receipt of the compliant, a draft of the answer from
The Producer will be sent by facsimile to The Manager for review. The
Manager will then response within suggestions and/or alterations within 24
hours after receipt of the drafted answer, and
o The Producer will respond with the formal answer to the complainant no
later than 24 hours after the drafted answer is approved by The Manager.
For further clarification of the definitions of "complaint," the term could be,
but is not limited to the following:
o TIME LIMIT DEMANDS made by either the part(s) involved or their
representative;
o allegation of UNFAIR CLAIM PRACTICES violations; and/or
o INSURANCE COMMISSION COMPLAINTS upon the Commissioner of the State of or
any other appropriate jurisdiction.
This process anticipates a total handling time of TEN (10) working days from
receipt of the complaint until a formal written response by the Producer. This
time frame may be modified only under special circumstances such as a review by
Legal
9
<PAGE> 10
Council prior to the formal answer. At no time will any answers exceed TIME
LIMITS as set by the Statutes or Procedures as designated by the Regulations of
the appropriate jurisdiction. The Producer agrees to date-stamp all
correspondence and follow any other specific handling regulations promulgated by
the appropriate jurisdiction.
The parties executed this Agreement this 28th day of November, 1995.
AMERICAN UNDERWRITING MANAGERS
By: /s/ MARK J. RICKEY Attest: /s/ [SIG]
-------------------------- ----------------------
Mark J. Rickey
Title: President
--------------------------
FINANCIAL PACIFIC INSURANCE AGENCY, INC.
By: /s/ ROBERT T. KINGSLEY Attest: /s/ ANN SCHREMP
-------------------------- ----------------------
Robert T. Kingsley Ann Schremp
Title: Executive Vice President
--------------------------
10
<PAGE> 1
EXHIBIT 10.24
FINANCIAL PACIFIC
INSURANCE COMPANY
Agreement No. 118
<PAGE> 2
PROPERTY FACULTATIVE BINDING AGREEMENT
NO. 118
between
GENERAL REINSURANCE CORPORATION
a Delaware corporation
having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Reinsurer")
and
FINANCIAL PACIFIC INSURANCE COMPANY
8583 Elder Creek Road, Suite 100
Sacramento, California
(herein referred to as the "Company")
SECTION I - BINDING AUTHORITY
The Company shall bind on behalf of the Reinsurer, with respect to each
individual risk that has a total insured value of greater than $10,000,000 but
no greater than $25,000,000 and is insured under policies issued by the Company,
a maximum amount of reinsurance of $8,000,000 in excess of a Company retention
of $2,000,000. Such policies shall be classifiable in the NAIC form of annual
statement as fire, allied lines, inland marine, commercial multiple peril
(property coverages), and automobile physical damage (comprehensive and
collision) and shall insure risks wherever located in the United States of
America.
This Agreement shall apply to individual risks where the Company's
liability attaches, increases, or renews on and after July 1, 1996. All
reinsurance bound under this Agreement shall be governed by the terms and
conditions of the Reinsurer's Certificate of Facultative Reinsurance.
<PAGE> 3
SECTION II - MECHANICS OF BINDING
Within 90 days after binding the Reinsurer, the Company shall forward to
the Reinsurer the Reinsurer's Property Facultative Worksheet for each risk,
attaching pertinent underwriting information such as inspection reports,
diagrams, and policy forms.
If the Company fails to notify the Reinsurer within 90 days after binding
the Reinsurer, the risk shall be individually submitted and the effective date
of reinsurance shall be determined by mutual agreement.
Promptly upon receipt of such Worksheet and information, the Reinsurer
shall review the submission and provide the Company with a premium quotation. If
the Company accepts such premium quotation, the Reinsurer shall issue a
Facultative Reinsurance Certificate retroactive to the date it was bound, which
shall become the reinsurance contract between the parties and which shall be
cancelable in accordance with its terms.
If the Company rejects the premium quotation, it shall advise the
Reinsurer within 5 days after the date of such quotation and reinsurance
coverage shall be canceled flat. If the Company fails to notify the Reinsurer of
its rejection within 5 days after the date of such quotation, the Reinsurer
shall issue a Facultative Reinsurance Certificate for the period from the
inception date of the binder to the date on which the Company notifies the
Reinsurer of its rejection of the quotation. In such instance, the Company shall
pay to the Reinsurer a reinsurance premium equal to pro rata of the Reinsurer's
premium quotation for the time the Certificate is in force.
SECTION III - DEFINITIONS
(a) RISK
The Company shall establish what constitutes one risk, provided:
(1) A building and its contents, including time element coverages,
shall never be considered more than one risk;
- 2 -
<PAGE> 4
(2) When two or more buildings and their contents are situated at
the same general location, the Company shall identify on its
records at the time of acceptance by the Company those
individual buildings and their contents that are considered
to constitute each risk; if such identification is not made,
each building and its contents shall be considered to be a
separate risk.
(b) BUILDING
This term shall mean each structure that is considered by the local
fire insurance rating organization to be a separate building for
rate making purposes. With reference to structures not rated
specifically by the local fire insurance rating organization, the
term building shall mean each separately roofed structure enclosed
within exterior walls.
SECTION IV - EXCLUSIONS
The Company may not bind the Reinsurer on:
(a) Business accepted by the Company as reinsurance from other insurers
other than its affiliates,
(b) Policies written to apply in excess of underlying insurance or
policies written with a deductible or franchise of more than
$25,000; however, this exclusion shall not apply to policies which
provide a percentage deductible or franchise in connection with
windstorm;
(c) Insurance against earthquake, when written as such; however, this
exclusion shall not apply to ensuing loss by fire or explosion not
otherwise excluded;
(d) Insurance on growing crops;
(e) Insurance against flood, surface water, waves, tidal waves,
overflow of any body of water, or their spray, all whether driven
by wind or not, except when written in conjunction with fire and
otherwise eligible perils;
(f) Business classified as fidelity;
(g) Coverage afforded for loss or damage resulting from failure to
account or pay for any goods or merchandise sold on credit,
delivered under deferred payment agreements, consigned for sale, or
delivered under any trust or floor plan agreements, except under
standard accounts receivable policies;
- 3 -
<PAGE> 5
(h) Coverage afforded for any loss or damage caused by or resulting from:
(1) Explosion of steam boilers, steam pipes, steam engines or steam
turbines owned by, leased by or operated under the control of the
insured; however, this exclusion shall not apply to loss or damage
resulting from fire or combustion explosion, nor to loss or damage
caused by or resulting from the explosion of gases or fuel within the
furnace of any fired vessel or within the flues or passages through
which the gases of combustion pass;
(2) Artificially generated electric current, including electric arcing,
that disturbs electrical devices, appliances or wires- however, this
exclusion shall not apply to ensuing loss by fire not otherwise
excluded;
(3) Mechanical breakdown, including rupture or bursting caused by
centrifugal force; however, this exclusion shall not apply to any
resulting loss or damage caused by elevator collision;
(i) Mortgage impairment insurance and similar kinds of insurance, howsoever
styled, providing coverage to an insured with respect to its mortgagee
interest in property or its owner interest in foreclosed property;
(j) Difference in conditions insurance and similar kinds of insurance,
howsoever styled;
(k) Risks which have a total insured value of more than $25,000,000;
(1) Mobile homes unless written as part of a commercial multiple peril policy;
(m) Watercraft;
(n) Inland marine business with respect to the following:
(1) All bridges and tunnels;
(2) Cargo insurance when written as such with respect to ocean, lake, or
inland waterways vessels;
(3) Faulty film, tape, processing and editing insurance and cast
insurance;
(4) Stationary drilling rigs;
- 4 -
<PAGE> 6
(5) Furriers' customers policies;
(6) Garment contractors policies;
(7) Insurance on livestock under so-called "mortality policies";
(8) Jewelers' block policies and furriers' block policies;
(9) Mining equipment while underground;
(10) Motor truck cargo as respects long haul vehicles;
(11) Radio and television broadcasting towers;
(12) Registered mail insurance when the limit of any one addressee on any
one day is more than $50,000;
(13) Builders risks;
(o) Vacant or unoccupied properties;
(p) Risks located on the keys and islands listed in Appendix A attached
hereto;
(q) Risks located within one mile of tidal waters, including the Intracoastal
Waterway, as respects the Gulf of Mexico from Brownsville, Texas to Key
West, Florida and the Atlantic Ocean from Key West, Florida to Sandy Hook,
New Jersey;
(r) Coverage afforded by ISO Pollutant Clean Up and Removal Additional
Aggregate Limit of Insurance Endorsement CP 04 07 (Ed. 4/86) or as
subsequently amended or by any similar endorsement affording such
coverage;
(s) Coverage afforded for pollutant clean up or removal, including time
element coverage associated therewith, under any commercial property
policy or any inland marine policy written by the Company which does not
contain the provisions of ISO Changes-Pollutants Endorsement CP 01 86 (Ed.
4/86) or as subsequently amended; however, this exclusion does not apply
to any risk located in a jurisdiction which has not approved the Insurance
Services Office exclusion or where other regulatory constraints prohibit
the Company from implementing such exclusion. If the Company elects to
implement an exclusion independent of ISO, such exclusion will be deemed a
suitable substitute provided the Com-
- 5 -
<PAGE> 7
pany has submitted the wording to the Reinsurer and received the
Reinsurer's prior approval.
Section V - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of an inadvertent
error or accidental omission of the Company, of a clerical or administrative
nature, in reporting any claim or loss or in reporting any business reinsured
under this Agreement, provided that the error or omission is rectified
immediately after discovery. The Company shall not be liable for any errors or
omissions on the part of the Reinsurer in transferring information from the
Worksheet to the Certificate of Facultative Reinsurance.
Section VI - INSPECTION
The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the reinsurance bound in accordance with this
Agreement, including Company files concerning claims, losses, or legal
proceedings which involve or are likely to involve the Reinsurer.
Section VII - TERMINATION
Either party may withdraw this Agreement by sending to the other by
registered mail to the address listed in this Agreement, notice stating the time
and date when, not less than 90 days after the date of mailing of such notice,
withdrawal shall be effective. If the Reinsurer withdraws this binding
authority, it shall issue Certificates of Facultative Reinsurance for any
reinsurance bound by the Company prior to the effective date of such withdrawal.
Section VII - CHANGES OR ENDORSEMENTS
The terms of this Agreement shall not be waived or changed except by
endorsement issued hereto executed by a duly authorized representative of the
Company and the Reinsurer.
- 6 -
<PAGE> 8
Any increase in the Company's liability on risks covered hereunder shall
be automatically bound, subject to the Limit of Liability of the Reinsurer as
set forth in the section entitled BINDING AUTHORITY and subject to all other
terms of this Agreement, for a period of not more than 90 days from the date of
such increase.
The Company shall notify the Reinsurer of all increases by forwarding a
copy of the Company's amendatory endorsement or notice of change which shall be
acknowledged by the Reinsurer in the form of an endorsement to the Certificate
of Facultative Reinsurance with the additional reinsurance premium, if any,
entered thereon.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate,
this 6th day of February, 1997,
GENERAL REINSURANCE CORPORATION
[SIG]
Vice President
Attest: [SIG]
and this 10th day of February, 1997
FINANCIAL PACIFIC INSURANCE COMPANY
[SIG]
Attest: [SIG]
- 7 -
Agreement No. 118
<PAGE> 9
APPENDIX A
Attached to and made a part of
AGREEMENT NO. 118
EXCLUDED KEYS AND ISLANDS
ALABAMA: Oyster Keys
Piney Island
Aux Herbes Island Plantation Key
Dauphin Island St. George Island
St. Vincent Island
FLORIDA: Sand Keys
Santa Rosa Island
Amelia Island Sanibel Island
Anclote Island Siesta Key
Anna Marie Island Snead Island
Big Pine Key Snipe Keys
Big Torch Key Stock Island
Bush Key Sugarloaf Key
Cabbage Key Ten Thousands Islands
Captiva Island Treasure Island
Caladesi Island Upper Matecumbe Key
Casey Key Vaca Key
Cayo Costa Island
Cedar Key GEORGIA:
Coquina Key
Crooked Key Cumberland Island
Cudjoe Key Jekyll Island
Elliott Key Ossabaw Island
Estero Island St. Catherines Island
Gasparilla Island St. Simons Island
Hog Island Sapelo Island
Honeymoon Island Skidaway Island
Hutchinson Island Tybee Island
J.N. Ding Darling NWR Wassaw Island
Johnston Key
Jupiter Island LOUISIANA:
Key Biscayne
Key Largo Breton Island
Key West Chandeleur Island
Long Key Curlew Island
Longboat Key Freemason Island
Lower Matecumbe Key Grand Gosier Island
Marco Island Grand Isle
Merritt Island Grand Terre Island
Meed Keys Isle au Pitre
Mullet Key Marsh Island
No Name Key North Island
North Captiva Island Shell Keys
Old Rhodes Key
<PAGE> 10
MISSISSIPPI: TEXAS:
Cat Island Brazos Island
Horn Island Galveston Island
Petit Bois Island High Island
Ship Island Matagorda Island
Mustang Island
NORTH CAROLINA: Padre Island
San Jose Island
Cedar Island South Padre Island
Durant Island
Harkers Island VIRGINIA:
Knotts Island
Mackay Island Cedar Island
Ocean Isle Island Cobb Island
Ocracoke Island Fishermans Island
Pea Island Hog Island
Roanoke Island (Nags Head) Metomkin Island
Portsmounth Island Myrite Island
Smith Island Parramore Island
Plum Tree Island
SOUTH CAROLINA: Ship Shoal Island
Tangier Island
Cape Island Wallops Island
Capers Island Wreck Island
Cedar Island
Daufuskie Island
Dewees Island
Edisto Island
Fripp Island
Folly Island
Hilton Head Island
Hunting Island
Isle of Palms
John Island
Kiawah Island
Morgan Island
Morris Island
Murphy Island
North Island
Pritchards Island
Seabrook Island
South Island
The Grand Strand
Page 2 of 2
Appendix A
Agreement No. II 8
<PAGE> 1
EXHIBIT 10.25
FINANCIAL PACIFIC
INSURANCE COMPANY
AGREEMENT NO. AFF-G243440
<PAGE> 2
AGREEMENT OF REINSURANCE
NO. AFF-G243440
between
GENERAL REINSURANCE CORPORATION
a Delaware corporation
having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Reinsurer")
and
FINANCIAL PACIFIC INSURANCE COMPANY
8583 Elder Creek Road, Suite 100
Sacramento, California
(herein referred to as the "Company")
In consideration of the promises set forth in this Agreement, the parties agree
as follows:
ARTICLE I - SCOPE OF AGREEMENT
As a condition precedent to the Reinsurer's obligations under this
Agreement, the Company shall cede to the Reinsurer the business described in
this Agreement, and the Reinsurer shall accept such business as reinsurance from
the Company.
This Agreement is comprised of General Articles I through XI and the
Exhibit(s) listed below and each Exhibit which may be made a part of this
Agreement. The terms of the General Articles and of the Exhibit(s) shall
determine the rights and obligations of the parties. The terms of the General
Articles shall apply to each Exhibit unless specifically amended therein. In the
event of termination of all the Exhibits made a part of this Agreement, the
General Articles shall automatically terminate when the liability of the
Reinsurer under said Exhibits ceases.
EXHIBIT A - EXCESS OF LOSS REINSURANCE
of
COMMERCIAL PROPERTY BUSINESS
<PAGE> 3
Article II - PARTIES TO THE AGREEMENT
This Agreement is solely between the Company and the Reinsurer. When more
than one Company is named as a party to this Agreement, the first Company named
shall be the agent of the other companies as to all matters pertaining to this
Agreement. Performance of the obligations of each party under this Agreement
shall be rendered solely to the other party. However, if the Company becomes
insolvent, the liability of the Reinsurer shall be modified to the extent set
forth in the article entitled INSOLVENCY OF THE COMPANY. In no instance shall
any insured of the Company or any claimant against an insured of the Company
have any rights under this Agreement.
Article III - MANAGEMENT OF CLAIMS AND LOSSES
The Company shall investigate and settle or defend all claims and losses.
When requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the Reinsurer, to be associated with the Company in the defense or
control of any claim, loss, or legal proceeding which involves or is likely to
involve the Reinsurer. All payments of claims or losses by the Company within
the terms and limits of its policies which are within the limits set forth in
the applicable Exhibit shall be binding on the Reinsurer, subject to the terms
of this Agreement.
Article IV - RECOVERIES
The Company shall pay to or credit the Reinsurer with the Reinsurer's
portion of any recovery obtained from salvage, subrogation, or other insurance.
Adjustment expenses for recoveries shall be deducted from the amount recovered.
The Reinsurer shall be subrogated to the rights of the Company to the
extent of its loss payments to the Company. The Company agrees to enforce its
rights of salvage, subrogation, and its rights against insurers or to assign
these rights to the Reinsurer.
- 2 -
<PAGE> 4
If the reinsurance under an Exhibit is on a share basis, the recoveries
shall be apportioned between the parties in the same ratio as the amounts of
their liabilities bear to the loss. If the reinsurance under an Exhibit is on an
excess basis, recoveries shall be distributed to the parties in an order inverse
to that in which their liabilities accrued.
Article V - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of an inadvertent
error or accidental omission of the Company, of a clerical or administrative
nature, in reporting any claim or loss or any business reinsured under this
Agreement, provided that the error or omission is rectified immediately after
discovery. The Reinsurer shall be obligated only for the return of the premium
paid for business reported but not reinsured under this Agreement.
Article VI - SPECIAL ACCEPTANCES
Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.
Article VII - RESERVES AND TAXES
The Reinsurer shall maintain the required reserves as to the Reinsurer's
portion of unearned premium, claims, losses, and adjustment expense.
The Company shall be liable for all premium taxes on premium ceded to the
Reinsurer under this Agreement. If the Reinsurer is obligated to pay any premium
taxes on this premium, the Company shall reimburse the Reinsurer; however, the
Company shall not be required to pay taxes twice on the same premium.
- 3 -
<PAGE> 5
Article VII - OFFSET
The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or losses, adjustment expense, salvage, or
otherwise, due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and the
Reinsurer.
Article IX - INSPECTION OF RECORDS
The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including Company files concerning claims, losses, or legal proceedings which
involve or are likely to involve the Reinsurer.
Article X - ARBITRATION
Any unresolved difference of opinion between the Reinsurer and the Company
shall be submitted to arbitration by three arbitrators. One arbitrator shall be
chosen by the Reinsurer, and one shall be chosen by the Company. The third
arbitrator shall be chosen by the other two arbitrators within ten (10) days
after they have been appointed. If the two arbitrators cannot agree upon a third
arbitrator, each arbitrator shall nominate three persons of whom the other shall
reject two. The third arbitrator shall then be chosen by drawing lots. If either
party fails to choose an arbitrator within thirty (30) days after receiving the
written request of the other party to do so, the latter shall choose both
arbitrators, who shall choose the third arbitrator. The arbitrators shall be
impartial and shall be active or retired persons whose principal occupation is
or was as officers of property and casualty insurance or reinsurance companies.
The party requesting arbitration (the "Petitioner") shall submit its brief
to the arbitrators within thirty (30) days after notice of the selection of the
third arbitrator. Upon receipt of the Petitioner's brief, the other party (the
"Respondent") shall have thirty (30) days to file a
- 4 -
<PAGE> 6
reply brief. On receipt of the Respondent's brief, the Petitioner shall have
twenty (20) days to file a rebuttal brief. Respondent shall have twenty (20)
days from the receipt of Petitioner's rebuttal brief to file its rebuttal brief.
The arbitrators may extend the time for filing of briefs at the request of
either party.
The arbitrators are relieved from judicial formalities and, in addition to
considering the rules of law and the customs and practices of the insurance and
reinsurance business, shall make their award with a view to effecting the intent
of this Agreement. The decision of the majority shall be final and binding upon
the parties. The costs of arbitration, including the fees of the arbitrators,
shall be shared equally unless the arbitrators decide otherwise. The arbitration
shall be held at the times and places agreed upon by the arbitrators.
ARTICLE XI - INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company, the reinsurance proceeds
will be paid to the Company or the liquidator on the basis of the amount of the
claim allowed in the insolvency proceeding without diminution by reason of the
inability of the Company to pay all or part of the claim.
The Reinsurer shall be given written notice of the pendency of each claim
against the Company on the policy(ies) reinsured hereunder within a reasonable
time after such claim is filed in the insolvency proceedings. The Reinsurer
shall have the right to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defenses
which it may deem available to the Company or its liquidator. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
- 5 -
<PAGE> 7
executed in duplicate,
this 10th day of September ,1996,
GENERAL REINSURANCE CORPORATION
[SIG]
Vice President
Attest:
and this 3rd day of October ,1996.
FINANCIAL PACIFIC INSURANCE COMPANY
[SIG]
Attest:
10/3/96 [SIG]
- 6 -
Agreement No. AFF-G243440
<PAGE> 8
EXHIBIT A
Attached to and made a part of
AGREEMENT OF REINSURANCE NO. AFF-G243440
EXCESS OF LOSS REINSURANCE
OF
COMMERCIAL PROPERTY BUSINESS
SECTION 1 - LIABILITY OF THE REINSURER
The Reinsurer shall pay to the Company, with respect to each risk of the
Company ceded hereunder, the amount of net loss sustained by the Company in
excess of the Company Retention but not exceeding the Limit of Liability of the
Reinsurer as set forth in the Schedule of Reinsurance or the amount of
reinsurance ceded to the Reinsurer on the monthly bordereau report, whichever is
less. However, in no event shall net loss include payments made by the Company
under "unlimited" or "non ceded" coverages unless specific limits of liability
have been included in the total amount of insurance reported and ceded on the
monthly bordereau reports.
SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class of Business Company Retention Limit of Liability of the Reinsurer
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Property Business $2,000,000 $8,000,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
All insurance written under one or more policies of the Company against
the same peril on the same risk shall be combined, and the Company Retention and
Limit of Liability of the Reinsurer shall be determined on the basis of the sum
of all insurance against the same peril and on the same risk which is in force
at the time of a claim or loss.
<PAGE> 9
SECTION 2 - ALLOCATION OF ADJUSTMENT EXPENSE
In addition to payments for its share of net loss, the Reinsurer shall pay
to the Company a share of adjustment expenses proportionate to the Reinsurer's
share of net loss.
SECTION 3 - OTHER REINSURANCE
The obligations of the Company to reinsure business falling within the
scope of this Exhibit and of the Reinsurer to accept such reinsurance are
mandatory and no other reinsurance (either facultative or treaty) is permitted,
except treaty reinsurance within the Company Retention.
SECTION 4 - DEFINITIONS
(a) COMMERCIAL PROPERTY BUSINESS
This term shall mean insurance which is classified in the NAIC form of
annual statement as fire, allied lines, inland marine, commercial
multiple peril (property coverages) and automobile physical damage
(comprehensive and collision), except those lines specifically excluded
in the section entitled EXCLUSIONS, on risks wherever located in the
United States of America.
(b) COMPANY RETENTION
This term shall mean the amount the Company and its treaty reinsurers
shall retain for their own account; however, this requirement shall be
satisfied if this amount is retained by the Company or its affiliated
companies under common management or common ownership.
Recoveries from catastrophe reinsurance shall be deemed not to reduce
the amount required with respect to the Company Retention.
(c) NET LOSS
This term shall mean all payments by the Company within the terms and
limits of its policies in settlement of claims or losses after deduction
of salvage and other recoveries and after deduction of amounts due from
all other reinsurance, except catastrophe reinsurance and except treaty
reinsurance within the Company Retention, whether collectible or not.
This
A - 2
<PAGE> 10
term shall not include adjustment expense. If the Company becomes
insolvent, this definition shall be modified to the extent set forth in
the article entitled INSOLVENCY OF THE COMPANY.
(d) ADJUSTMENT EXPENSE
This term shall mean expenditures by the Company within the terms and limits of
its policies in the direct defense of claims and as allocated to an individual
claim or loss (other than for office expenses and for the salaries and expenses
of employees of the Company or of any subsidiary or related or wholly owned
company of the Company) made in connection with the disposition of a claim,
loss, or legal proceeding including investigation, negotiation, and legal
expenses; court costs; prejudgment interest; and interest on any judgment or
award.
(e) RISK
The Company shall establish what constitutes one risk, provided:
(1) A building and its contents, including time element coverages, and
vehicles garaged at same location shall never be considered more than
one risk;
(2) When two or more buildings and their contents are situated at the same
general location, the Company shall identify on its records at the
time of acceptance by the Company those individual buildings and their
contents that are considered to constitute each risk; if such
identification is not made, each building and its contents shall be
considered to be a separate risk.
(f) BUILDING
This term shall mean each structure that is considered by the local fire
insurance rating organization to be a separate building for rate making
purposes. With reference to structures not rated specifically by the local
fire insurance rating organization, the term building shall mean each
separately roofed structure enclosed within exterior walls.
(g) TOTAL INSURED VALUE
This term shall mean the sum total of values for building, personal
property, business income, extra expense, accounts receivable, valuable
papers, fine arts, and electronic data processing (hardware, software and
related extra expense) and automobiles physical damage (comprehensive and
collision) according to the policy form written.
A - 3
<PAGE> 11
SECTION 5 - EXCLUSIONS
This Exhibit shall not apply to:
(a) Business accepted by the Company as reinsurance from other insurers
other than its affiliates;
(b) Nuclear incident per the Nuclear Incident Exclusion - Physical
Damage Reinsurance attached hereto;
(c) Any loss or liability accruing to the Company directly or
indirectly from any insurance written by or through any pool or
association including pools or associations in which membership by
the Company is required under any statutes or regulations;
(d) Any liability of the Company arising from its participation or
membership in any insolvency fund;
(e) Any loss or damage which is occasioned by war, including undeclared
or civil war; warlike action by a military force, including action
in hindering or defending against an actual or expected attack, by
any government, sovereign or other authority using military
personnel or other agents; or insurrection, rebellion, revolution,
usurped power, or action taken by governmental authority in
hindering or defending against any of these; however, this
exclusion shall not apply to any policy which contains a standard
war exclusion;
(f) Policies written to apply in excess of underlying insurance or
policies written with a deductible or franchise of more than
$25,000; however, this exclusion shall not apply to policies which
provide a percentage deductible or franchise in connection with
windstorm;
(g) Insurance against earthquake, when written as such; however, this
exclusion shall not apply to ensuing loss by fire or explosion not
otherwise excluded;
(h) Insurance on growing crops;
(i) Insurance against flood, surface water, waves, tidal waves,
overflow of any body of water, or their spray, all whether driven
by wind or not except when written in conjunction with fire and
otherwise eligible perils;
(j) Business classified as fidelity;
A - 4
<PAGE> 12
(k) Liability under coverage afforded for loss. or damage resulting
from failure to account or pay for any goods or merchandise sold on
credit, delivered under deferred payment agreements, consigned for
sale, or delivered under any trust or floor plan agreements, except
under standard accounts receivable policies;
(l) Any loss or damage caused by or resulting from:
(1) Explosion of steam boilers, steam pipes, steam engines or steam
turbines owned by, leased by or operated under the control of the
insured; however, this exclusion shall not apply to loss or
damage resulting from fire or combustion explosion, nor to loss
or damage caused by or resulting from the explosion of gases or
fuel within the furnace of any fired vessel or within the flues
or passages through which the gases of combustion pass;
(2) Artificially generated electric current, including electric
arcing, that disturbs electrical devices, appliances or wires;
however, this exclusion shall not apply to ensuing loss by fire
not otherwise excluded;
(3) Mechanical breakdown, including rupture or bursting caused by
centrifugal force; however, this exclusion shall not apply to any
resulting loss or damage caused by elevator collision;
(m) Mortgage impairment insurance and similar kinds of insurance,
howsoever styled, providing coverage to an insured with respect to
its mortgagee interest in property or its owner interest in
foreclosed property;
(n) Difference in conditions insurance and similar kinds of insurance,
howsoever styled;
(o) Risks which have a total insurable value of more than $10,000,000;
(p) Mobile homes unless written as part of a commercial multiple peril
policy;
(q) Watercraft;
(r) Inland marine business with respect to the following:
(1) All bridges and tunnels;
(2) Cargo insurance when written as such with respect to ocean, lake,
or inland waterways vessels;
A - 5
<PAGE> 13
(3) Faulty film, tape, processing and editing insurance and cast
insurance;
(4) Stationary drilling rigs;
(5) Furriers' customers policies;
(6) Garment contractors policies;
(7) Insurance on livestock under so-called "mortality policies";
(8) Jewelers' block policies and furriers' block policies;
(9) Mining equipment while underground;
(10) Motor truck cargo as respect long haul vehicles;
(11) Radio and television broadcasting towers;
(12) Registered mail insurance when the limit of any one addressee on
any one day is more than $50,000;
(13) Builders risks;
(s) Vacant or unoccupied properties;
(t) Risks located on the keys and islands listed in Appendix A attached
hereto;
(u) Risks located within one mile of tidal waters, including the
Intracoastal Waterway, as respects the Gulf of Mexico from
Brownsville, Texas to Key West, Florida and the Atlantic Ocean from
Key West, Florida to Sandy Hook, New Jersey;
(v) Coverage afforded by ISO Pollutant Clean Up and Removal Additional
Aggregate Limit of Insurance Endorsement CP 04 07 (Ed. 4/86) or as
subsequently amended or by any similar endorsement affording such
coverage;
(w) Pollutant clean up or removal, including time element coverage
associated therewith, under any commercial property policy or any
inland marine policy written by the Company which does not contain
the provisions of ISO Changes-Pollutants Endorsement CP 01 86 (Ed.
4/86) or as subsequently amended; however, this exclusion does not
apply to any risk located in a jurisdiction which has not approved
the Insurance Services
A - 6
<PAGE> 14
Office exclusion or where other regulatory constraints prohibit the
Company from implementing such exclusion. If the Company elects to
implement an exclusion independent of ISO, such exclusion will be
deemed a suitable substitute provided the Company has submitted the
wording to the Reinsurer and received the Reinsurer's prior
approval.
SECTION 6 - REINSURANCE PREMIUM
As a condition precedent to the Reinsurer's obligations hereunder, the
Company shall pay to the Reinsurer, with respect to each risk reinsured
hereunder, a reinsurance premium equal to the Company's premium for the business
ceded hereunder and the applicable reinsurance rates set forth in Appendix B,
attached hereto.
SECTION 7 - REPORTS AND REMITTANCES
(a) BORDEREAU REPORTS AND REINSURANCE PREMIUM
Within 25 days after the close of each month the Company shall render to
the Reinsurer a bordereau report giving details of each risk insured
under policies issued or endorsed during the month and reinsured
hereunder, and the reinsurance premium for the month with respect to
such business, summarizing the reinsurance premium by line of insurance.
The bordereau report shall include for each risk ceded:
(1) Name(s) of insured(s);
(2) Risk occupancy;
(3) Location(s),
(4) Policy number(s);
(5) Policy term;
(6) Transaction description (new, renewal, endorsement);
(7) ISO protection class;
(8) Total insured value;
(9) Construction;
A - 7
<PAGE> 15
(10) Reinsurance limit;
(11) Pro rata ceded premium.
The amount due the Reinsurer shall be remitted within 90 days after
the close of each calendar quarter.
(b) CLAIMS AND LOSSES
The Company shall report promptly to the Reinsurer, but within no more
than 25 days, each claim or loss which, in the Company's opinion, may
involve the reinsurance afforded by this Exhibit. The Company shall
advise the Reinsurer of the estimated amount of net loss and
adjustment expense in connection with each such claim or loss and of
any subsequent changes in such estimates.
Promptly upon receipt of a definitive statement of net loss and
adjustment expense from the Company, but within no more than 25 days,
the Reinsurer shall promptly pay to the Company the Reinsurer's
portion of net loss and the Reinsurer's portion of adjustment expense,
if any. Any subsequent changes in the amount of net loss and/or
adjustment expense shall be reported by the Company to the Reinsurer
and the amount due either party shall be remitted promptly, but within
no more than 25 days.
(c) P.C.S. CATASTROPHE BULLETINS
The Company shall furnish to the Reinsurer, upon request, the
following information with respect to each catastrophe set forth in
the Catastrophe Bulletins published by the Property Claim Services:
(1) The preliminary estimates of the amount recoverable from the
Reinsurer;
(2) The Reinsurer's portion of claims, losses and adjustment expenses
paid less salvage recovered during each calendar quarter;
(3) The Reinsurer's portion of reserves for claims, losses, and
adjustment expenses at the end of each calendar quarter.
(d) GENERAL
In addition to the reports required by (a), (b), and (c) above, the
Company shall furnish such other information as may be required by the
A - 8
<PAGE> 16
Reinsurer for the completion of the Reinsurer's quarterly and annual
statements and internal records.
All reports shall be rendered on forms or in format acceptable to the
Company and the Reinsurer.
SECTION 8 - COMMENCEMENT AND TERMINATION
This Exhibit shall apply to claims and losses resulting from occurrences
insured under new and renewal policies of the Company becoming effective at and
after 12:01 A.M., July 1, 1996.
Either party may terminate this Exhibit by sending to the other, by
registered mail to its principal office, notice stating the time and date when,
not less than 90 days after the date of mailing of such notice, termination
shall be effective. Upon termination of this Exhibit, the Reinsurer shall
continue to be liable, with respect to policies in force at the time and date of
termination, for claims and losses resulting from occurrences taking place until
the expiration, cancellation, or next anniversary date, not to exceed one year,
of each such policy of the Company, whichever occurs first.
When all reinsurance is expired or terminated, the Reinsurer shall return
to the Company the reinsurance premium unearned, if any, calculated on the
monthly pro rata basis.
A - 9
Agreement No. AFF-G243440
<PAGE> 17
APPENDIX A
Attached to and made a part of
AGREEMENT NO. AFF-G243440
EXCLUDED KEYS AND ISLANDS
ALABAMA: FLORIDA (CONTINUED):
Aux Herbes Island Merritt Island
Dauphin Island Meed Keys
Mullet Key
FLORIDA: No Name Key
North Captiva Island
Amelia Island Old Rhodes Key
Anclote Island Oyster Keys
Anna Marie Island Piney Island
Big Pine Key Plantation Key
Big Torch Key St. George Island
Bush Key St. Vincent Island
Cabbage Key Sand Keys
Captiva Island Santa Rosa Island
Caladesi Island Sanibel Island
Casey Key Siesta Key
Cayo Costa Island Snead Island
Cedar Key Snipe Keys
Coquina Key Stock Island
Crooked Key Sugarloaf Key
Cudjoe Key Ten Thousands Islands
Elliott Key Treasure Island
Estero Island Upper Matecumbe Key
Gasparilla Island Vaca Key
Hog Island
Honeymoon Island GEORGIA:
Hutchinson Island
J.N. Ding Darling NWR Cumberland Island
Johnston Key Jekyll Island
Jupiter Island Ossabaw Island
Key Biscayne St. Catherines Island
Key Largo St. Simons Island
Key West Sapelo Island
Long Key Skidaway Island
Longboat Key Tybee Island
Lower Matecumbe Key Wassaw Island
Marco Island
<PAGE> 18
LOUISIANA: SOUTH CAROLINA (CONTINUED)
Breton Island Fripp Island
Chandeleur Island Folly Island
Curlew Island Hilton Head Island
Freemason Island Hunting Island
Grand Gosier Island Isle of Palms
Grand Isle John Island
Grand Terre Island Kiawah Island
Isle au Pitre Morgan Island
Marsh Island Morris Island
North Island Murphy Island
Shell Keys North Island
Pritchards Island
MISSISSIPPI: Seabrook Island
South Island
Cat Island The Grand Strand
Horn Island
Petit Bois Island TEXAS:
Ship Island
Brazos Island
NORTH CAROLINA: Galveston Island
High Island
Cedar Island Matagorda Island
Durant Island Mustang Island
Harkers Island Padre Island
Knotts Island San Jose Island
Mackay Island South Padre Island
Ocean Isle Island
Ocracoke Island VIRGINIA:
Pea Island
Roanoke Island (Nags Head) Cedar Island
Portsmounth Island Cobb Island
Smith Island Fishermans Island
Hog Island
SOUTH CAROLINA: Metomkin Island
Myrite Island
Cape Island Parramore Island
Capers Island Plum Tree Island
Cedar Island Ship Shoal Island
Daufuskie Island Tangier Island
Dewees Island Wallops Island
Edisto Island Wreck Island
Page 2 of 2
Appendix A
Agreement No. AFF-G243440
<PAGE> 19
APPENDIX B
Attached to and made a part of
AGREEMENT OF REINSURANCE
NO. AFF-G243440
REINSURANCE RATES
COMMERCIAL PROPERTY
<TABLE>
<CAPTION>
TOTAL LIMITS PERCENT OF GROSS PROPERTY PREMIUM GROSS MINIMUM PREMIUM
<S> <C> <C>
$2,000,001 - $3,000,000 4.6% $154
$3,000,001 - $4,000,000 15.4% $308
$4,000,001 - $5,000,000 21.5% $462
$5,000,001 - $6,000,000 29.2% $615
$6,000,001 - $7,000,000 35.4% $769
$7,000,001 - $8,000,000 40.0% $923
$8,000,001 - $9,000,000 44.6% $1,077
$9,000,001 - $10,000,000 49.2% $1,231
</TABLE>
o Apply appropriate % shown above against the Company's gross property annual
premium.
o Apply higher of two premiums (% GPP vs Minimum) for premium cede to this
Agreement.
o All gross reinsurance premiums include 35% ceding commission.
AUTOMOBILE PHYSICAL DAMAGE
Apply a gross excess rate of .077 per $100 of total insurable values reported
at each location in excess of $2,000,000.
<PAGE> 20
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - USA
(1) This Agreement does not cover any loss or liability accruing to the
Company directly or indirectly and whether as Insurer or Reinsurer, from any
Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or
Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, this Agreement does not cover any loss or liability accruing to the
Company, directly or indirectly and whether as Insurer or Reinsurer, from any
insurance against Physical Damage (including business interruption or
consequential loss arising out of such Physical Damage) to:
(i) Nuclear reactor power plants including all auxiliary property on
the site, or
(ii) Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
(iii) Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material",
and for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
(iv) Installations other than those listed in paragraph (2) (iii) above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
(3) Without in any way restricting the operations of paragraphs (1) and (2)
hereof, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Company, directly or indirectly, and whether as
Insurer or Reinsurer, from any insurance on property which is on the same site
as a nuclear reactor power plant or other nuclear installation and which
normally would be insured therewith except that this paragraph (3) shall not
operate:
(a) where the Company does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
(b) where said insurance contains a provision excluding coverage for
damage to property caused by or resulting from radioactive
contamination, however caused. However on and after 1st January 1960
this subparagraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the
Governmental Authority having jurisdiction thereof
(4) Without in any way restricting the operations of paragraphs (1),(2) and
(3) hereof, this Agreement does not cover any loss or liability by radioactive
contamination accruing to the Company, directly or indirectly, and whether as
Insurer or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
(5) It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is not
considered by the Company to be the primary hazard.
(6) The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof
(7) The Company to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
Note: Without in any way restricting the operation of paragraph (1) hereof, it
is understood and agreed that:
(a) all policies issued by the Company on or before 31st December 1957
shall be free from the application of the other provisions of this
Clause until expiry date or 31st December 1960 whichever first occurs
whereupon all the provisions of this Clause shall apply.
(b) with respect to any risk located in Canada policies issued by the
Company on or before 31st December 1958 shall be free from the
application of the other provisions of this Clause until expiry date
or 31st December 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
N.M.A. 1119
<PAGE> 1
EXHIBIT 10.26
FINANCIAL PACIFIC
INSURANCE COMPANY
AGREEMENT NO. 8090
<PAGE> 2
VARIABLE QUOTA SHARE
AGREEMENT OF REINSURANCE
NO. 8090
between
GENERAL REINSURANCE CORPORATION
A Delaware corporation
having its principal offices at
Financial Centre
695 East Main Street P.O. Box 10350
Stamford, Connecticut 06904-2350
(herein referred to as the "Reinsurer")
and
FINANCIAL PACIFIC INSURANCE COMPANY
Sacramento, California
(herein referred to as the "Company")
- --------------------------------------------------------------------------------
In consideration of the promises set forth in this Agreement, the parties agree
as follows:
ARTICLE I - SCOPE OF AGREEMENT
The Company shall cede to the Reinsurer and the Reinsurer shall accept as
reinsurance from the Company the business described in the article entitled
BUSINESS COVERED. The terms of this Agreement shall determine the rights and
obligations of the parties.
ARTICLE II - PARTIES
This Agreement is solely between the Company and the Reinsurer. When more
than one Company is named as a party to this Agreement, the first Company named
shall be the agent of the other companies as to all matters pertaining to this
Agreement. Performance of the obligations of each party to this Agreement shall
be rendered solely to the other party; however, if the Company becomes
insolvent, the liability of the Reinsurer shall be modified to the extent set
forth in the article entitled INSOLVENCY OF THE COMPANY. In no
<PAGE> 3
instance shall any principal, indemnitor, or obligee of the Company or any
claimant against a principal, indemnitor, or obligee of the Company have any
rights under this Agreement.
ARTICLE III - BUSINESS COVERED
This Agreement shall apply to all surety business written by the Company,
except surety business written via direct mail operations which is excluded
hereunder.
ARTICLE IV - COMMENCEMENT AND TERMINATION
This Agreement shall apply to new and renewal bonds becoming effective on
and after July 1, 1995.
This Agreement may be terminated by either party sending to the other, by
certified mail to its principal office, notice stating the time and date when,
not less than 90 days after the date of mailing of such notice, termination
shall be effective. Upon termination of this Agreement, the Reinsurer shall
continue to be liable:
(a) With respect to bonds in force at the effective time and date of
termination which are written for an indefinite period containing a
valid cancellation clause, until the next renewal date of each such
bond following the effective date of termination of this Agreement;
and
(b) With respect to all other bonds in force at the effective time and
date of termination, until the termination date of the Company's
liability.
ARTICLE V - RETENTION AND LIMIT
As respects each bond subject to this Agreement, the Company shall retain
a percentage of each net loss and shall cede to the Reinsurer a percentage of
each net loss, in accordance with the Schedule of Reinsurance.
- 2 -
<PAGE> 4
SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
GREATER OF CONTRACT LIMIT OF LIABILITY
PRICE OR BOND PENALTY COMPANY RETENTION OF THE REINSURER
----------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1 - $ 100,000 50% 50%
$ 100,001 - $ 200,000 Greater of 30% or $ 50,000 Remainder
$ 200,001 - $1,000,000 Greater of 20% or $100,000 Remainder
$1,000,001 - $2,000,000 Greater of 10% or $200,000 Remainder
----------------------------------------------------------------------------------
</TABLE>
In addition to payments for its share of net loss, the Reinsurer shall pay
to the Company its proportionate share of adjustment expense.
For purposes of this Agreement:
(a) As respects contract bonds, no single contract bond in excess of
$2,000,000 shall be subject to this Agreement and the uncompleted
work program (bonded and unbonded) of any principal shall not exceed
$4,000,000; and
(b) As respects subdivision bonds, no single subdivision bond in excess
of $2,000,000 shall be subject to this Agreement and the aggregate
in force liability of any one principal shall not exceed $4,000,000.
ARTICLE VI - DEFINITIONS
(a) COMPANY RETENTION
The Company shall retain for its own account the amount set forth as
the Company Retention. This requirement shall be satisfied if this
amount is retained by the Company or its affiliated companies under
common management or common ownership.
(b) NET LOSS
This term shall mean all loss payments made by the Company in the
settlement or mitigation of claims or potential claims (including
the prevention of defaults) on the surety business of the Company,
less salvage and subrogation recoveries and less amounts due from
all other reinsurance, whether collectible or not. This term shall
not include adjustment expense. If the Company becomes insolvent,
this definition shall be
- 3 -
<PAGE> 5
modified to the extent set forth in the article entitled INSOLVENCY
OF THE COMPANY.
(c) ADJUSTMENT EXPENSE
This term shall mean all allocated expense payments made by the
Company in the investigation, defense, settlement, or mitigation of
claims or potential claims (including the prevention of defaults) on
the surety business of the Company and in the recovery or attempted
recovery of loss payments. Office expenses and salaries of employees
of the Company or of any subsidiary or related or wholly owned
company of the Company are not allocated expense payments.
(d) EACH PRINCIPAL
This term shall mean one or more principals under the same
management and control, or one or more principals for whom bonds
were executed in reliance upon the indemnity of the same person,
firm or corporation, or in reliance upon the indemnity of a related
group of persons, firms, or corporations.
ARTICLE VII - EXCLUSIONS
This Agreement shall not apply to:
(a) Reinsurance assumed by the Company;
(b) Any liability of the Company arising from its participation or
membership in any insolvency fund;
(c) Bonds issued by the Company in connection with Small Business
Administration Guarantee under SBA 990 (or such form as may be used
in the future in place thereof);
(d) The advancement of any funds or loan guarantees provided by the
Company to any account;
(e) Bonds written on behalf of the Company's claims department;
(f) Bonds of the following classifications:
(1) Asbestos abatement/removal bonds;
(2) Bail bonds;
- 4 -
<PAGE> 6
(3) Bank depository bonds;
(4) Blue sky bonds;
(5) Co-surety not originated and controlled by the Company;
(6) Credit enhancement and financial guaranty insurance or bonds
classified by the Surety Association of America manual as
(noncontract) classes 580, 581 or 597;
(7) Dual obligee bonds without a "savings clause" or "California
clause";
(8) EPA or hazardous waste bonds including closure and
post-closure bonds;
(9) Fidelity bonds including financial institution bonds;
(10) Insurance company qualifying bonds;
(11) Lease bonds;
(12) Mortgage deficiency bonds;
(13) Mortgage guaranty bonds;
(14) Note guaranty bonds;
(15) Patent infringement bonds;
(16) Reclamation bonds;
(17) Self-insurer workers' compensation bonds;
(18) Security and Exchange Commission liability bonds.
ARTICLE VIII - SPECIAL ACCEPTANCES
Business not within the terms of this Agreement may be submitted to the
Reinsurer for special acceptance and, if accepted by the Reinsurer, shall be
subject to all of the terms of this Agreement except as modified by the special
acceptance.
- 5 -
<PAGE> 7
ARTICLE IX - EXTRA CONTRACTUAL OBLIGATIONS
Notwithstanding the provisions of the article entitled CLAIMS AND LOSSES,
if the Company incurs an extra contractual obligation, the Reinsurer shall
afford additional reinsurance to the Company for a share of 80% of the extra
contractual obligation. Such share will be in accordance with the Schedule of
Reinsurance set forth in the article entitled RETENTION AND LIMIT for the bond
out of which the extra contractual obligation arose. The liability of the
Reinsurer with respect to extra contractual obligations, shall not exceed
$1,000,000 any one principal nor $3,000,000 for the entire term of this
Agreement.
For purposes of this Article, the term "extra contractual obligation"
shall mean a loss which the Company is legally liable to pay, which is not
covered under any other provision of this Agreement and which arises from the
Company's handling of any claim on the bonds reinsured hereunder.
The date on which an extra contractual obligation is incurred by the
Company shall be deemed, in all circumstances, to be the date of the original
loss.
This Article shall not apply where the extra contractual obligation has
been incurred due to the fraud or criminal conduct of a member of the Board of
Directors, a corporate officer of the Company, or any other employee of the
Company, acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the investigation,
defense or settlement of any claim covered hereunder.
Any insurance or reinsurance, whether collectible or not, which
indemnifies or protects the Company against claims which are the subject matter
of this Article and any contribution, subrogation, or recovery shall inure to
the benefit of the Reinsurer and shall be deducted to arrive at the amount of
the Company's loss.
ARTICLE X - CLAIMS AND LOSSES
The Company shall investigate and settle or defend all claims and losses.
When requested by the Reinsurer, the Company shall permit the Reinsurer, at the
expense of the
- 6 -
<PAGE> 8
Reinsurer, to be associated with the Company in the defense or control of any
claim, loss, or legal proceeding which involves or is likely to involve the
Reinsurer. All payments of claims or losses by the Company within the penal sum
or limits of its bonds and within the amount of reinsurance set forth in the
article entitled RETENTION AND LIMIT shall be binding on the Reinsurer, subject
to the terms of this Agreement.
ARTICLE XI - SALVAGE AND SUBROGATION
The Company shall pay to or credit the Reinsurer with the Reinsurer's
portion of any recovery obtained from salvage or subrogation.
The Reinsurer shall be subrogated to the rights of the Company to the
extent of their loss payments to the Company. The Company agrees to enforce its
rights of salvage and subrogation by taking whatever action is necessary to
recover its loss from an obligee, principal, indemnitor, or any other party who
caused or contributed to its loss or part thereof, or in the event that the
Company fails to or elects not to enforce its rights, at the Reinsurer's option,
the Company will assign those rights to the Reinsurer. Recoveries shall be
apportioned between the parties in the same ratio as the amounts of their
liabilities bear to the loss.
Article XII - REINSURANCE PREMIUM AND COMMISSION
The Company shall pay to the Reinsurer a reinsurance premium equal to the
proportion of Company's written premium for the business reinsured hereunder for
each bond that the cession to the Reinsurer bears to greater of contract price
or bond penalty on the same bond.
The reinsurance premium set forth above shall be subject to a fixed
commission allowance of 40%.
- 7 -
<PAGE> 9
ARTICLE XIII - REPORTS AND REMITTANCES
(a) QUARTERLY REPORTS
The Company shall report to the Reinsurer, within 45 days after the
close of each calendar quarter:
(1) The reinsurance premium written for the quarter; and
(2) The commission allowed on the reinsurance premium for the
quarter; and
(3) The Reinsurer's portion of claims, losses, and adjustment
expense paid during the quarter by year of claim or loss; and
(4) The Reinsurer's portion of salvage recovered during the
quarter by year of claim or loss.
Any amount due the Reinsurer shall be remitted with such report and
any amount due the Company shall be remitted immediately upon
verification of such report.
The Company shall also report to the Reinsurer, within 45 days after
the close of each quarter:
(i) The Reinsurer's portion of reserves for claims, losses, and
adjustment expense at the end of the quarter by year of claim
or loss; and
(ii) The reinsurance premium unearned and the contribution for the
quarter to the reinsurance premium in force.
All reinsurance reports may be sent to:
ASD Treaty Accounting Department
General Reinsurance Corporation
Financial Centre
P.O. Box 10353
Stamford, CT 06904-2353
All reinsurance premiums and any other amounts due the Reinsurer may
be remitted to the following lockbox address:
- 8 -
<PAGE> 10
General Reinsurance Corporation
P.O. Box 92555
Chicago, IL 60675-2555
(b) GENERAL
In addition to the reports required by (a) above, the Company shall
furnish such other information as may be required by the Reinsurer
for the completion of the Reinsurer's quarterly and annual
statements and internal records.
All reports shall be rendered on forms or in format acceptable to
the Company and the Reinsurer.
ARTICLE XIV - ERRORS AND OMISSIONS
The Reinsurer shall not be relieved of liability because of an error or
accidental omission by the Company in reporting any premium, claim, or loss
reinsured under this Agreement, provided that the error or omission is rectified
promptly after discovery.
The Reinsurer shall be obligated only for the return of the premium paid
for business reported but not reinsured under this Agreement.
Article XV - RESERVES AND TAXES
The Reinsurer shall maintain the required reserves as to the Reinsurer's
portion of claims and losses.
The Company shall be liable for all premium taxes on business ceded to the
Reinsurer under this Agreement. If the Reinsurer is obligated to pay any premium
taxes on this business, the Company shall reimburse the Reinsurer; however, the
Company shall not be required to pay taxes twice on the same premium.
ARTICLE XVI - INSPECTION OF RECORDS
The Company shall allow the Reinsurer to inspect, at reasonable times, the
records of the Company relevant to the business reinsured under this Agreement,
including Company
- 9 -
<PAGE> 11
files concerning claims, losses, or legal proceedings which involve or may
involve the Reinsurer.
ARTICLE XVII - OFFSET
The Company or the Reinsurer may offset any balance, whether on account of
premium, commission, claims or losses, adjustment expense, salvage, or
otherwise, due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and the
Reinsurer.
ARTICLE XVIII - ARBITRATION
Any unresolved difference of opinion between any of the Reinsurer and the
Company shall be submitted to arbitration by three arbitrators. One arbitrator
shall be chosen by the Reinsurer(s), and one shall be chosen by the Company. The
third arbitrator shall be chosen by the other two arbitrators within ten (10)
days after they have been appointed. If the two arbitrators cannot agree upon a
third arbitrator, each arbitrator shall nominate three persons of whom the other
shall reject two. The third arbitrator shall then be chosen by drawing lots. If
either party fails to choose an arbitrator within thirty (30) days after
receiving the written request of the other party to do so, the latter shall
choose both arbitrators, who shall choose the third arbitrator. The arbitrators
shall be impartial and shall be active or retired persons whose principal
occupation is or was an officer of property and casualty insurance or
reinsurance companies.
The party requesting arbitration (the "Petitioner") shall submit its brief
to the arbitrators within thirty (30) days after notice of the selection of the
third arbitrator. Upon receipt of the Petitioner's brief, the other party (the
"Respondent") shall have thirty (30) days to file a reply brief. On receipt of
the Respondent's brief, the Petitioner shall have twenty (20) days to file a
rebuttal brief. Respondent shall have twenty (20) days from the receipt of
Petitioner's
- 10 -
<PAGE> 12
rebuttal brief to file its rebuttal brief. The arbitrators may extend the time
for filing of briefs at the request of either party.
The arbitrators are relieved from judicial formalities and, in addition to
considering the rules of law and the customs and practices of the insurance and
reinsurance business, shall make their award with a view to effecting the intent
of this Agreement. The decision of the majority shall be final and binding upon
the parties. The costs of arbitration, including the fees of the arbitrators,
shall be shared equally unless the arbitrators decide otherwise. The arbitration
shall be held at the times and places agreed upon by the arbitrators.
ARTICLE XIX - INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company, the reinsurance proceeds
will be paid to the Company or the liquidator immediately upon demand, with
reasonable provision for verification, on the basis of the amount of the claim
allowed in the insolvency proceeding without diminution by reason of the
inability of the Company to pay all or part of the claim.
The Reinsurer shall be given written notice of the pendency of each claim
against the Company on the bond(s) reinsured hereunder within a reasonable time
after such claim is filed in the insolvency proceedings. The Reinsurer shall
have the right to investigate each such claim and to interpose, at its own
expense, in the proceeding where such claim is to be adjudicated, any defenses
which it may deem available to the Company or its liquidator. The expense thus
incurred by the Reinsurer shall be chargeable, subject to court approval,
against the insolvent Company as part of the expense of liquidation to the
extent of a proportionate share of the benefit which may accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
- 11 -
<PAGE> 13
executed in duplicate,
this 11th day of August, 1995,
GENIE GENERAL CORPORATION
/s/ RICHARD S. SKEWES
----------------------------------------
Richard S. Skewes
Vice President
Attest: /s/ RITA C. KERRIGAN
---------------------------
and this 14th day of August, 1995.
FINANCIAL PACIFIC INSURANCE COMPANY
/s/ [SIG]
----------------------------------------
Attest: /s/ ANN SCHREMP
- 12 -
<PAGE> 14
ENDORSEMENT NO. 1
Attached to and made a part of
VARIABLE QUOTA SHARE
AGREEMENT OF REINSURANCE
NO. 8090
between
GENERAL REINSURANCE CORPORATION
and
FINANCIAL PACIFIC INSURANCE COMPANY
IT IS MUTUALLY AGREED that, as respects new and renewal bonds becoming
effective on and after August 1, 1996, ARTICLE V is amended to read as follows:
"ARTICLE V - RETENTION AND LIMIT
As respects each bond subject to this Agreement, the Company shall retain
a percentage of each net loss and shall cede to the Reinsurer a percentage of
each net loss, in accordance with the Schedule of Reinsurance.
SCHEDULE OF REINSURANCE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
GREATER OF CONTRACT LIMIT OF LIABILITY
PRICE OR BOND PENALTY COMPANY RETENTION OF THE REINSURER
------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1 - $ 50,000 100% 0%
$ 50,001 - $ 100,000 Greater of 75% or $ 50,000 Remainder
$ 100,001 - $ 500,000 Greater of 40% or $100,000 Remainder
$ 500,001 - $1,000,000 Greater of 30% or $200,000 Remainder
$1,000,001 - $2,000,000 Greater of 25% or $300,000 Remainder
$2,000,001 - $3,000,000 Greater of 20% or $500,000 Remainder
------------------------------------------------------------------------------------
</TABLE>
In addition to payments for its share of net loss, the Reinsurer shall pay
to the Company its proportionate share of adjustment expense.
For purposes of this Agreement:
(a) As respects contract bonds, no single contract bond in excess of
$3,000,000 shall be subject to this Agreement and the uncompleted
work
<PAGE> 15
program (bonded and unbonded) of any Principal shall not exceed
$6,000,000; and
(b) As respects subdivision bonds, no single subdivision bond in excess
of $3,000,000 shall be subject to this Agreement and the aggregate
in force liability of any one principal shall not exceed
$6,000,000."
IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be
executed in duplicate, this 23rd day of August 1996.
GENERAL REINSURANCE CORPORATION
[SIG]
----------------------------------------
Vice President
Attest: /s/ RITA C. KERRIGAN
---------------------------
and this __ day of _________, 199_.
FINANCIAL PACIFIC INSURANCE COMPANY
[SIG]
----------------------------------------
Attest:
- 2 -
<PAGE> 1
EXHIBIT 10.27
AMERICAN RE-INSURANCE PLACEMENT SLIP
QUOTA SHARE REINSURANCE AGREEMENT
COMPANY REINSURED: Financial Pacific Insurance Company
APPLICATION OF AGREEMENT: Commercial Excess Liability
EFFECTIVE: January 1, 1998
COMPANY'S POLICY LIMIT: $10,000,000
REINSURER'S LIMITS OF LIABILITY: 100% of $10,000,000
excess of Primary
90% of $2,000,000 in excess of
limits for ECO/XPL combined
COMPANY RETENTION: Nil% excess of Primary
RISK UNDERWRITING AND PRICING: Per the Company's underwriting
guidelines and rates.
PREMIUM: 100% of premium applicable to reinsured
limits of liability
CEDING COMMISSION: 35%
CANCELLATION: At any time with 90 days notice by
either party to the agreement
TERMS AND CONDITIONS WITHIN AGREEMENT
COMMERCIAL EXCLUSIONS ATTACHED
COMMERCIAL UNDERLYING INSURANCE ATTACHED
DEFINITIONS ATTACHED
INSOLVENCY ATTACHED
OFFSET AND SECURITY ATTACHED
COMMENCEMENT AND TERMINATION ATTACHED
LOSSES AND LOSS ADJUSTMENT EXPENSES ATTACHED
REPORTS AND REMITTANCES ATTACHED
ACCESS TO RECORDS ATTACHED
RESERVES AND TAXES ATTACHED
CHANGE IN POLICY FORMS ATTACHED
EXTRA CONTRACTUAL OBLIGATIONS ATTACHED
EXCESS JUDGMENTS CLAUSE ATTACHED
ACCEPTED BY: OFFERRED BY:
FINANCIAL PACIFIC INSURANCE CO. AMERICAN RE-INSURANCE COMPANY
[SIG] [SIG]
- ------------------------------- -----------------------------------
DATE: 10/23/97 DATE: 10/3/97
-------------------------- -----------------------------
<PAGE> 2
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
COMMERCIAL EXCLUSIONS
A. This Contract does not apply to and specifically excludes the following:
1. Business accepted by the Company as reinsurance from other
insurers except agency reinsurance where risk underwriting and
all servicing, including claim handling, is done by the Company.
2. Any loss or liability accruing to the Company directly or
indirectly from any insurance written by or through any pool or
association including pools or associations in which membership
by the company is required under any statutes or regulations.
3. Liability of the Company arising by contract, operation of law,
or otherwise from its participation or membership, whether
voluntary or involuntary in any insolvency fund. "Insolvency
Fund" includes any guarantee fund, insolvency fund, plan, pool,
association, fund or other arrangement, howsoever denominated,
established or governed, which provides for any assessment of or
payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or
its successors or assigns, which has been declared by any
competent authority to be insolvent, or which is otherwise
deemed unable to meet any claim, debt, charge, fee, or other
obligation in whole or in part.
4. Any loss or damage which is occasioned by war, invasion,
hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or
confiscation by order of any government or public authority.
5. Business written to apply in excess of a deductible or
self-insured amount of more than $100,000, including Umbrella
business.
6. Aviation liability including aerospace and satellite business
7. Workers' Compensation business, including Longshoremen's and
Harbor Workers' Act and Jones Act.
8. Kidnap and Ransom, Surety, Credit, Financial Guarantee or
Fiduciary Insurance.
9. Retail liquor law liability except where liquor constitutes less
than 50% of sales. Specifically excluded are bars and retail
liquor stores.
10. Insurance covering damage claims for the withdrawal, inspection,
repair, replacement, or loss of use of the insured's products or
of any property of which such products form a part of, or if
such products or property are withdrawn from the market or from
use because of any known or suspected defect or deficiency
therein.
11. Liabilities for bodily injury, personal damage and/or property
damage from asbestos and/or asbestos products, including but not
limited to liability arising from the mining, manufacture,
installation, transport, storage, habitation or use of
materials, products or structure containing asbestos.
12. Any loss or liability accruing to the Company arising out of the
Employee Retirement Income Security Act of 1974 (ERISA), or
amendments thereto.
13. Fidelity and Surety
<PAGE> 3
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
COMMERCIAL EXCLUSIONS
14. Watercraft liability except for boats less than 50 feet in length.
15. All professional liability and/or malpractice insurance except as
pertains to barber and beauty shops, funeral directors, druggists,
opticians and optometrists.
16. Liability insurance relating to products or completed operations
involving the manufacture or importation of:
a. Cosmetics, hair or skin products,
b. Drugs, pharmaceuticals or agricultural chemicals;
c. Aircraft, aircraft parts or aircraft engines, all motorized
vehicles, or mobile equipment;
d. Heavy machinery and equipment, home power tools, or oil drilling
equipment.
17. Liability insurance relating to premises or operations primarily
involving:
a. Aircraft airports, as respects coverage for all liability arising
out of the ownership, maintenance, or use of any aircraft or
flight operations;
b. Amusements parks, carnivals, circuses, speed contests and racing;
c. Manufacturing, packing, handling, shipping or storage of
explosives, ammunitions, fuses, arms, magnesium, fireworks,
nitroglycerin, celluloid, pyroxylin or explosive substances
intended for use as an explosive.
d. Gas or public utility companies, gas or public utility works, or
gas lease operations;
e. Production, refining, handling, shipping or storage of natural of
artificial fuel gases, synthetic or coal or shale based fuel,
butane, propane, gasoline or liquefied petroleum gas;
f. Oil and gas risks, by which is meant drilling rigs, exploration
risks, cracking plants, refineries and depots, and oil and gas
pipelines;
g. Railroad operations, specifically "line" or "on track" operations
of actual railroads;
h. Ship building, ship repair yard, dry docks, stevedoring;
i. Tunneling, subway and underground mining;
j. Offshore or subaqueous work;
k. Wrecking of structures over eight stories in height, or marine
wrecking;
<PAGE> 4
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
COMMERCIAL EXCLUSIONS
l. Ski resorts;
m. Waste disposal and deposit sites except when written in
conjunction with either a refuse hauler or recycling account;
n. Crane rentals without operators whose primary business is crane
rentals;
o. Scaffold installation, repair, removal or rental, unless
incidental;
p. Aerial crop dusting to include application of fertilizers,
herbicides, pesticides;
q. Warehousemen's legal liability;
r. Automobile racing and racetracks;
s. Taxis;
t. Blasting contractors;
u. Licensed roofing contractors whose primary business is such;
v. Wrap up construction projects.
18. Nuclear risks as defined in the "Nuclear Incident Exclusion
Clause-Liability Reinsurance" attached to and forming part of this
Contract.
19. Pollution liability as excluded by the Company's policies. It is
hereby warranted that any Commercial General Liability policy issued
by the Company will also include ISO pollution exclusion language.
B. If the Company provides insurance for an insured with respect to any
premises, operations products or completed operations listed in
subparagraphs 16 and 17 of paragraph A above, except subparagraphs 17(c)
and 17(d), and if such premises, operations, products or completed
operations constitute only a minor incidental part of the total premises,
operations, products or completed operations of the insured, such
exclusion (s) shall not apply.
C. If the Company is bound, without the knowledge of and contrary to the
instructions of the Company's supervisory underwriting personnel, on any
business failing within the scope of one or more of the exclusions set
forth in subparagraphs 14 through 19 of paragraph A above, these
exclusions, except those set forth in subparagraphs 15, 17(c) , 17(d), 18
and 19 shall be suspended with the respect to such business until 65 days
(60 discovery days plus 5 mailing days) after an underwriting supervisor
of the Company acquires knowledge of such business.
<PAGE> 5
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
COMMERCIAL UNDERLYING INSURANCE
(a) The Underlying carrier must be Financial Pacific.
(b) The following underlying limits shall be required and
maintained:
1. Comprehensive General Liability
$1,000,000 each occurrence limit
$1,000,000 personal and advertising injury limit
$1,000,000 general aggregate limit (other than
products-completed operations)
$1,000,000 products-completed operations aggregate limit
2. Comprehensive Auto Liability
Single Limit Liability
$1,000,000 each accident
Split-Limits Liability
$1,000,000 bodily injury each person
$1,000,000 bodily injury each occurrence
$1,000,000 property damage each accident
3. Employers' Liability
Bodily Injury Liability
$500,000 each accident (by accident)
$500,000 policy limit (by disease)
$500,000 each employee (by disease)
(c) Other underlying limits may be required for certain classes of risks
and shall be so stated in the Company's Umbrella Underwriting
Guidelines.
<PAGE> 6
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
DEFINITIONS
a) The term "net retained insurance liability" as used herein means the
remaining portion of the Company's gross liability on the policies covered
hereunder after deducting all excess of loss reinsurance and all pro rata
reinsurance, other than the quota share reinsurance provided under this
Agreement.
(b) The definition of the term "occurrence" as used herein shall be the
definition of said term as set forth in the Company's policy, provided,
however, in the event said term is not defined in any policy covered
hereunder, then as respects such policy the term "each occurrence" as used
herein shall be understood to mean each accident or occurrence or series
of accidents or occurrences arising out of one event, and shall include
aggregate limits of liability for a period not exceeding 12 months when
such Company's policy covered hereunder applies in excess of aggregate
limits.
(c) If the date of loss, accident or occurrence cannot be specifically
determined, the date of loss, accident or occurrence shall be the
inception date of the original policy (i.e., the policy reinsured
hereunder); such policy period shall be deemed not to exceed 12 calendar
months.
(d) The term "policies" as used herein means each of the Company's
binders, policies and contracts providing insurance and reinsurance on the
business reinsured under this Agreement.
<PAGE> 7
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
INSOLVENCY (CALIFORNIA)
(a) In the event of the insolvency of the Company and the
appointment of a conservator, liquidator or statutory successor of the Company,
the reinsurance provided by this Agreement shall be payable to such conservator,
liquidator or statutory successor immediately upon demand, subject to the right
of offset and with reasonable provision for verification of the Reinsurer's
liability, on the basis of claims allowed against the insolvent Company by any
court of competent jurisdiction or by any conservator, liquidator, or statutory
successor of the Company having authority to allow such claims, without
diminution because of such insolvency or because such conservator, liquidator or
statutory successor has failed to pay all or a portion of any claims. Payments
by the Reinsurer as above set forth shall be made directly to the Company or to
its conservator, liquidator or statutory successor, except where this Agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company.
(b) In the event of the insolvency of the Company, the liquidator,
conservator or statutory successor of the Company shall give the Reinsurer
written notice of the pendency of each claim against the Company on a policy or
bond reinsured within a reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of such claim, the Reinsurer may, at
its own expense, investigate such claim and interpose in the proceeding where
such claim is to be adjudicated any defense or defenses which it may deem
available to the Company, its conservator, liquidator or statutory successor.
Subject to court approval, any expense thus incurred by the Reinsurer shall be
chargeable against the Company as part of the expense of liquidation to the
extent of such proportionate share of the benefit as shall accrue to the Company
solely as a result of the defense undertaken by the Reinsurer.
<PAGE> 8
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
OFFSET AND SECURITY CLAUSE
(a) Each party hereto has the right, which may be exercised at any
time, to offset any amounts, whether on account of premiums or losses or
otherwise, due from such party to another party under this agreement or any
other reinsurance agreement heretofore or hereafter entered into between them,
against any amounts, whether on account of premiums or losses or otherwise due
from the latter party to the former party. The party asserting the right of
offset may exercise this right, whether as assuming or ceding insurer or in both
roles in the relevant agreement or agreements.
(b) Each party hereby assigns and pledges to the other party (or to
each other party, if more than one) all of its rights under this agreement to
receive premium or loss payments at any time from such other party
("Collateral"), to secure its premium or loss obligations to such other party at
any time under this agreement and any other reinsurance agreement heretofore or
hereinafter entered into by and between them ("Secured Obligations"). If at any
time a party is in default under any Secured Obligation or shall be subject to
any liquidation, rehabilitation, reorganization or conservation proceeding, each
other party shall be entitled in its discretion, to apply, or to withhold for
the purpose of applying in due course, any Collateral assigned and pledged to it
by the former party and otherwise to realize upon such Collateral as security
for such Secured Obligations.
(c) The security interest described herein, and the term
"Collateral," shall apply to all payments and other proceeds in respect of the
rights assigned and pledged. A party's security interest in Collateral shall be
deemed evidenced only by the counterpart of this Agreement delivered to such
party.
(d) Each right under this Article is a separate and independent
right, exercisable, without notice or demand, alone or together with other
rights, in the sole election of the party entitled thereto, and no waiver,
delay, or failure to exercise, in respect of any right shall constitute a waiver
of any other right. The provisions of this Article shall survive any
cancellation or other termination of this Agreement.
<PAGE> 9
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
COMMENCEMENT AND TERMINATION
(a) This Agreement shall take effect as of 12:01 A.M., January 1,
1998 and is entered into for an unlimited period but either party may terminate
this Agreement at any time by giving not less than 90 days notice in writing to
the other party.
(b) The Reinsurer shall participate in business coming within the
terms of this Agreement until the date of termination of this Agreement.
(c) In the event of cancellation of this Agreement, the Reinsurer
shall not be liable for any losses occurring under new and renewal policies
becoming effective after the date of cancellation. The Reinsurer shall remain
liable for losses occurring after the date of cancellation on all policies in
force at such cancellation date until the next annual anniversary date or prior
termination date of such policies; provided, however, any reinsurance still in
force one year after the date of cancellation of this Agreement shall be
automatically canceled at that time and the Reinsurer shall not be liable for
losses occurring thereafter. The Reinsurer shall return to the Company the
unearned premiums on the business in force, calculated on the monthly pro rata
basis less the commissions allowed thereon.
(d) Every notice of termination shall be given by certified letter
addressed to the intended recipient at such recipient's address as herein above
set forth. In determining whether the requisite number of days' notice has been
given in any case, the date of termination shall be counted but the date of
mailing shall not.
(e) Notwithstanding the termination of this Agreement as herein
above provided, the provisions of this Agreement shall continue to apply to all
unfinished business hereunder to the end that all obligations and liabilities
incurred by each party hereunder prior to such termination shall be fully
performed and discharged.
<PAGE> 10
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
LOSSES AND LOSS ADJUSTMENT EXPENSES
(a) The Reinsurer, in proportion to its participation, shall pay to
the Company a pro rata share of sums actually paid by the Company in settlement
of losses under its policies; provided, however, that in the event of the
insolvency of the Company payment of loss for which the Company is liable shall
be made by the Reinsurer to the liquidator, receiver or statutory successor of
the Company in accordance with the provisions of Article XIV of this Agreement.
(b) The Reinsurer shall bear its pro rata share of all expenses
incurred by the Company in the investigation, adjustment and litigation of all
claims under its policies, excluding the office expenses of the Company and the
salaries and expenses of its officials and employees.
(c) The Reinsurer shall benefit pro rata in all salvages, discounts
and other recoveries.
(d) The Company shall advise the Reinsurer promptly of all claims
and any subsequent developments pertaining thereto which may develop into losses
involving reinsurance hereunder.
(e) The Company has the obligation to investigate and, to the extent
that may be required by the policies reinsured hereunder, defend any claim
affecting this reinsurance and to pursue such claim to final determination.
(f) It is understood that when so requested the Company will afford
the Reinsurer an opportunity to be associated with the Company at the expense of
the Reinsurer in the defense or control of any claim or suit or proceeding
involving this reinsurance; and the Company and the Reinsurer shall cooperate in
every respect in the defense of such suit or claim or proceeding.
<PAGE> 11
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
OTHER TERMS AND CONDITIONS
REPORTS AND REMITTANCES
(a) Within 30 days after the end of each month, the Company shall
furnish to the Reinsurer a bordereau indicating, as respects each policy covered
hereunder the name of the Insured, the policy number, term, limit of liability
and original premium, plus any additional or return premiums as respects each
cession and the reinsurance premiums thereon.
(b) Within 30 days after the end of each month, the Company shall
render a monthly account summarizing the premiums ceded, return premiums and
commissions on net premiums. The balance due either party shall be remitted with
the account.
(c) Payment by the Reinsurer of its proportion of loss and loss
expenses paid by the Company will be made by the Reinsurer to the Company within
15 days after proof of payment by the Company is received by the Reinsurer. The
Reinsurer shall have the right, at its option, to offset the amount of such loss
against any balance or balances past due.
ACCESS TO RECORDS
The Company shall place at the disposal of the Reinsurer and the
Reinsurer shall have the right to inspect, through its authorized
representatives, at all reasonable times during the currency of this Agreement
and thereafter, the books, records and papers of the Company pertaining to the
reinsurance provided hereunder and all claims made in connection therewith.
RESERVES AND TAXES
(a) The Reinsurer shall maintain legal reserves with respect to
unearned premiums and claims hereunder.
(b) The Company will be liable for all taxes on premiums reported to
the Reinsurer hereunder and will reimburse the Reinsurer for such taxes where
the Reinsurer is required to pay the same.
CHANGE IN POLICY FORMS
The Company and the Reinsurer have agreed on the Company's form as
respects the policies covered hereunder and the Company shall advise the
Reinsurer of any change in such policy form.
<PAGE> 12
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
EXTRA CONTRACTUAL OBLIGATIONS
(a) As reinsured under this Agreement, the Company shall be
protected for any Extra Contractual Obligation awarded by a court of competent
jurisdiction against the Company. Such Extra Contractual Obligation shall be
added to the amount of the award in addition to the Company's policy limit and
the sum thereof shall be considered one loss subject to the exclusions and
limitations set forth in this Agreement.
(b) Extra Contractual Obligation shall be defined as those
liabilities, not covered under any other provision of this Agreement, and any
legal costs and expenses incurred in connection therewith, which arise from the
Company's handling of any claim on business covered hereunder as a result of the
failure by the Company to settle within the policy limit, or by reason of
alleged or actual negligence or bad faith or fraud, in rejecting an offer of
settlement, in the preparation of the defense, in the trial of any action
against its insured or in the preparation or prosecution of an appeal consequent
upon such action.
(c) For the purpose of the application of this Agreement an Extra
Contractual Obligation shall be deemed to have arisen on the same date as the
original loss that gave rise to the extra contractual obligation.
(d) However, this Article shall not apply where the Extra
Contractual Obligation has been incurred due to the fraud or criminal act of a
member of the Board of Directors, a corporate officer or an employee of the
Company or any other party or organization involved in the presentation, defense
or settlement of any claim covered hereunder acting individually or collectively
or in collusion with any individual or corporation.
(e) Recoveries from any form of insurance or reinsurance, whether
separately purchased from another insurance carrier or self insurance issued by
the Company to itself, which protects the Company against claims which are the
subject matter of this Article will inure to the benefit of the Reinsurer and
shall be first deducted to arrive at the amount of any Extra Contractual
Obligation covered hereunder, whether collectible or not
(f) If any provision of this Article shall be rendered illegal or
unenforceable by the laws, regulations or public policy of any state, such
provision shall be considered void in such state, but this shall not affect the
validity or enforceability of any other provision of this Agreement or the
enforceability of such provision in any other jurisdiction.
<PAGE> 13
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
EXCESS JUDGMENTS CLAUSE
(a) As reinsured under this Agreement, the Company shall be
protected for any Excess Judgment awarded by a court of competent jurisdiction
against the Company. Such Excess Judgment shall be added to the amount of the
award in addition to the Company's policy limit and the sum thereof shall be
considered one loss subject to the exclusions and limitations set forth in this
Agreement.
(b) Excess Judgment shall mean any amount in excess of the Company's
original policy limits, but otherwise within the coverage terms of the policy,
that is paid by the Company, together with any legal costs and expenses incurred
in connection therewith, as a result of an action against it by its insured or
its insured's assignee to recover damages, awarded by a court of competent
jurisdiction to a third party claimant, arising out of the Company's alleged or
actual negligence or bad faith or fraud in rejecting a settlement within the
policy limits, in discharging its duty to defend, in preparing the defense in an
action against its insured or in discharging its duty to prepare or prosecute an
appeal consequent upon such action.
(c) However this Article shall not apply where the Excess Judgment
has been incurred due to the fraud or criminal act of a member of the Board of
Directors, a corporate officer, an employee or an agent of the Company, or any
other party or organization involved in the presentation, defense or settlement
of any claim covered hereunder acting individually or collectively or in
collusion with any individual or corporation.
(d) Recoveries from any form of insurance or reinsurance, whether
separately purchased from another insurance carrier or self insurance issued by
the Company to itself, which protects the Company against claims which are the
subject matter of this Article will inure to the benefit of the Reinsurer and
shall be first deducted to arrive at the amount of any Excess Judgment
hereunder, whether collectible or not.
(e) If any provision of this Article shall be rendered illegal or
unenforceable by the laws, regulations or public policy of any state, such
provision shall be considered void in such state, but this shall not affect the
validity or enforceability of any other provision of this Agreement or the
enforceability of such provision in any other jurisdiction.
<PAGE> 14
AMERICAN RE-INSURANCE COMPANY PLACEMENT SLIP
ADDENDUM
COMMERCIAL UNDERLYING INSURANCE:
Section (a) shall be replaced by the following:
(a) The Underlying Carrier must be Financial Pacific or an A.M. Best B+ VII or
better carrier.
REPORTS AND REMITTANCES:
Section (b) shall be replaced by the following:
(b) The amount due the Reinsurer shall be remitted within ninety (90) days after
the close of each calendar quarter.
LOSS AND LOSS ADJUSTMENT EXPENSES:
Section (d) shall be replaced by the following:
(d) The Company shall advise the Reinsurer promptly of all claims and any
subsequent developments pertaining thereto which may develop into losses
involving reinsurance hereunder. In addition, the following categories of claims
shall be reported to the Reinsurer immediately, regardless of any questions of
liability of the insured or coverage under the policy:
1. Fatalities;
2. Paraplegics and quadriplegics;
3. Serious bums;
4. Serious brain injuries;
5. Amputation of any extremity;
6. Any loss on which the Company holds a loss reserve of greater
than or equal to $500,000 and on which this reinsurance may
apply.
ACCEPTED BY: OFFERED BY:
FINANCIAL PACIFIC INSURANCE CO. AMERICAN REINSURANCE COMPANY
[SIG] [SIG]
- ------------------------------ ------------------------------
DATE 10/23/97 DATE 10/22/97
------------------------- -------------------------
<PAGE> 15
ANNUAL STATEMENT FOR THE YEAR 1997 OF THE FINANCIAL PACIFIC INSURANCE COMPANY
SCHEDULE Y - INFORMATION CONCERNING ACTIVITIES
OF INSURER MEMBERS OF A HOLDING COMPANY GROUP
PART I ORGANIZATIONAL CHART
[CHART]
<PAGE> 1
EXHIBIT 10.28
NET LEASE AGREEMENT (OFFICE)
ROCKLIN, CALIFORNIA
BETWEEN
STANFORD RANCH I, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
AND
FINANCIAL PACIFIC INSURANCE COMPANY,
A CALIFORNIA CORPORATION
JUNE 11, 1996
<PAGE> 2
TABLE OF CONTENTS
PAGE(S)
1. BUILDING IMPROVEMENTS ........................................ 4
2. PREMISES ..................................................... 9
3. ACCEPTANCE OF PREMISES ....................................... 9
4. TERM .........................................................10
5. RENT .........................................................10
6. SECURITY DEPOSIT .............................................11
7. TAXES ........................................................11
8. USE; LIMITATION ON USE .......................................13
9. MAINTENANCE ..................................................15
10. ALTERATIONS ..................................................15
11. MECHANIC'S LIEN ..............................................16
12. UTILITIES AND SERVICES .......................................16
13. INDEMNITY, EXCULPATION AND INSURANCE .........................17
14. DESTRUCTION ..................................................19
15. CONDEMNATION .................................................23
16. ASSIGNMENT ...................................................24
17. DEFAULT ......................................................26
18. SUBORDINATION; ESTOPPEL ......................................29
19. SURRENDER OF PREMISES; HOLDING OVER ..........................30
20. ENVIRONMENTAL PROVISIONS .....................................31
21. OPTION TO PURCHASE ...........................................32
22. TERMINATION RIGHTS ...........................................33
23. FIRST RIGHT OF REFUSAL .......................................34
24. SIGNS ........................................................35
25. LANDLORD'S ENTRY ON PREMISES .................................35
26. NOTICE .......................................................36
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<PAGE> 3
27. RECORDATION; QUITCLAIM DEED...................................36
28. SALE OR TRANSFER OF PREMISES..................................36
29. ATTORNEYS' FEES...............................................36
30. MISCELLANEOUS PROVISIONS......................................37
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<PAGE> 4
NET LEASE AGREEMENT (OFFICE)
ROCKLIN, CALIFORNIA
BASIC LEASE Information
Defined Terms: Information:
LEASE DATE: June 11, 1996
LANDLORD: Stanford Ranch I, LLC, a Delaware limited
liability company
Post Office Box 1200
Rocklin, California 95677
TENANT: Financial Pacific Insurance Company
8583 Elder Creek Road, Suite 100
Sacramento, California 95828 (until
Commencement Date)
-----------------------------------------
-----------------------------------------
-----------------------------------------
(after Commencement Date)
PREMISES: The Premises referred to in this Lease
consist of the parcel ("LOT") known as Lot
12 in Atherton Center within Stanford Ranch
Rocklin, California, and the approximately
25,000 square foot building ("BUILDING") to
be constructed thereon in accordance with
the provisions of this Lease, as shown in
Exhibit A. The Building and the Land are
collectively referred to as the "PREMISES."
INITIAL TERM: The term of this Lease shall be ten (10)
years, beginning on the Commencement Date
(as hereinafter defined), subject to
extensions pursuant to Section 4b. of this
Lease.
BASE RENT: Twenty Thousand and No/100ths Dollars
($20,000.00) per month, based upon Building
Square Footage (as hereinafter defined) of
twenty-five thousand (25,000), at $.80 per
square foot per month, for years 1 through
5, inclusive, of the Initial Term. Base Rent
may be adjusted in accordance with Section
1h.
Twenty One Thousand Two Hundred Fifty and
No/100ths Dollars ($21,250.00) per month,
based upon Building Square Footage of
twenty-five thousand (25,000), at $.85 per
square foot per month, for years 6 through
10, inclusive, of the Initial Term. Base
Rent may be adjusted in accordance with
Section 1h.
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<PAGE> 5
TENANT'S USE: General office use and no other use without
Landlord's prior written consent.
SECURITY DEPOSIT: Thirty Thousand and No/100ths Dollars
($30,000.00) or, in the alternative,
an irrevocable letter of credit in such
amount, upon terms and conditions reasonably
acceptable to Landlord and Tenant, issued in
the name of Landlord.
BROKER FOR TENANT: Cornish & Carey Commercial
1601 Response Road, Suit 160
Sacramento, California
Attention: Tom Heacox
BROKER FOR LANDLORD: N/A
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<PAGE> 6
LIST OF EXHIBITS
A. Description of Premises
B. Site Plan
C. Agreement of Purchase and Sale
D. Legal Description of Parcel 11
E. Legal Description of Parcel 13
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<PAGE> 7
NET LEASE AGREEMENT
(OFFICE)
This Lease is made and entered into by the Landlord and Tenant referred to
in the Basic Lease Information. The Basic Lease Information attached to this
Lease as page 1 is hereby incorporated into this Lease by this reference.
This Lease is intended to be a "NET NET NET" Lease and Tenant shall pay
all expenses associated with maintaining and operating the Premises during the
term of this Lease, including, without limitation, real estate taxes, utilities,
maintenance costs, repair costs, and any insurance premiums. Under no
circumstances or conditions, whether now existing or hereafter arising, or
whether within or beyond the present contemplation of the parties, shall the
Landlord or its successor or assigns be expected or required to make any payment
of any kind whatsoever, or be under any other obligation or liability hereunder,
except as herein otherwise specifically set forth.
1. BUILDING IMPROVEMENTS:
a. SITE PLAN AND PRELIMINARY PLANS: Prior to the Lease Date,
Landlord and Tenant have agreed upon a conceptual site plan and elevations
("SITE PLAN") for the Building, a copy of which is attached hereto as Exhibit B.
Following the Lease Date, Landlord shall cause its engineer ("ENGINEER") to
prepare and deliver to Tenant a set of draft preliminary plans and
specifications ("PRELIMINARY PLANS"), based upon the Site Plan, setting forth
the description of (i) the shell of the Building, and (ii) the space plan of the
Premises and the improvements to be constructed therein, which shall include a
description of the materials to be used therein, and the electrical, mechanical
and HVAC systems, except as provided below, to be installed within the Building.
The improvements described in subsection (ii) are referred to as the "TENANT
IMPROVEMENTS."
Landlord and Tenant agree that the Preliminary Plans shall include
descriptions of the following, which improvements shall be supplied by Landlord
at its sole cost and expense and shall not be within the definition of Tenant
Improvements:
(i) Fire safety sprinklers;
(ii) Landscaping;
(iii) Parking lot and striping;
(iv) Electrical with power panel to Building;
(v) Planter boxes with automatic irrigation;
(vi) Exterior lighting with photo sensors and timers;
(vii) Driveways;
(viii) Gutters;
(ix) Sidewalks;
(x) Storm drains;
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<PAGE> 8
(xi) Base plumbing for water, sewer, drainage to the
Building;
(xii) Exterior windows;
(xiii) Three (3) exit double doors; and
(xiv) Fire alarms.
Tenant shall approve or disapprove of the Preliminary Plans within
twenty (20) days following Tenant's receipt of such documents by providing
Landlord with written notice ("OBJECTION NOTICE") of such determination within
such time period. The failure of Tenant to provide such notice, and the
subsequent failure of Tenant to respond within five (5) days following receipt
of a second written notice from Landlord, shall be deemed Tenant's approval of
the Preliminary Plans. In the event that Tenant disapproves of the Preliminary
Plans as provided herein, Landlord and Tenant shall use their good faith efforts
and due diligence to resolve the matters set forth in the Objection Notice to
the reasonable satisfaction of Landlord and Tenant; provided, however, if
Landlord and Tenant have not resolved such matters within twenty (20) days
following Landlord's receipt of the Objection Notice, such disputed matter shall
be submitted to an engineer or architect, reasonably acceptable to Landlord and
Tenant, who shall render a determination of such matter within five (5) days
following such appointment, which determination shall be binding upon Landlord
and Tenant. Upon Landlord and Tenant reaching agreement upon the Preliminary
Plans, such document shall be referred to as the "APPROVED PRELIMINARY PLANS."
b. ABOVE STANDARD BUILDING IMPROVEMENTS: Landlord acknowledges
that Tenant desires certain improvements within and adjacent to the Building to
be constructed by Landlord, which otherwise would be done by contractors
retained by Tenant, but due to Landlord's construction of the Building in
accordance with the Preliminary Plans, it is reasonable that Landlord construct
such items on Tenant's behalf. Such items, collectively referred to as
"ABOVE-STANDARD IMPROVEMENTS", are as follows and shall be described in greater
detail in the Preliminary Plans:
(i) Two (2) additional exit double doors
(approximately Four Thousand One Dollars ($4,100.00));
(ii) Installation, below concrete work, of conduit (one
inch in diameter) for use of video surveillance equipment, at a cost of
approximately Five Dollars ($5.00) per lineal foot; and
(iii) Concrete patio, broom finish, along the western
side of the Building (size approximately fifteen feet by one hundred forty feet
(15' x 140') at a cost of approximately Five Thousand Two Hundred Fifty Dollars
($5,250.00).
Landlord's cost associated with the procurement of materials, construction and
installation of the Above-Standard Building Improvements shall be paid for out
of the Allowance (as hereafter defined), and such cost shall be detailed in the
Tenant Improvement Bid (as hereafter defined).
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<PAGE> 9
c. ALLOWANCE: Landlord agrees to pay a maximum amount of Twenty
Two and No/100ths Dollars ($22.00) per square foot of the Building ("ALLOWANCE")
for the obtaining of materials, designing work, construction and installation of
the Tenant Improvements. Landlord shall cause Boomer Construction, Sierra
Olympus Construction, Voit Construction, Rudolph & Sletten, Inc., Earl
Construction, and Kimmel Construction to issue construction bids for the
construction of the Building and Above-Standard Improvements, and in addition to
such bids, shall cause the aforementioned contractors, as well as ASI
Construction and Baker Construction, to issue construction bids for the Tenant
Improvements. Landlord shall retain the contractor with the lowest competent bid
for such construction projects, and shall provide Tenant with written notice of
such selection, as well as a summary of such bids, concurrent with the delivery
of the Preliminary Plans. Tenant shall have the right to cause Landlord to
modify the Preliminary Plans, as they relate to the Tenant Improvements, up to
three (3) times by delivery of an Objection Notice as provided in Section la to
Landlord, in which case, to the extent required, Landlord shall obtain a revised
construction bid from the contractor selected for such construction. The bid
amount agreed upon pursuant to this Section shall be referred to as the "FINAL
TENANT IMPROVEMENT COST." To the extent that the Final Tenant Improvement Cost
is in excess of the Allowance ("ABOVE-ALLOWANCE AMOUNT"), prior to the
commencement of construction of the Tenant Improvement, Tenant shall pay
one-half (1/2) of such excess to Landlord, and the remaining one-half (1/2) of
such excess shall be payable on the Commencement Date. To the extent that
Landlord's actual cost relating to the construction of the Tenant Improvements
is less than the Allowance, Landlord shall credit the amount of such savings
against the first payment of Base Rent due following the Commencement Date.
d. FINAL PLANS: Within sixty (60) days following agreement upon
the Approved Preliminary Plans and the Final Tenant Improvement Cost, Landlord
shall prepare and deliver to Tenant final plans and specifications ("FINAL
PLANS") substantially in conformity with the Approved Preliminary Plans. Within
fifteen (15) days after delivery of the Final Plans, Tenant shall give written
notice of any changes necessary to bring the Final Plans into substantial
conformity with the Approved Preliminary Plans, and Tenant shall not object to
any logical refinement of the Approved Preliminary Plans or any newly arising
applicable governmental laws or regulations. Failure of Tenant to deliver to
Landlord written notice of such changes within the ten (10) day period, and the
subsequent failure of Tenant to respond within five (5) days following receipt
of a written notice from Landlord, shall be deemed approval of the Final Plans.
Upon approval of the Final Plans, both parties shall endorse their approval on
the Final Plans as may be necessary for filing such documents with the
appropriate governmental entity for approval, which shall be the responsibility
of Landlord. Upon obtaining the appropriate approvals of the Final Plan from the
applicable governmental
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<PAGE> 10
entity, such document shall be referred to as the "APPROVED FINAL PLANS."
e. COMMENCEMENT OF CONSTRUCTION: Promptly upon obtaining the
Approved Final Plans, and following Landlord obtaining all requisite permits and
authorizations, Landlord shall commence construction of the building shell and
improvements described therein, which are collectively referred to as the
"BUILDING IMPROVEMENTS," and diligently prosecute such construction to
completion. Landlord, using Landlord's good faith efforts and due diligence,
shall cause the Premises to be Ready for Occupancy (as hereinafter defined),
excepting Punch List Items (as hereinafter defined), on or before August 1, 1997
("COMPLETION DEADLINE"). The Completion Deadline shall be adjusted, on a day to
day basis, as a result of any delays that result from Tenant failing to meet its
obligations at the times required by this Lease.
f. COMPLETION AND DELIVERY: The Premises shall be ready for
occupancy ("READY FOR OCCUPANCY") when (i) construction of the Building
Improvements is substantially completed in accordance with the Approved Final
Plans, (ii) Landlord has obtained for the Premises any permits (temporary or
final) that are legally required for Tenant's occupancy for general office
purposes, but not the operation of Tenant's business, (iii) any and all parking
areas to be constructed by Landlord, as set forth in the Approved Final Plans,
relating to the Premises have been completed, (iv) any and all landscaping,
sidewalks and other outdoor common area improvements in the Approved Final Plans
have been completed, and (v) any all utility hook-ups necessary for the use of
the Building are in place and are fully operational. Landlord shall deliver to
Tenant a written statement certifying (a) that the Premises are Ready for
Occupancy; and (b) the date of such completion. Landlord shall use its good
faith efforts to give Tenant thirty (30) days prior written notice
("PRE-OCCUPANCY NOTICE") of the date when the Premises will be Ready for
Occupancy.
g. EARLY ENTRY: Tenant may, following its receipt of the
Pre-Occupancy Notice, at Tenant's sole risk, enter the Premises and install
trade fixtures, equipment and other tenant improvements in the Premises;
provided, however, that (i) Tenant's early entry shall not unreasonably
interfere with construction of the Building improvements; and (ii) all
provisions of this Lease, excepting the payment of Base Rent, shall apply during
such entrance. Upon Landlord's completion of the Tenant Improvements and
Above-Standard Building Improvements, Tenant shall thereafter be responsible for
all utility charges used at the Premises in conjunction with such
pre-Commencement Date activities by Tenant.
h. COMPLETION DEADLINE: In the event that Landlord has not caused
the Premises to be Ready for Occupancy on or before the Completion Deadline,
this Lease shall remain effective and the following shall apply:
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<PAGE> 11
(1) Upon the Commencement Date, Tenant shall be entitled to
an offset against Base Rent in the amount equal to Tenant's holdover rental
expense incurred by Tenant at its leased premises, located at 8583 Elder Creek
Road, Suite 100, Sacramento, California 95828, as a result of Landlord's failure
to have the Premises Ready for Occupancy on the Completion Deadline, provided
that in no event shall such amount exceed One Hundred Thousand and No/100ths
Dollars ($100,000.00). Tenant shall provide Landlord with an invoice of such
expense prior to the Commencement Date, provided that delay in doing so shall
not release Landlord of its obligations under this Section.
(2) In the event that the Premises is not Ready for
Occupancy by December 31, 1997, for a period of ten (10) days thereafter, Tenant
shall have the right to terminate this Lease by providing Landlord with written
notice of such election, in which case this Lease shall terminate, and the
parties shall have no further obligations hereunder, except for those
obligations of Landlord and Tenant hereunder which expressly survive the
expiration or early termination of this Lease. The failure of Tenant to deliver
such notice within such time period shall be deemed a waiver of such right to
terminate. For the purpose of this Lease, the Completion Deadline shall be
automatically extended for any delays beyond the reasonable control of Landlord,
such as acts of God, fire, earthquake, acts of a public enemy, riot,
insurrection, unavailability of materials, governmental restrictions on the sale
of materials or supplies or on the transportation of such materials or supplies,
strike directly affecting construction or transportation of materials or
supplies, shortages of materials or labor resulting from government controls, or
weather conditions (collectively, "FORCE MAJEURE EVENT"). Landlord shall provide
Tenant with written notice of the occurrence of any Force Majeure Event, which
notice specifies the action or inaction which Landlord contends constitutes such
Force Majeure Event. If Tenant has not objected to such Force Majeure Event, in
writing, within five (5) business days following Tenant's receipt of such
written notice from Landlord, the Force Majeure Event, as set forth in such
notice, shall be deemed to have occurred. If Tenant objects to such Force
Majeure Event, and such objection is not resolved within ten (10) days following
Landlord's receipt of such objection, the disputed matter shall be submitted to
binding arbitration in accordance with the commercial rules of the American
Arbitration Association ("ARBITRATION"). The cost of the Arbitration shall be
paid by the non-prevailing party in accordance with Section 29.
i. MEASUREMENT OF PREMISES AND BUILDING: The total square footage
("SQUARE FOOTAGE") of the Building as shown on the Approved Final Plans, as
amended by notations reflecting the actual construction of the Building, shall
be binding and conclusive on Landlord and Tenant. If the Square Footage of the
Building is different that set forth in the Basic Lease Information, as
determined by the preceding sentence, Landlord and Tenant shall execute a
written amendment to modify the Basic
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<PAGE> 12
Lease information, as well as other modifications due to such change.
j. REPRESENTATIVES: Landlord hereby appoints Larry Kelley as
Landlord's representative to act for Landlord in all matters covered by Section
1. Tenant hereby appoints Robert Goodell as Tenant's representative to act for
Tenant in all matters covered by this Agreement. All inquiries, requests,
instructions, authorizations and other communications with respect to the
matters covered by this Section 1 shall be related to Landlord's representative
or Tenant's representative, as the case may be. Tenant will not make any
inquiries of or request to, and will not give any instructions or authorizations
to any other employee or agent of Landlord, including Landlord's architects,
engineers, and contractors or any of their agents or employees, with regard to
matters covered by this Agreement. Either Landlord or Tenant may change its
representative at any time by written notice to the other.
k. CONDITION OF CONSTRUCTION: As of the Commencement Date,
Landlord represents and warrants that the Building and the Tenant Improvements,
to the extent that such were constructed by or caused to be constructed by
Landlord, are in compliance with all applicable laws, statutes and ordinances,
which includes ADA (as hereinafter defined), and shall be in good working order
and repair.
2. PREMISES: This Lease shall be effective as of the date of execution
hereof by Landlord and Tenant. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord upon the terms and conditions contained herein the
Premises.
3. ACCEPTANCE OF PREMISES: Excepting Punch List Items, if any, Tenant's
taking possession of the Premises shall constitute Tenant's acknowledgment that
the Premises are in good condition and constructed in accordance with the
provisions of this Lease and that Tenant agrees to accept the same in its
condition existing as of the date of such entry, excepting latent defects, which
shall remain the responsibility of Landlord. Within thirty (30) days after the
Tenant takes possession of the Premises, Tenant shall deliver to Landlord a list
of items ("PUNCH LIST ITEMS") that Tenant reasonably deems that Landlord
complete or correct in order for the Premises to be reasonably acceptable.
Following Landlord's receipt of the Punch List Items, Landlord shall complete
and/or correct such items set forth on the Punch List Items using its good faith
efforts and due diligence within thirty (30) days following Landlord's receipt
of such document. If Tenant does not deliver the Punch List Items to Landlord
within such time period, Tenant shall be deemed to have accepted the condition
of the Premises. Landlord shall use its reasonable efforts to not unreasonably
interfere with Tenant's use of the Premises as a result of such repair work.
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4. TERM:
a. Initial Term: This Lease shall be effective as of the date of
execution hereof by Landlord and Tenant. The Initial Term of this Lease shall
commence (i) on the date the Premises is Ready for Occupancy, or (ii) the first
day of business operation in the Premises by Tenant, whichever is first to occur
("COMMENCEMENT DATE"), and shall expire on the last day of the one hundred
twenty (120th) full month following the Commencement Date ("EXPIRATION DATE"),
unless earlier terminated in accordance with the provisions of this Agreement.
The time period between the Commencement Date and the Expiration Date shall be
referred to as the "INITIAL TERM."
b. OPTION TO EXTEND TERM: Tenant is given the option to extend
the Initial Term on all the provisions contained in this Lease, except for Base
Rent, for two (2) consecutive five (5) year periods ("EXTENDED TERMS") following
the expiration of the Initial Term or Extended Term, as applicable, by giving
written notice of exercise of the option ("OPTION NOTICE") to Landlord at least
one hundred twenty (120) days prior to the expiration of the Initial Term or an
Extended Term, as applicable. Provided that, if Tenant is in default on the date
of giving the Option Notice, the Option Notice shall be totally ineffective, or
if Tenant is in default on the date any Extended Term is to commence, such
Extended Term shall not commence and this Lease shall expire at the end of the
term then in effect, unless, in either of the foregoing cases, Tenant cures the
applicable defaults within the notice and cure periods provided herein. Tenant
shall have no other right to extend the term beyond the two (2) Extended Terms.
Base Rent for the (i) first (1st) Extended Term shall be the amount of ninety
cents ($.90) per Square Foot of the Building, and (ii) second (2nd) Extended
Term shall be the amount of ninety-five cents ($.95) per Square Foot of the
Building.
5. RENT:
a. BASE RENT: Tenant shall pay to Landlord the Base Rent without
deduction, setoff, prior notice, or demand, in advance on or before the first
(1st) day of each month, commencing on the Commencement Date, and continuing
during the Initial Term and any Extended Terms, if applicable. Base Rent for the
first month, or portion of it, shall be paid upon execution of this Lease, which
amount shall be prorated at the rate of one thirtieth (1/30) of the Base Rent
per day for any partial month. All rent shall be paid to Landlord at the address
to which notices to Landlord are given. Landlord acknowledges that prior to the
Lease Date, Tenant has paid Landlord the amount of Fifty Thousand and No/100ths
Dollars ($50,000.00), which amount shall be applied by Landlord as Base Rent the
first (1st) month following the Commencement Date. The balance of such Fifty
Thousand and No/100ths Dollars ($50,000.00) payment, shall be held by Landlord
as the "SECURITY DEPOSIT," or if Tenant utilizes the letter of credit for the
Security Deposit described in the
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Basic Lease Information, such balance shall be credited to next payment of Base
Rent due and payable.
b. LATE CHARGE: If Tenant fails to make any payment of Base Rent
when due, or other charges, within thirty (30) days after receipt of an invoice
(which describes in reasonable detail the basis for such requested payment) from
Landlord, and such default is not cured within ten (10) days following such due
date, Landlord and Tenant agree that it would be impracticable or extremely
difficult to fix the actual damage to Landlord resulting from nonpayment and the
collection efforts of Landlord necessitated thereby. Therefore, Landlord and
Tenant estimate that such damage shall be five percent (5.00%) of the amount in
default, and Tenant shall pay as additional rent, that sum, in addition to all
other sums owing. Acceptance of any late charge shall not constitute a waiver of
Tenant's default with respect to the overdue amount, or prevent Landlord from
exercising any of the other rights and remedies available to Landlord.
6. SECURITY DEPOSIT: Upon execution of this Lease, Tenant shall deposit
with Landlord the Security Deposit as security for the full and faithful
performance by Tenant of the provisions of this Lease. If Tenant is in default,
Landlord may use the Security Deposit, or any portion of it, to cure the default
or to compensate Landlord for all damages which Landlord may suffer by reason of
Tenant's default. Tenant shall immediately on demand pay to Landlord a sum equal
to the portion of the Security Deposit expended or applied by Landlord as
provided in this Section so as to maintain the Security Deposit in the sum
specified. Tenant's failure to forthwith remit to Landlord an amount in cash
sufficient to restore the Security Deposit to the original sum deposited with
thirty (30) days after receipt of such demand from Landlord shall constitute an
event of default under the terms of this Lease. At the expiration or termination
of this Lease, Landlord shall return the Security Deposit to Tenant, less such
amounts as are reasonably necessary to remedy Tenant's default, to repair
damages to the Premises caused by Tenant, or to clean the Premises upon such
termination, as soon as practicable thereafter. Landlord's obligations with
respect to the Security Deposit are those of a debtor and not a trustee.
Landlord may maintain the Security Deposit with Landlord's general and other
funds. Landlord shall not be required to pay Tenant interest on the Security
Deposit. Tenant shall not mortgage, assign, transfer or encumber the Security
Deposit without the prior written consent of Landlord. If Landlord sells its
interest in the Premises, Landlord may deliver the Security Deposit to the
purchaser of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
7. TAXES:
a. PERSONAL PROPERTY TAXES: Tenant shall pay before delinquency
all taxes, assessments, license fees, and charges (collectively, "TAXES") that
are levied and assessed against Tenant's business or Tenant's personal property
installed or
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located in or on the Premises, and that become payable during the Initial Term
or Extended Terms, if applicable. Upon written demand by Landlord, Tenant shall
furnish Landlord with satisfactory evidence of these payments.
b. REAL PROPERTY TAXES: Tenant shall pay, directly to the
appropriate taxing authority, before delinquency all real property taxes,
general and special assessments, bonds and other assessments (collectively,
"REAL PROPERTY TAXES") levied and assessed against the Premises.
(1) Landlord shall notify Tenant of the Real Property Taxes
following receipt of the tax bill shall furnish Tenant with a copy of the tax
bill. Tenant shall pay the Real Property Taxes semiannually not later than ten
(10) days (i) after receipt of the tax bill, or (ii) prior to the delinquency
date, whichever is later.
(2) Tenant's liability to pay Real Property Taxes shall be
prorated on the basis of a 365-day year to account for any fractional portion of
a fiscal tax year included in the Initial Term.
(3) Tenant, at its cost shall have the right, at any time,
to seek a reduction in the assessed valuation of the Premises or to contest any
Real Property Taxes that are to be paid by Tenant.
(a) Landlord shall not be required to join in any
proceeding or contest brought by Tenant unless the provisions of any law require
that the proceeding or contest be brought by or in the name of Landlord or any
owner of the Premises. In that case, Landlord shall join in the proceeding or
contest or permit it to be brought in Landlord's name as long as Landlord is not
required to bear any cost. Tenant, on final determination of the proceeding or
contest, shall immediately pay or discharge any decision or judgment rendered,
together with all costs, charges, interest, and penalties incidental to the
decision or judgment.
(b) If Tenant does not pay the Real Property Taxes
when due and Tenant seeks a reduction or contests them as provided in this
Paragraph, before the commencement of the proceeding or contest, Tenant shall
furnish to Landlord a surety bond issued by an insurance company suitable to
Landlord and qualified to do business in California. The amount of the bond
shall equal one hundred twenty-five percent (125%) of the total amount of Real
Property Taxes in dispute. The bond shall hold Landlord and the Premises
harmless from any damage arising out of the proceeding or contest and shall
insure the payment of any judgment that may be rendered.
(c) Notwithstanding the definition of Real Property
Taxes, in the event that Landlord conveys its interest in the Premises to a
third party, constituting a "change of ownership" pursuant to the California
Real Estate Tax, resulting
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in a reassessment of the Premises by the taxing authorities, for the purpose of
calculating the incremental increases in the Real Property Taxes as a result of
such change of ownership, the value of the Premises shall not be in excess of:
(i) Two Million, Eight Hundred Thousand and No/100ths Dollars ($2,800,000.00) if
such change of ownership occurs during the first five (5) years following the
Commencement Date; or (ii) Three Million and No/100ths Dollars ($3,000,000.00)
if such change of ownership occurs during the second five (5) years following
the Commencement Date. Landlord shall be responsible for any excess Real
Property Taxes resulting from such change of ownership above the threshold
amounts established in this Section.
(4) Tenant shall not be required to pay any municipal,
county, state, or federal income or franchise taxes of Landlord, or any
municipal, county, state, or federal estate, succession, inheritance, or
transfer taxes of Landlord. If at any time during the Initial Term or Extended
Terms, if applicable, the State of California or any political subdivision of
the state, including any county, city, city and county, public corporation,
district, or any other political entity or public corporation of this state,
levies or assesses against Landlord a tax, fee, or excise on (1) rents, (2) the
square footage of the Premises, (3) the act of entering into this Lease, or (4)
the occupancy of Tenant, or levies or assesses against Landlord any other tax,
fee, or excise, as a direct substitution in whole or in part for, but not in
addition to, any Real Property Taxes, Tenant shall pay, before delinquency such
amount, which for the purpose of this Lease shall be within the definition of
Real Property Tax.
8. USE; LIMITATION ON USE:
a. USE: Tenant shall use the Premises for the Tenant's Use and
for no other use or purpose, without the prior written consent of Landlord.
Tenant shall comply with all the requirements of all easements, cross easements,
joint maintenance obligations and similar matters applicable to the Premises
which are in effect or may become effective with any governmental agency or
private party. Landlord represents and warrants that no such matters, to the
extent imposed by Landlord, shall have an adverse effect in any material respect
on the use of the Premises and associated parking, ingress and egress, for
general office purposes. Tenant shall be responsible for obtaining all
appropriate operating licenses necessary for the Tenant's Use.
b. LIMITATIONS ON USE: Tenant's Use of the Premises shall be in
accordance with the following:
(1) Tenant shall not do, bring, or keep anything in or about
the Premises that will cause a cancellation of any insurance covering the
Premises, or any part thereof or any of its contents. If the rate of any
insurance carried by Landlord is increased as a result of Tenant's use, Tenant
shall pay the Landlord within ten (10) days before the date Landlord is
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<PAGE> 17
obligated to pay a premium on the insurance, or within ten (10) days after
Landlord delivers to Tenant a certified statement from Landlord's insurance
carrier stating that the rate increase was caused solely by an activity on the
Premises as permitted in this Lease, whichever date is later, the sum equal to
the difference between the original premium and the increased premium.
(2) Following the Commencement Date, and subject to
Landlord's representation set forth in Section 1(j) and 3, Tenant shall, at
Tenant's sole expense, comply with all present and future laws, rules,
requirements, ordinances, orders, directions and regulations of any state,
municipal, or other governmental or lawful authority affecting the Premises or
appurtenances thereto, which includes, but is not limited to, the Americans with
Disabilities Act of 1990 (42 U.S.C. 12101 et seq.) ("ADA") (collectively,
"APPLICABLE LAWS"); and, subject to Landlord's representation in Section 1(j)
and 3, Tenant shall, at Tenant's sole expense, make such alterations and
additions to the Premises as may be required to comply with all Applicable Laws;
and Tenant shall not use the Premises or permit anything to be done in or about
the Premises which will in any way conflict with any Applicable Laws. The
judgment of any court of competent jurisdiction or the admission by Tenant in
any action, whether Landlord be a party thereto or not, that Tenant has violated
any Applicable Law shall be conclusive of the fact of Tenant's default under
this Paragraph. If Landlord is subjected to any loss or liability as a result of
Tenant's failure to comply with any Applicable Laws, the same shall be subject
to Tenant's indemnification obligations hereunder.
(3) Tenant shall not use the Premises in any manner that
will constitute waste, nuisance, or unreasonable annoyance (including, without
limitation, the use of loudspeakers or sound or light apparatus that can be
heard or seen outside the Premises) to owners or occupants of adjacent
properties. Tenant shall not use the Premises for the preparation, manufacture,
or mixing of anything that might emit any odor or objectionable noises or lights
onto adjacent properties.
(4) Tenant shall not do anything on the Premises that will
cause damage to the Premises. The Premises shall not be overloaded. No
machinery, apparatus, or other appliance shall be used or operated in or on the
Premises that will in any manner injure, vibrate, or shake the Premises,
excepting customary office equipment used in conjunction with general use (e.g.
copy machines, phone systems, computers, "KACHUNGADA," office apparatus and
similar machines).
(5) Tenant shall not store, use or permit to be used in or
about the Premises any Hazardous Materials (as hereinafter defined), other than
office supplies and typical cleaning materials containing Hazardous Materials
which are customarily for general office use. Tenant shall comply, at its
expense, with all federal, state and local statues or regulations concerning
Hazardous Materials.
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<PAGE> 18
9. MAINTENANCE: Tenant, at its sole cost, shall keep in first class
order, condition and repair, maintain the Premises and every part thereof,
interior and exterior, roof, and all adjacent sidewalks, landscaping, driveways,
parking lots and signs located within or adjacent to the Premises and shall make
all replacements necessary to keep the Premises in such condition. All repairs
and replacements shall be of a quality equal to or exceeding that of the
original. Tenant shall do all acts necessary to comply with all Applicable Laws.
Landlord shall not have any responsibility to maintain the Premises, provided
that Landlord shall remain responsible for the repair of (i) the structure and
foundation of the Building, to the extent such damage was not caused by Tenant,
its employees, agents, contractors, or invitees, and (ii) any latent defects to
the Building, to the extent constructed by Landlord, its agents, employees or
contractors. Tenant waives the provisions of Civil Code Sections 1941 and 1942,
and any amendment or successor statutes thereto, with respect to Landlord's
obligations for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs from rent. Should Tenant fail to make
these repairs and replacements or otherwise to maintain the Premises for a
period of thirty (30) days after written demand by Landlord, or should Tenant
commence or fail to complete, any repainting, repairs or replacements within a
reasonable time after written demand by Landlord, Landlord may make the same
without liability to Tenant for any loss or damage that may occur to Tenant's
business, except any resulting from the gross negligent or intentional acts or
omissions of Landlord, and Tenant shall pay to Landlord the costs incurred by
Landlord in making such repairs or replacements together with interest thereon
at the maximum rate permitted by law from the date of commencement of the work
until repaid. Tenant shall contract with a service company licensed and
experienced in servicing HVAC equipment and approved by Landlord for regular
maintenance and replacement, if required by Landlord, of the HVAC equipment
serving the Premises. The cost of the contract and any required replacements or
repairs shall be paid by Tenant.
10. ALTERATIONS:
a. LANDLORD CONSENT REQUIRED: Tenant shall not make any
alterations to the Premises without Landlord's prior written consent.
Notwithstanding the foregoing, Tenant shall be entitled to make nonstructural
internal modifications to the Building, which do not effect the base electrical
or mechanical systems of the Building, without the prior written consent of
Landlord, which are not in excess of Twenty Five Thousand and No/100ths Dollars
($25,000.00) during any year within the Initial Term, or Extended Term, as
applicable. Any alterations made shall comply with Applicable Law and shall
remain on and be surrendered with the Premises on expiration or termination of
the Initial Term or Extended Term, if applicable, except that Landlord can elect
at the time Tenant seeks Landlord's approval of the alterations, to require
Tenant to remove any alterations that Tenant has made to the Premises. If
Landlord so elects, Tenant, at its cost, shall restore the Premises to the
condition designated by Landlord in
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its election before the last day of the Initial Term or Extended Term, if
applicable, or within thirty (30) days after notice of election is given,
whichever is later.
b. NOTICE: If Tenant makes any alterations to the Premises as
provided in this Section, the alterations shall not be commenced until ten (10)
days after Landlord has received written notice from Tenant stating the date the
installation of the alterations is to commence so that Landlord can post and
record an appropriate notice of nonresponsibility.
c. TRADE FIXTURES: Tenant may install fixtures, machinery or
other equipment. Except for items belonging to Landlord, Tenant may remove any
of such trade fixtures or equipment upon the termination of this Lease; provided
that Tenant is not in default under the terms and conditions of this Lease.
11. MECHANIC'S LIEN:
a. TENANT PAYS CONSTRUCTION COSTS: Tenant shall pay all costs for
construction done by it or caused to be done by it on the Premises which
construction is beyond the scope of construction to be performed by Landlord
pursuant to Section 1. Tenant shall keep the Premises free and clear of all
mechanics' liens resulting from construction done by or for Tenant.
b. LIEN RELEASE BOND: Tenant shall have the right to contest the
correctness or the validity of any such lien, if immediately on demand by
Landlord, Tenant procures and records a lien release bond issued by a
corporation authorized to issue surety bonds in California in an amount equal to
one and one-half (1-1/2) times the amount of the lien. The bond shall meet the
requirements of Civil Code Section 3143, and any amendment or successor statute
thereto, and shall provide for the payment of any sum that the claimant may
recover on the claim (together with costs of suit if recovered in the action.)
12. UTILITIES AND SERVICES:
Tenant shall make all arrangements for and pay for all utilities and
services furnished to or used by it, including, without limitation, gas,
electricity, water, telephone service, and trash collection, and for all
connection charges. Landlord shall not be liable for any failure or interruption
of any utility service being furnished to the Premises, and no such failure or
interruption shall entitle Tenant to terminate this Lease. Notwithstanding the
preceding sentence, in the event that the cause of such failure or interruption
in gas, electricity, water or telephone service to the Premises was a result of
an act taken by Landlord, its agents, employees, contractors or subcontractors,
and Landlord, using its good faith efforts and due diligence, does not
reestablish such utility service within two (2) business days following
Landlord's receipt of written notice from Tenant, Tenant shall be entitled to an
abatement of
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Base Rent from the date of such failure or interruption until such utility
service is restored.
13. INDEMNITY, EXCULPATION AND INSURANCE:
a. WAIVER OF LIABILITY: Landlord shall not be liable to Tenant
and Tenant hereby waives all claims against Landlord, its partners, officers,
trustees, affiliates, directors, shareholders, employees, contractors, agents
and representatives (collectively, "AFFILIATES") for any injury or damage to any
person or property occurring or incurred in connection with or in any way
relating to the Premises from any cause. Without limiting the foregoing, neither
Landlord nor any of its Affiliates shall be liable for and there shall be no
abatement of rent for (i) any damage to Tenant's property stored with or
entrusted to Affiliates of Landlord, (ii) loss of or damage to any property by
theft or any other wrongful or illegal act, or (iii) any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Premises or from
the pipes, appliances, appurtenances or plumbing works therein or from the roof,
street or sub-surface or from any other place or resulting from dampness or any
other cause whatsoever or from the acts or omissions of visitors to the Premises
or from any other cause whatsoever, or (iv) any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to
the Premises. Tenant agrees that in no case shall Landlord ever be responsible
or liable on any theory for any injury to Tenant's business, loss of profits,
loss of income or any other form of consequential damage. Tenant shall give
prompt notice to Landlord in the event of (a) the occurrence of a fire or
accident in the Premises, or (b) the discovery of any defect therein or in the
fixtures or equipment thereof. Notwithstanding any other provision of this Lease
to the contrary, Tenant waives any claims based on damage or injury resulting
from Landlord's failure to police or provide security for the Premises.
b. INDEMNIFICATION: Tenant shall indemnify, defend (with legal
counsel selected by Landlord and consented to by Tenant), protect and hold
Landlord and the Premises harmless from and against any and all claims, suits,
judgments, losses, costs, obligations, damages, expenses, interest and
liabilities, including, without limitation, reasonable attorneys' fees,
resulting from Tenant's use of the Premises, or for any injury or damage to any
person or property whatsoever arising out of or in connection with this Lease,
the Premises or Tenant's and/or its patrons' activities in the Premises,
including, without limitation, when such injury or damage has been caused in
whole or in part by the act, negligence, fault or omission of Tenant, its
agents, servants, contractors, employees, representatives, licenses, patrons or
invitees. Without limiting the foregoing, Tenant shall reimburse Landlord for
all expenses, damages and fines incurred or suffered by Landlord by reason of
any breach, violation or non-performance by Tenant, its agents, servants, or
employees, of any covenant of this Lease, or by reason of damage to persons or
property caused by moving property of or for Tenant
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<PAGE> 21
in or out of the Premises, or by the installation or removal of furniture or
other property, or by reason of carelessness, negligence or improper conduct of
Tenant or its agents, employees, or servants in the use or occupancy of the
Premises. Nothing contained in this Section 13 shall obligate Tenant to
indemnify Landlord against Landlord's own gross negligence or willful acts. The
provisions of this Section 13 shall survive the expiration or earlier
termination of this Lease.
c. PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE: Tenant at its
cost shall maintain public liability and property damage insurance with a One
Million and No/100ths Dollar ($1,000,000.00) public liability and property
damage insurance policy, plus a Five Million and No/100ths Dollars
($5,000,000.00) public liability and property damage umbrella policy, insuring
against all liability of Tenant and its authorized representatives arising out
of and in connection with Tenant's use or occupancy of the Premises. All public
liability insurance and property damage insurance shall insure performance by
Tenant of the indemnity provisions of Section 12. Both parties shall be named as
additional insureds, and the policy shall contain cross-liability endorsements,
(if commercially available).
d. TENANT'S FIRE INSURANCE: Tenant at its cost shall maintain on
all Tenant Improvements and alterations, in, on, or about the Premises, a policy
of standard fire and extended coverage insurance, with vandalism and malicious
mischief endorsements, to the extent of full replacement value, with a
replacement cost endorsement. The proceeds from any such policy shall be used by
Tenant for the replacement of personal property or the restoration of any Tenant
Improvements or any alterations that may have been made to the Premises by
Tenant.
e. FIRE INSURANCE ON BUILDING AND OTHER IMPROVEMENTS: Tenant
shall maintain on the building and other improvements that are a part of the
Premises a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of full replacement
value, with a replacement cost endorsement. The insurance policy shall be issued
in the names of Landlord and Tenant as their interests appear. The insurance
policy shall provide that any proceeds shall be made payable to Landlord.
Tenant's obligation to pay the insurance costs shall be prorated for any partial
year following the Commencement Date or as of the Termination Date. The proceeds
from any such policy shall be used by Tenant for the reconstruction of any
improvements which are damaged by the insurable destruction.
f. WAIVER OF SUBROGATION: The parties release each other, and
their respective authorized representatives, from any claims for damage to any
person or to the Premises and to the fixtures, personal property, Tenant's
improvements, and alterations of either Landlord or Tenant in or on the Premises
that are caused by or result from risks insured against under any insurance
policies carried or required to be carried pursuant to
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this Lease by the parties and in force at the time of any such damage. Each
party shall cause each insurance policy obtained by it to provide that the
insurance company waives all right of recovery by way of subrogation against
either party in connection with any damage covered by any policy. Neither party
shall be liable to the other for any damage caused by fire or any of the risks
insured against and actually paid upon under any insurance policy required by
this Lease.
g. OTHER INSURANCE MATTERS: ALL the insurance required under this
Lease shall:
(1) Be issued by insurance companies authorized to do
business in the State of California, with a financial rating of at least an A +
3A status as rated in the most recent edition of Best's Insurance Reports, or
Financial Pacific Insurance Company, a California corporation, if acceptable to
Landlord's lender or any purchaser of the Premises.
(2) Be issued as a primary policy.
(3) Contain an endorsement requiring thirty (30) days'
written notice from the insurance company to both parties and Landlord's lender
before cancellation or change in the coverage, scope, or amount of any policy.
(4) Each policy, or a certificate of the policy, together
with evidence of payment of premiums, shall be deposited with the other party at
the Commencement Date, and on renewal of the policy not less than twenty (20)
days before expiration of the term of the policy.
14. DESTRUCTION:
a. DESTRUCTION DUE TO RISK COVERED BY INSURANCE: If, during the
Initial Term or Extended Term, if applicable, the Premises are totally or
partially destroyed from a risk covered by the insurance described in Section
13, rendering the Premises totally or partially inaccessible or unusable,
Tenant, at its cost, shall restore the Premises to substantially the same
condition as they were in immediately before the destruction, whether or not the
insurance proceeds are sufficient to cover the actual cost of restoration. Such
destruction shall not terminate this Lease. If the existing laws do not permit
the restoration, following Tenant's exhaustion of all applicable appeal rights,
either party can terminate this Lease immediately by giving written notice to
the other party, in which case this Lease shall be deemed terminated as of the
date of delivery of such notice.
b. DESTRUCTION DUE TO RISK NOT COVERED BY INSURANCE: If, during
the Initial Term or Extended Term, if applicable, the Premises are totally or
partially destroyed from a risk not covered by the insurance described in
Section 13, rendering the Premises totally or partially inaccessible or
unusable, subject to subsections (1), (2) and (3) below, Tenant shall restore
the Premises to substantially the same condition as they were in
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<PAGE> 23
immediately before the destruction. Such destruction shall not terminate this
Lease. If the existing laws do not permit restoration, following Tenant's
exhaustion of all applicable appeal rights, either party can terminate this
Lease immediately by giving notice to the other party, in which case this Lease
shall be deemed terminated as of the date of delivery of such notice.
(1) If the cost of restoration exceeds twenty percent
(20.00%) of the then replacement value of the Premises destroyed and is not an
insured loss, Tenant can elect to terminate this Lease by giving notice to
Landlord within fifteen (15) days after determining the restoration cost and
replacement value, which determination shall be made within thirty (30) days
after the date of the damage and acceptable to Landlord.
(2) If Tenant elects to terminate this Lease as provided
above, Landlord, within fifteen (15) days after receiving Tenant's notice to
terminate, can elect to pay to Tenant, at the time Landlord notifies Tenant of
its election, the difference between twenty percent (20.00%) of the then
replacement value of the Premises destroyed and the actual cost of restoration,
in which case Tenant shall restore the Premises. Tenant shall give Landlord
satisfactory evidence that all sums contributed by Landlord as provided in this
Paragraph have been expended by Tenant in paying the cost of restoration.
(3) If Tenant elects to terminate this Lease, and Landlord
does not elect to contribute toward the cost of restoration as provided in this
Paragraph, this Lease shall terminate as of the date of Tenant's delivery of its
notice to terminate.
c. DESTRUCTION DURING LAST TWELVE MONTHS: Regardless of any
contrary provision in this Lease, if the Building is damaged or destroyed by any
cause to the extent of more than thirty percent (30.00%) of its insurable value
during the last twelve (12) months of the Initial Term, or Extended Terms, as
applicable, Tenant may, at Tenant's sole option, terminate the Lease by written
notice delivered to Landlord within forty-five (45) days of such damage or
destruction, which termination shall become effective on the date of delivery of
such notice. In the event of a termination of the Lease pursuant to this
Section, Tenant shall pay to Landlord all insurance proceeds received by Tenant
as a result of such damage or destruction.
d. TENANT'S RESTORATION OF PREMISES:
(1) If, during the Initial Term or Extended Term, if
applicable, the Premises are destroyed from a risk covered by the insurance
described in Section 13, and the total amount of loss does not exceed Fifty
Thousand and No/100ths Dollars ($50,000.00), Tenant shall make the loss
adjustment with the insurance company insuring the loss. The proceeds shall be
paid directly to Tenant for the sole purpose of making the restoration of the
Premises.
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(2) If, during the Initial Term or Extended Term, if
applicable, the Premises are destroyed from a risk covered by the insurance
described in Section 13, and the total amount of loss exceeds Fifty Thousand and
No/100ths Dollars ($50,000.00), Tenant shall make the loss adjustment with the
insurance company insuring the loss and on receipt of the proceeds shall
immediately pay them to an insurance trustee selected by Landlord ("INSURANCE
TRUSTEE"). If the Premises are destroyed from a risk not covered by the
insurance described in Section 12, and Tenant has the obligation to restore the
Premises, both parties shall deposit with the Insurance Trustee their respective
contributions toward the cost of restoration. All sums deposited with the
Insurance Trustee shall be held for the following purposes and the Insurance
Trustee shall have the following powers and duties:
(a) The sums shall be paid in installments by the
Insurance Trustee to the contractor retained by Tenant, who is acceptable to
Landlord, which approval shall not be unreasonably withheld, as construction
progresses for payment of the cost of restoration. A ten percent (10.00%)
retention fund shall be established that will be paid to the contractor on
completion of restoration, payment of all costs, expiration of all applicable
lien periods, and proof that the Premises are free of all mechanics, liens and
lienable claims.
(b) Payments shall be made on presentation of
certificates or vouchers from the architect or engineer retained by Tenant
showing the amount due. If the Insurance Trustee, in its reasonable discretion,
determines that the certificates or vouchers are being improperly approved by
the architect or engineer retained by Tenant, the Insurance Trustee shall have
the right to appoint an architect or an engineer to supervise construction and
to make payments on certificates or vouchers approved by the architect or
engineer retained by the Insurance Trustee. The reasonable expenses and charges
of the architect or engineer retained by the Insurance Trustee shall be paid by
the Insurance Trustee out of the trust fund.
(c) If the sums held by the Insurance Trustee are not
sufficient to pay the actual cost of restoration, Tenant shall deposit the
amount of the deficiency with the Insurance Trustee within twenty (20) days
after request by the Insurance Trustee indicating the amount of the deficiency.
(d) Any sums not disbursed by the Insurance Trustee
after restoration has been completed and final payment has been made to Tenant's
contractor shall be delivered within fifteen (15) days (after demand made by
either party on the Insurance Trustee) as follows:
(i) First, to Landlord to the extent of
Landlord's contribution to the fund;
(ii) Next, to Tenant to the extent of Tenant's
contribution to the fund; and
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(iii) The balance, if any, to Tenant.
(e) All actual costs and charges of the Insurance
Trustee shall be paid by Tenant.
(f) If the Insurance Trustee resigns or for any reason
is unwilling to act or continue to act, Landlord shall substitute a new trustee
in the place of the designated Insurance Trustee. The new trustee must be an
institutional lender or title company doing business in the area of the
Premises.
(g) Both parties shall promptly execute all documents
and perform all acts reasonably required by the Insurance Trustee to perform its
obligation under this Paragraph.
e. PROCEDURE FOR RESTORING PREMISES: Within thirty (30) days
after the date that Tenant is obligated to commence to restore the Premises,
Tenant at its cost shall prepare final plans and specifications and working
drawings complying with applicable laws that will be necessary for restoration
of the Premises. The plans and specifications and working drawings must be
approved by Landlord. Landlord shall have thirty (30) days after receipt of the
plans and specifications and working drawings to either approve or disapprove
the plans and specifications and working drawings and return them to Tenant. If
Landlord disapproves the plans and specifications and working drawings, Landlord
shall notify Tenant of its objections and Landlord's proposed solution to each
objection. Tenant acknowledges that the plans and specifications and working
drawings shall be subject to approval of the appropriate government bodies and
Franchisor and that they will be prepared in such a manner as to obtain that
approval.
The restoration of the Premises shall be accomplished as follows:
(1) Tenant shall complete the restoration within one hundred
twenty (120) working days after final plans and specifications and working
drawings have been approved by the appropriate government bodies and all
required permits have been obtained (subject to a reasonable extension for
delays resulting from causes beyond Tenant's reasonable control).
(2) Tenant shall retain a licensed contractor, which
contractor shall be subject to the written approval of Landlord, such approval
not to be unreasonably withheld.
(3) Tenant shall notify Landlord of the date of commencement
of the restoration not later than five (5) days before commencement of the
restoration to enable Landlord to post and record notices of nonresponsibility.
(4) Tenant shall accomplish the restoration in a manner that
will cause the least inconvenience, annoyance, and disruption.
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(5) On completion of the restoration, Tenant shall
immediately record a notice of completion in the county in which the Premises
are located.
f. ABATEMENT OF RENT: In case of destruction, there shall be no
abatement or reduction of rent.
g. WAIVER OF CIVIL CODE SECTIONS: Tenant waives the provisions of
Civil Code Sections 1932(2) and 1933(4), and any amendment or successor statute
thereto, with respect to any destruction of the Premises.
15. CONDEMNATION:
a. DEFINITIONS:
(1) "CONDEMNATION" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a condemnor
and (b) a voluntary sale or transfer by Landlord to any condemnor, either under
threat of condemnation or while legal proceedings for condemnation are pending.
(2) "DATE OF TAKING" means the date the condemnor has the
right to possession of the property being condemned.
(3) "AWARD" means all compensation, sums, or anything of
value awarded, paid, or received on a total or partial condemnation.
(4) "CONDEMNOR" means any public or quasi-public authority,
or private corporation or individual, having the power of condemnation.
b. PARTIES' RIGHTS AND OBLIGATIONS TO BE GOVERNED BY LEASE: If,
during the Initial Term or Extended Term, if applicable, there is any taking of
all or any part of the Premises or any interest in this Lease by condemnation,
the rights and obligations of the parties shall be determined pursuant to this
Section.
c. TOTAL TAKING: If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking.
d. PARTIAL TAKING: If any portion of the Premises is taken by
condemnation, this Lease shall remain in effect; except that Tenant can elect to
terminate this Lease if thirty percent (30.00%) or more of the total square
footage in the Building, or fifteen percent (15.00%) of parking for the Premises
(rendering the Tenant's Use in violation with applicable laws, statutes or
ordinances) is taken, or if as a result of such condemnation, Tenant is
prevented from continuing Tenant's Use on the Premises due to applicable
ordinances of governmental entities or agencies having jurisdiction over the
Premises. If Tenant elects to terminate this Lease, Tenant must exercise its
right to terminate pursuant to this Paragraph by giving written notice to
Landlord
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within thirty (30) days after the nature and the extent of the taking have been
finally determined. If Tenant elects to terminate this Lease as provided in this
Paragraph, Tenant also shall notify Landlord of the date of termination, which
date shall not be earlier than thirty (30) days nor later than ninety (90) days
after Tenant has notified Landlord of its election to terminate; except that
this Lease shall terminate on the date of taking if the date of taking falls on
a date before the date of termination as designated by Tenant. If Tenant does
not terminate this Lease within the thirty (30) day period, this Lease shall
continue in full force and effect, except that Base Rent shall be abated as
provided in this Section 15.
(1) EFFECT ON RENT: If any portion of the Building or
parking is taken by condemnation and this Lease remains in full force and
effect, on the date of taking the Base Rent shall be reduced by an amount that
is in the same ratio to Base Rent as the total number of square feet in the
Building taken, or no longer usable due to loss of parking, bears to the total
number of square feet in the Building immediately before the date of taking.
(2) WAIVER: Each party waives the provisions of Code of
Civil Procedure Section 1265.130 allowing either party to petition the superior
court to terminate this Lease in the event of a partial taking of the Premises.
(3) RESTORATION OF PREMISES: If there is a partial taking of
the Premises or parking and this Lease remains in full force and effect, Tenant,
at its cost, shall accomplish all necessary restoration.
(4) ABATEMENT OF RENT: Rent, shall be abated or reduced
during the period from the date of taking until the completion of restoration,
but all other obligations of Tenant under this Lease shall remain in full force
and effect. The abatement or reduction of rent shall be based on the extent to
which the restoration unreasonably interferes with Tenant's use of the Building.
e. AWARD-DISTRIBUTION: The award shall belong to and be paid to
Landlord, except that Tenant shall receive directly from the condemning
authority an amount attributable to alterations made to the Premises by Tenant
in accordance with this Lease, which alterations Tenant has the right to remove
from the Premises pursuant to the provisions of this Lease but elects not to
remove; or, if Tenant elects to remove any such Tenant's improvements or costs
not to exceed the market value of such alterations. Any award by the condemnor
specifically for the loss of Tenant's business shall belong to Tenant.
16. ASSIGNMENT:
a. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING, AND
ENCUMBERING: Tenant shall not assign or hypothecate this Lease or any interest
herein (by operation of
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law or otherwise) or sublet the Premises or any part hereof, or permit the use
of the Premises by any party other than Tenant without the prior written consent
of Landlord. Notwithstanding the foregoing, Tenant may assign this Lease to any
corporation which controls, is controlled by or is under common control with
Tenant, or to any corporation resulting from merger or consolidation with
Tenant, or to any person or entity which acquires all of the assets as a going
concern of the business of Tenant that is being conducted on the Premises,
without the prior consent of Landlord, provided that such assignment or sublease
shall in no way release Tenant from any liability under this Lease.
(1) PROCEDURE: In the event that Tenant should desire to
sublet the Premises or any part thereof, or assign this Lease, Tenant shall
provide Landlord with written notice of such desire at least twenty (20) days in
advance of the effective date of such subletting or assignment. Such notice
shall include (i) the name of the proposed subtenant or assignee; (ii) the
nature of business to be conducted by the proposed subtenant or assignee in the
Premises; (iii) the terms and conditions of the proposed assignment or sublease;
and (iv) the current financial statements of the proposed subtenant or assignee.
Landlord shall not unreasonably withhold its consent to a proposed subletting or
assignment, provided that (1) the proposed subtenant or assignee is engaged in a
business which, and the Premises shall be used in a manner which, is consistent
with the permissible use set forth in this Lease; (2) the proposed subtenant or
assignee is a reputable party of reasonable financial worth in light of the
responsibilities involved and Tenant shall have provided Landlord with
reasonable proof thereof; and (3) Tenant is not in default hereunder at the time
it makes its request for such consent. No assignment of Tenant's interest in
this Lease shall relieve Tenant from its obligations pursuant to the provisions
of this Lease.
(2) EXCESS RENT: Fifty percent (50.00%) of all rent received
by Tenant from its subtenants in excess of the rent payable by Tenant to
Landlord under this Lease shall be paid to Landlord, and fifty percent (50.00%)
of any sums to be paid by an assignee to Tenant on consideration of the
assignment of this Lease shall be paid to Landlord.
(3) PAYMENT OF ATTORNEYS' FEES: If Tenant requests Landlord
to consent to a proposed assignment or subletting, Tenant shall pay to Landlord,
whether or not consent is ultimately given, Landlord's reasonable attorneys'
fees incurred in connection with each such request, not to exceed One Thousand
and No/100ths Dollars ($1,000.00).
b. INVOLUNTARY ASSIGNMENT: No interest of Tenant in this Lease
shall be assignable by operation of law (including, without limitation, the
transfer of this Lease by testacy or intestacy). Each of the following acts
shall be considered an involuntary assignment:
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(1) BANKRUPTCY: It Tenant is or becomes bankrupt or
insolvent, makes an assignment for the benefit of creditors, or institutes a
proceeding under the Bankruptcy Act in which Tenant is the bankrupt party; or,
if Tenant is a partnership or consists of more than one person or entity, if any
partner of the partnership or other person or entity is or becomes bankrupt or
insolvent, or makes an assignment for the benefit of creditors;
(2) ATTACHMENT: If a writ of attachment or execution is
levied on this Lease; or
(3) RECEIVER: If, in any proceeding or action to which
Tenant is a party, a receiver is appointed with authority to take possession of
the Premises.
An involuntary assignment shall constitute a default by Tenant and
Landlord shall have the right to elect to terminate this Lease, in which case
this Lease shall not be treated as an asset of Tenant. If a writ of attachment
or execution is levied on this Lease, Tenant shall have twenty (20) days in
which to cause the attachment or execution to be removed. If any involuntary
proceeding in bankruptcy is brought against Tenant, or if a receiver is
appointed, Tenant shall have sixty (60) days in which to have the involuntary
proceeding dismissed or the receiver removed.
17. DEFAULT:
a. TENANT'S DEFAULT: The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant:
(1) The abandonment or vacation of the Premises by Tenant
(failure to occupy and operate the Premises for sixty (60) consecutive days
shall be deemed an abandonment).
(2) The failure by Tenant to make any payment of Base Rent
or any other payment required to be made by Tenant hereunder as and when due,
where such failure shall continue for a period of five (5) days after the due
date.
(3) Tenant's failure to observe or perform any of the
covenants, conditions, or provisions of this Lease to be observed or performed
by Tenant, other than as described in subparagraph (b) above, where such failure
shall continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than twenty (20) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30)-day period and thereafter diligently prosecutes such cure to
completion.
(4) The making by Tenant of any general assignment or
general arrangement for the benefit of creditors, or the appointment of a
trustee or a receiver to take possession
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of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days, or the attachment, execution, or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged in thirty (30)
days.
(5) The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of any involuntary petition by Tenant's creditors, which
involuntary petition remains undischarged for a period of thirty (30) days. In
the event that under applicable law the trustee in bankruptcy or Tenant has the
right to affirm this Lease and perform the obligations of Tenant hereunder, such
trustee or Tenant shall, in such time period as may be permitted by the
bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder
outstanding as of the date of the affirmance of this Lease, and provide to
Landlord such adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligation under this Lease.
(6) Without the prior written consent of Landlord, which
shall not be unreasonably withheld, selling, leasing, assigning, encumbering,
hypothecating, transferring, or otherwise disposing of all or substantially all
of the Tenant's assets.
b. REMEDIES FOR TENANT'S DEFAULT: In the event of Tenant's default,
Landlord may:
(1) Terminate Tenant's right to possession of the Premises
by any lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant:
(a) the worth at the time of the award of any unpaid
rent which had been earned at the time of such termination; plus
(b) the worth at the time of the award of the amount
by which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss which Tenant proves
could have been reasonably avoided; plus
(c) the worth at the time of the award of the amount
by which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss which Tenant proves could be reasonably
avoided; plus
(d) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom (including, without limitation, the cost of
recovering possession
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of the Premises, expenses of reletting including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and real estate
commissions actually paid and that portion of the leasing commission paid by
Landlord and applicable to the unexpired portion of this Lease); plus
(e) such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time by applicable California
law.
As used in Subsections (a) and (b) above, the "WORTH AT THE TIME OF
THE AWARD" shall be computed by allowing interest at the lesser of ten percent
(10.00%) per annum, or the maximum rate permitted by law per annum. As used in
Subsection (c) above, the "WORTH AT THE TIME OF AWARD" shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1.00%).
(2) Continue this Lease in full force and effect, and the
Lease will continue in effect, as long as Landlord does not terminate Tenant's
right to possession, and Landlord shall have the right to collect Rent when due.
During the period Tenant is in default, Landlord may enter the Premises and
relet them, or any part of them, to third parties for Tenant's account. Tenant
shall be liable immediately to Landlord for all costs Landlord reasonably incurs
in reletting the Premises, including, without limitation, brokers, commissions,
expenses of remodeling the Premises required by the reletting, and like costs.
Reletting can be for a period shorter or longer than the remaining term of this
Lease. Tenant shall pay to Landlord the Rent due under this Lease on the dates
the Rent is due, less the rent Landlord receives from any reletting. In no event
shall Tenant be entitled to any excess rent received by Landlord. No act by
Landlord allowed by this paragraph shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this Lease. After
Tenant's default and for as long as Landlord does not terminate Tenant's right
to possession of the Premises, if Tenant obtains Landlord's consent, Tenant
shall have the right to assign or sublet its interest in this Lease, but Tenant
shall not be released from liability.
(3) Cause a receiver to be appointed to collect Rent.
Neither the filing of a petition for the appointment of a receiver nor the
appointment itself shall constitute an election by Landlord to terminate the
Lease.
(4) Cure the default at Tenant's cost. If Landlord at any
time, by reason of Tenant's default, reasonably pays any sum or does any act
that requires the payment of any sum, the sum paid by Landlord shall be due
immediately from Tenant to Landlord at the time the sum is paid, and if paid at
a later date shall bear interest at the lesser of ten percent (10.00%) per
annum, or the maximum rate an individual is permitted by law to charge from the
date the sum is paid by Landlord until Landlord is reimbursed by Tenant. The
sum, together with interest on it, shall be additional Rent.
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The foregoing remedies are not exclusive; they are cumulative, in
addition to any remedies now or later allowed by law, to any equitable remedies
Landlord may have, and to any remedies Landlord may have under bankruptcy laws
or laws affecting creditors' rights generally. The waiver by Landlord of any
breach of any term, covenant or condition of this Lease shall not be deemed a
waiver of such term, covenant or condition or of any subsequent breach of the
same or any other term, covenant or condition. Acceptance of Rent by Landlord
subsequent to any breach hereof shall not be deemed a waiver of any proceeding
breach other than a failure to pay the particular Rent so accepted, regardless
of Landlord's knowledge of any breach at the time of such acceptance of Rent.
Landlord shall not be deemed to have waived any term, covenant or condition
unless Landlord gives Tenant written notice of such waiver.
18. SUBORDINATION; ESTOPPEL:
a. SUBORDINATION: This Lease is and shall be subordinate to any
encumbrance now of record or recorded after the date of this Lease affecting the
Building, other improvements, and land of which the Premises are a part. Such
subordination is effective without any further act of Tenant. If any mortgagee,
trustee, or ground lessor shall elect to have this Lease and any options granted
hereby prior to the lien of its mortgage, deed of trust, or ground lease, and
shall give written notice thereof to Tenant, this Lease and such options shall
be deemed prior to such mortgage, deed of trust, or ground lease, whether this
Lease or such options are deeded prior or subsequent to the date of said
mortgage, deed of trust, or ground lease, or the date of recording thereof.
b. ATTORNMENT: In the event any proceedings are brought for
foreclosure, or in the event of a sale or exchange of the real property on which
the Building is located, or in the event of the exercise of the power of sale
under any mortgage or deed of trust made by Landlord covering the Premises,
Tenant shall attorn to the purchaser upon any such foreclosure and sale and
recognize such purchaser as the Landlord under this Lease. Tenant agrees to
execute any documents required to effectuate an attornment or to make this Lease
or any options granted herein prior to the lien of any mortgage, deed of trust,
or ground lease, as the case may be. If Tenant fails to execute and deliver any
such documents or instruments as required hereunder, Tenant irrevocably
constitutes and appoints Landlord as Tenant's special attorney-in-fact to
execute and deliver any such documents or instruments.
c. Notwithstanding Section 18a, Landlord agrees that Tenant's
obligations to subordinate under this Section 18 to any existing or future
ground lease, mortgage, or deed of trust shall be conditioned upon Tenant's
receipt of a non-disturbance agreement from the holder of such encumbrance
(which party is referred to for the purposes of this Section as the "SUPERIOR
LIENOR"). Such non-disturbance agreement shall provide, at a minimum, that (i)
Tenant's possession, and all other rights
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hereunder, of the Premises shall not be interfered with following a foreclosure,
provided Tenant is not in default beyond any applicable cure periods, and (ii)
upon the payment of the amounts required to be paid pursuant to Section 21 of
this Lease, concurrent with the sale of the Premises to Tenant in accordance
with Section 21, such Superior Lienor shall release the Premises from such
encumbrances. Landlord's obligation with respect to such a non-disturbance
agreement shall be limited to obtaining the non-disturbance agreement in such
form as the Superior Lienor generally provides in connection with its standard
commercial loans, however, Tenant shall have the right to negotiate, and
Landlord shall use its good faith efforts and due diligence in assisting Tenant
in the negotiation of, revisions to that non-disturbance directly with the
Superior Lienor. Tenant agrees to use its good faith efforts to reach agreement
with the Superior Lienor upon acceptable terms and conditions of a
nondisturbance agreement. Landlord shall obtain such nondisturbance agreement
from any Superior Lienor holding an existing encumbrance as of the Lease Date
within forty-five (45) days following the Lease Date.
d. ESTOPPEL: Either party shall, within ten (10) days after
written notice from the other party, execute and deliver to requesting party, in
recordable form, a certificate stating that this Lease is unmodified and in full
force and effect, or in full force and effect as modified, and stating the
modifications. The certificate also shall state the amount of Base Rent, the
date to which the rent has been paid in advance, the amount of any security
deposit or prepaid rent and any other information reasonably requested by the
requesting party. Failure to deliver the certificate within the ten (10) days
shall be conclusive that this Lease is in full force and effect and has not been
modified except as may be represented by the party requesting the certificate.
19. SURRENDER OF PREMISES; HOLDING OVER:
a. SURRENDER OF PREMISES: On expiration or ten (10) days after
termination of the Initial Term or Extended Term, if applicable, Tenant shall
surrender to Landlord the Premises and all Tenant's improvements and alterations
in good condition (except for ordinary wear and tear occurring after the last
necessary maintenance made by Tenant and destruction to the Premises as provided
in this Lease), except for alterations that Tenant has the right to remove or is
obligated to remove as provided in this Lease. Tenant shall remove all its
personal property within the above stated time. Tenant shall perform all
restoration made necessary by removal of any alterations or Tenant's personal
property within the time periods stated in this Section.
(1) Landlord can elect to retain or dispose of in any manner
any alterations or Tenant's personal property that Tenant does not remove from
the Premises on expiration or termination of the Initial Term or Extended Term,
if applicable, as allowed or required by this Lease by giving at least ten (10)
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days' notice to Tenant. Title to any such alterations or Tenant's personal
property that Landlord elects to retain or dispose of on expiration of the ten
(10) day period shall vest in Landlord. Tenant waives all claims against
Landlord for any damage to Tenant resulting from Landlord's retention or
disposition of any such alterations or Tenant's personal property. Tenant shall
be liable to Landlord for Landlord's costs for storing, removing and disposing
of any alterations or Tenant's personal property.
(2) If Tenant fails to surrender the Premises to Landlord on
expiration or ten (10) days after termination of the term as required by this
Article, Tenant shall indemnify, defend and hold Landlord harmless from all
claims, damages and liabilities resulting from Tenant's failure to surrender the
Premises, including, without limitation, claims made by a succeeding tenant
resulting from Tenant's failure to surrender the Premises.
b. HOLDING OVER: If Tenant remains in possession of the Premises
after expiration or termination of the Initial Term or Extended Term, if
applicable, or after the date in any notice given by Landlord to Tenant
terminating this Lease, such possession by Tenant shall be deemed to be a
month-to-month tenancy terminable on thirty (30) days notice given at any time
by either party. During any such month-to-month tenancy, Tenant shall pay an
amount equal to one hundred twenty-five percent (125.00%) of the rent required
by this Lease. Except as provided in this Section, all provisions of this Lease,
except those pertaining to term and option to extend, shall apply to the
month-to-month tenancy.
20. ENVIRONMENTAL PROVISIONS:
a. TENANT INDEMNITY: Tenant shall indemnify, defend and hold
harmless Landlord, its employees, agents, contractors, licensees, invitees,
customers, successors and assigns from and against any and all losses, costs,
claims, damages, liabilities and causes of action (including attorneys' fees)
directly or indirectly arising out of or in any way connected with the presence,
use, generation, manufacture, storage, disposal, transportation or release of
Hazardous Materials on, under or about the Premises, including the soils and
groundwaters thereof, caused or authorized by Tenant, including, without
limitation, the cost of any required or necessary repair, clean-up, remediation
or detoxification of Hazardous Materials and the preparation of any closure,
remedial action or other required plans; provided, however, that Tenant shall be
under no obligation under this Section 20(a) with respect to any Hazardous
Materials that (i) were or under the Premises, including the soils and
groundwater thereof, prior to the Commencement Date, (ii) came upon or migrated
to the Premises, including the soils and groundwater thereof, from the land
adjacent to the Premises and not owned or controlled by Tenant, or (iii) results
from the acts or negligence of Landlord, its agents, employees, contractors or
subcontractors. For the purposes of this Lease,
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"HAZARDOUS MATERIALS" shall mean any petroleum based product, flammable
explosives, asbestos, urea formaldehyde, contamination or polluting materials,
substances or wastes or any other substances presently or hereafter defined as
"hazardous substances", "hazardous materials", "hazardous waste", "toxic
substances" or "toxic waste" under any federal, state or local statute,
ordinance, rule or regulation relating to industrial hygiene or to the
environmental conditions on, under or about the Premises, including the soil or
groundwater conditions thereof. Tenant's obligations under the foregoing
indemnity shall survive the termination of this Lease.
b. LANDLORD INDEMNITY: To the best of Landlord's actual current
knowledge, except as disclosed by that certain environmental report-Phase I
("ENVIRONMENTAL REPORT") delivered by Landlord to Tenant prior to the Lease
Date, as of the Lease Date, the Lot does not contain any Hazardous Materials.
Landlord shall, subject to the provisions of this Lease, indemnify, defend and
hold harmless Tenant, its employees, agents, contractors, licensees, invitees,
customers, successors and assigns, from and against any and all losses, costs,
claims, damages, liabilities and causes of action (including attorneys' fees)
arising out of or in any way connected with the presence, use, generation,
manufacture, storage, disposal, transportation, or release of Hazardous
Materials on, under or about the Premises prior to the Commencement Date caused
by Landlord, its agents, employees, contractors or subcontractors, including,
without limitation, the cost of any required or necessary repair, clean-up,
remediation or detoxification of Hazardous Materials and the preparation of any
closure, remedial action or other required plan, to the extent required by
applicable law. Landlord's obligations under the foregoing indemnity shall
survive the termination of this Lease.
21. OPTION TO PURCHASE: In addition to all other rights that Tenant has
under this Lease to use and occupy the Premises during the Term, Landlord grants
Tenant an option ("OPTION") to purchase the Premises on the following terms and
conditions:
a. OPTION TERM: This Option may only be exercised by Tenant
(which specifically excludes any assignee of Tenant in accordance with the
provisions of this Lease) during the Initial Term ("OPTION TERM"). If Tenant
does not exercise the Option during the Option Term, Landlord shall be released
from all obligations under this Option, and all of Tenant's rights under this
Option, legal or equitable, shall cease.
b. TRANSFERABILITY OF OPTION: This Option may be assigned only
with the prior written consent of Landlord, which may be withheld in Landlord's
sole discretion. The Option granted under this Lease is personal to Tenant and
may not be separated from or transferred independently from the Lease.
c. EXERCISE OF OPTION: The Option may be exercised by delivery of
a written notice ("EXERCISE NOTICE") to Landlord prior to the expiration of the
Option Term. It is a condition to
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the effectiveness of Tenant's exercise of the Option that Tenant not then be in
monetary default under the Lease beyond any applicable cure period. If Tenant is
in default under this Lease beyond any applicable cure period at the time Tenant
gives the Exercise Notice, the Exercise Notice shall be void. Simultaneously
with Tenant's delivery of the Exercise Notice, Tenant shall execute and deliver
to Landlord, the Agreement of Purchase and Sale ("PURCHASE AGREEMENT") which
shall be in the form of Exhibit C. The "PURCHASE PRICE" (as defined in the
Purchase Agreement) for the Premises for (i) the first five (5) years of the
Initial Term is the amount of Two Million Five Hundred Thousand and No/100ths
Dollars ($2,500,000.00), and (ii) the final five (5) years of the Initial Term
is the amount of Two Million Seven Hundred Fifty Thousand and No/100ths Dollars
($2,750,000.00); provided that in the event that Landlord conveys fee title in
the Premises to any unrelated third party during the Initial Term, the Purchase
Price for the Premises for (1) the first five (5) years of the Initial Term
shall be increased to Two Million Eight Hundred Thousand and No/100ths Dollars
($2,800,000.00), and (2) the second five (5) years of the Initial Term shall be
increased to Three Million and No/100ths Dollars ($3,000,000.00). The date of
the "CLOSE OF ESCROW" (as defined in the Purchase Agreement) shall be
determinative of the Purchase Price. Within ten (10) days following Landlord's
receipt of the Purchase Agreement, provided that the Option is effective
pursuant to this Section, Landlord shall execute the Purchase Agreement and
return an original thereof to Tenant, and such document shall control the
purchase and sale transaction regarding the Premises. The Purchase Agreement
shall not be effective for any purpose unless Tenant timely and effectively
exercises the Option. To the extent of any inconsistencies between the
provisions of the Purchase Agreement and the Option, the provisions of the
Option shall prevail.
d. NOTICES: The Exercise Notice shall be delivered to Landlord in
accordance with the notice requirements set forth in this Lease.
e. EFFECT OF EXERCISE: In the event that Tenant elects to
exercise the Option and thereafter does not acquire fee title to the Premises
for any reason, this Lease shall remain effective and in full force.
22. TERMINATION RIGHTS: Provided that Tenant is not in default under the
terms and conditions of this Lease beyond any applicable cure period, Tenant
shall have the right to terminate this Lease on the last day of the months set
forth below following the Commencement Date by delivering written notice of such
election to Landlord at least ninety (90) days prior to the last day of the
corresponding month. In the event that Tenant makes such election, as a
condition precedent to the effectiveness of the termination of this Lease,
Tenant shall pay Landlord the corresponding "TERMINATION FEE" set forth below,
which amount is in addition to any other amount which may be owing at such time
by Tenant. Provided that Tenant has complied with the provisions of this
Section, this Lease shall terminate,
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on the last day of the year that such election was made, and the parties shall
have no further obligations hereunder except (i) for those obligations of
Landlord and Tenant hereunder which expressly survive the expiration or early
termination of the Lease; and (ii) that Landlord shall return to Tenant the
unused portion of Security Deposit in accordance with the provisions of this
Lease.
Month following
Commencement Date Termination Fee
- ----------------- ---------------
Month 60 24 months of the current Base Rent
Month 72 20 months of the current Base Rent
Month 84 16 months of the current Base Rent
Month 96 12 months of the current Base Rent
Month 108 8 months of the current Base Rent
23. FIRST RIGHT OF REFUSAL:
a. Landlord is the owner of two (2) separate parcels, adjacent to
the Premises, referred to as "PARCEL 11" and "PARCEL 13," which described in
Exhibit D and Exhibit E, respectively, attached hereto. At any time during the
Initial Term or Extended Term, if applicable, provided that Tenant is not in
default under the provisions of this Lease beyond any applicable notice and cure
periods, Landlord and Tenant hereby agree that Tenant shall have the first right
of refusal to purchase ("FIRST RIGHT OF REFUSAL") Parcel 11 and/or Parcel 13
from Landlord the terms and conditions set forth in this Section.
b. Landlord shall give Tenant written notice ("OFFER NOTICE") of
any bona fide offer to purchase Parcel 11 and/or Parcel 13 that Landlord intends
to accept, which notice shall advise Tenant of the terms and conditions of such
offer to purchase. On or before 5:00 p.m. on the date which is five (5) days
following Tenant's receipt of the Offer Notice, Tenant shall notify Landlord in
writing whether it elects to purchase Parcel 11 and/or Parcel 13, as applicable,
upon the exact terms and conditions set forth in the Offer Notice. If Tenant
fails to respond in writing to such Offer Notice within the specified time
period, or elects not to exercise its First of Right of Refusal, Buyer's First
Right of Refusal shall terminate and Buyer shall have no further rights under
this Section; provided, however, that if the transaction described in the Offer
Notice does not close, and Seller thereafter elects to accept an additional
offer to purchase Parcel 11 and/or Parcel 13, as applicable, the provisions of
this Section shall apply. Landlord makes no representation or warranty regarding
its efforts, if any, to sell Parcel 11 and/or Parcel 13.
c. For the purpose of this Section, Tenant's "FIRST RIGHT OF
REFUSAL" shall also be applicable to any offer in which Landlord is willing to
accept with regard to a build-to-suit lease transaction on Parcel 11 and/or
Parcel 13, as applicable; provided, however, in such situation, if Tenant elects
to exercise its First Right of Refusal by delivery of an Offer
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Notice as provided in Subsection (b) above, such election shall be to be
purchase Parcel 11 and/or Parcel 13, as applicable, at a cost of Three and
50/100ths Dollars ($3.50) per square foot, increased at a rate of three and
one-half percent (3.50%) per annum, commencing as of the Lease Date, payable in
cash, and closing forty-five (45) days following Landlord's receipt of Tenant's
election to exercise the First Right of Refusal. If Tenant makes such election
(i) Landlord shall not be obligated to construct the intended facility, and (ii)
Landlord and Tenant shall enter into purchase and sale documentation
incorporating the provisions of this Section within ten (10) days following
Tenant's election of the First Right of Refusal which purchase and sale
documentation shall be consistent with the Purchase Agreement, to the extent
applicable.
24. SIGNS:
Tenant shall have the right to place its business sign on the Premises,
provided such sign is in compliance with the applicable ordinances of all
appropriate governmental agencies, the design guidelines of Atherton Center,
Tenant obtains the prior written approval of Landlord regarding the sign, which
approval shall not be unreasonably withheld, and that such signage complies with
the CC&Rs (as hereinafter defined). Tenant shall be responsible for the cost of
maintenance and repair of such signage during the term of this Lease and the
removal of such signage upon the expiration or earlier termination of such term.
25. LANDLORD'S ENTRY ON PREMISES: Landlord and its authorized
representatives shall have the right to enter the Premises at all reasonable
times during business hours with reasonable advance notice for any of the
following purposes:
a. To determine whether the Premises are in good condition and
whether Tenant is complying with its obligations under this Lease;
b. To do any necessary maintenance or repair and to make any
restoration to the Premises that Landlord has the right or the obligation to
perform pursuant to the provisions of this Lease;
c. To serve, post, or keep posted any notices required or allowed
under the provisions of this Lease;
d. To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last three (3) months of the terms;
e. To show the Premises to prospective brokers, agents, buyers,
tenants, or persons interested in an exchange or purchase, at any time during
the Initial Term or Extended Term, if applicable.
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Landlord shall conduct its activities on the Premises as allowed in
this Article in a manner that will cause the least possible inconvenience,
annoyance, or disturbance to Tenant.
26. NOTICE:
Any notice, demand, request, consent, approval, or communication
that either party desires or is required to give to the other party or any other
person shall be in writing and either served personally or sent by certified
mail, return receipt requested. Any notice, demand, request, consent, approval,
or communication that either party desires or is required to give to the other
party shall be addressed to the other party at the address set forth in this
Lease. Either party may change its address by notifying the other party in
writing of the change of address. Notice shall be deemed communicated within
seventy-two (72) hours from the time of mailing if mailed as provided in this
Article.
27. RECORDATION; QUITCLAIM DEED:
This Lease or a memorandum hereof shall not be recorded. Tenant
shall execute and deliver to Landlord on the expiration or termination of this
Lease, immediately on Landlord's request, a quitclaim deed to the Premises, in
recordable form, designating Landlord as transferee.
28. SALE OR TRANSFER OF PREMISES:
If Landlord sells or transfers all or any portion of the Premises,
Landlord, on consummation of the sale or transfer, shall be released from any
liability thereafter accruing under this Lease.
29. ATTORNEYS' FEES:
If Tenant or Landlord shall be in breach or default under this
Lease, such party (the "DEFAULTING PARTY") shall reimburse the other party (the
"NON-DEFAULTING PARTY") upon demand for any costs or expenses that the
Non-Defaulting Party incurs in connection with any breach or default of the
Defaulting Party under this Lease, whether or not suit is commenced or judgment
entered. Such costs shall include legal fees and costs incurred for the
negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if
any action for breach of or to enforce the provisions of this Lease is
commenced, the court in such action shall award to the party in whose favor a
judgment is entered, a reasonable sum as attorneys, fees and costs. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs, expenses,
demands and liability Landlord may incur if Landlord becomes or is made a party
to any claim or action (a) instituted by Tenant against any third party, or by
any third party against Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor
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or material furnished to or for Tenant or such other person; (c) otherwise
arising out of or resulting from any act or transaction of Tenant or such other
person; or (d) necessary to protect Landlord's interest under this Lease in a
bankruptcy proceeding, or other proceeding under Title 11 of the United States
Code, as amended. Tenant shall defend Landlord against any such claim or action
at Tenant's expense with counsel reasonably acceptable to Landlord.
30. MISCELLANEOUS PROVISIONS:
a. CC&RS: Tenant agrees to comply with the provisions of any and
all covenants, conditions and restrictions (collectively, "CC&RS"), which
encumber the Premises as of the Lease Date, and any amendments, additions or
modifications thereto in which Tenant has been provided written notice of by
Landlord. The CC&Rs and any amendments, additions or modifications thereto shall
not adversely affect the Tenant's use of the Premises for general office
purposes.
b. TIME OF ESSENCE: Time is of the essence of each provision of
this Lease.
c. CORPORATE AUTHORITY: If Tenant is a corporation, Tenant shall
deliver to the other party on execution of this Lease a certified copy of a
resolution of Tenant's board of directors authorizing the execution of this
Lease and naming the officers that are authorized to execute this Lease on
behalf of the corporation.
d. SUCCESSORS: This Lease shall be binding on and inure to the
benefit of the parties and their successors.
e. REAL ESTATE BROKERS: Each party represents that it has not had
dealing with any real estate broker, finder, or other person, with respect to
this Lease in any manner, except as set forth in the Basic Lease Information.
Each party shall hold harmless the other party from all damages resulting from
any claims that may be asserted against the other party by any other broker,
finder, or other person, with whom the other party has or purportedly has dealt.
f. EXHIBITS: All exhibits referred to are attached to this Lease
and incorporated herein by reference.
g. CALIFORNIA LAW: This Lease shall be construed and interpreted
in accordance with the laws of the State of California.
h. WAIVER: The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be deemed a waiver of, or in
any way affect, the right of Landlord to insist upon the
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performance by Tenant in strict accordance with said terms. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
i. EXECUTION: Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or an option for lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant.
j. WAIVER OF CALIFORNIA CODE SECTIONS: Notwithstanding any other
provision of this Lease and in addition to any waivers which may be contained in
this Lease, Tenant waives the provisions of Civil Code Section 1932(2) and
1933(4) with respect to the destruction of the Premises; Civil Code Sections
1932(l), 1941 and 1942 with respect to Landlord's repair duties and Tenant's
right of repair; and Code of Civil Procedure Section 1265.130 allowing either
party to petition the Superior Court to terminate this Lease in the event of a
partial taking of the Premises for public or quasi-public use by statute, by
right of imminent domain, or by purchase in lieu of imminent domain; and any
right of redemption or reinstatement of Tenant under any present of future case
law or statutory provision (including Code of Civil Procedure Section 473,
1174(c) and 1179 and Civil Code Section 3275) in the event Tenant is
dispossessed from the premises for any reason. This waiver applies to future
statutes enacted in addition or in substitution to the statue specified herein,
and this waiver shall apply even though Tenant may be the subject of a voluntary
or involuntary petition in bankruptcy.
k. PROVISIONS ARE COVENANTS AND CONDITIONS: All provisions,
whether covenants or conditions, on the part of Tenant and Landlord, shall be
deemed to be both covenants and conditions.
l. SINGULAR AND PLURAL: When required by the context of this
Lease, the singular shall include the plural.
m. JOINT AND SEVERAL OBLIGATIONS: "PARTY" shall mean Landlord and
Tenant; and if more than one person or entity is Landlord or Tenant, the
obligations imposed on that party shall be joint and several.
n. SEVERABILITY: The unenforceability, invalidity, or illegality
of any provision shall not render the other provisions unenforceable, invalid,
or illegal.
o. CAPTIONS: The captions of this Lease shall have no effect on
its interpretation.
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p. NEGATION OF PARTNERSHIP: Landlord shall not become or be
deemed a partner or a joint venturer with Tenant by reason of the provisions of
this Lease.
q. MORTGAGEE PROTECTION CLAUSE: Tenant agrees to give any
mortgagees and/or trust deed holders, by registered mail, a copy of any notice
of default served upon the Landlord, provided that prior to such notice Tenant
has been notified in writing (by way of notice of assignment of lease, or
otherwise) of the addresses of such mortgagees and/or trust deed holders. Tenant
further agrees that if Landlord shall have failed to cure such default within
the time provided for in this Lease, then the mortgagees and/or trust deed
holders shall have an additional thirty (30) days within which to cure such
default, or if such default cannot be cured within that time, then such
additional time as may be necessary, provided such mortgagees and/or trust deed
holders commence such cure within thirty (30) days and diligently pursue the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being so
diligently pursued.
r. TENANT FINANCING: Tenant shall not mortgage or encumber the
leasehold estate created by this Lease without Landlord's prior consultation,
review and consent. Landlord may give or withhold such consent in Landlord's
reasonable discretion. Tenant acknowledges that fixtures and equipment
incorporated in or affixed to the Premises, to the extent paid for by the
Allowance, constitute real property improvements to be surrendered upon
termination of the Lease.
s. LIMITATION ON LIABILITY: In consideration of the benefits
accruing hereunder, Tenant and all successors and assigns covenant and agree
that, in the event of any actual or alleged failure, breach or default hereunder
by Landlord: (1) Tenant's sole and exclusive recourse shall be against
Landlord's interest in the Premises. Tenant shall not have any right to satisfy
any judgment which it may have against Landlord from any other assets of
Landlord; (2) No partner, stockholder, director, officer, employee or
beneficiary or trustee (collectively, "Partner") of Landlord shall be sued or
named as a party in any suit or action (except as may be necessary to secure
jurisdiction over Landlord); (3) No service of process shall be made against any
Partner of Landlord (except as may be necessary to secure jurisdiction over
Landlord); (4) No Partner of Landlord shall be required to answer or otherwise
plead to any service of process; (5) No judgment will be taken against any
Partner of Landlord; (6) Any judgment taken against any Partner of Landlord may
be vacated and set aside at any time nunc pro tunc; (7) No writ of execution
will ever be levied against the assets of any Partner of Landlord; and (8) These
covenants and agreements are enforceable both by Landlord and also by any
Partner of Landlord.
t. MODIFICATION FOR LENDER: If, in connection with obtaining
construction, interim or permanent financing for the
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Building, the lender shall request reasonable modifications in this Lease as a
condition to such financing, Tenant will not unreasonably withhold, delay or
defer its consent thereto, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights hereunder.
u. ACCORD AND SATISFACTION; APPLICATION OF DELINQUENT PAYMENTS:
No payment by Tenant or receipt by Landlord of a lesser amount than the rent
payment herein stipulated shall be deemed to be other than on account of the
rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or pursue any other remedy provided in
this Lease. No endorsement on any check nor any letter accompanying any check or
payment of rent or partial payment thereof, shall prevent Landlord from treating
such payment as on account of the earliest delinquent sum owed Landlord, and
Tenant waives the benefit of any contrary court decision or statute (including,
without limitation, Civil Code Section 1479).
v. NO CONSTRUCTION AGAINST DRAFTER: The provisions of this Lease
shall be construed in accordance with the fair meaning of the language used and
shall not be strictly construed against either party. If the parties delete any
provision appearing in the original draft of this Lease, this Lease will be
interpreted as if the deleted language were never a part of this Lease.
w. INDEPENDENT COVENANTS: Each covenant, agreement, obligation or
other provision of this Lease to be performed by Tenant is a separate and
independent covenant of Tenant, and not dependent on the performance of
Landlord's obligations hereunder.
x. ENTIRE AGREEMENT: The terms of this Lease are intended by the
parties as a final expression of their agreement with respect to such terms as
are included in this Lease and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Lease
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial proceedings, if
any, involving this Lease.
y. FINANCIAL STATEMENTS: In order to induce Landlord to enter
into this Lease, Tenant agrees that it shall promptly furnish Landlord, from
time to time, upon Landlord's written request, with financial statements
reflecting Tenant's financial condition. Tenant represents and warrants that all
financial statements, records and information furnished by Tenant to Landlord is
true and correct. If Tenant requests in writing, Landlord shall enter into a
confidentiality agreement concerning the materials described in this Section in
a form reasonably acceptable to Landlord and Tenant.
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z. CONSENTS: Except as expressly provided in this Lease, any
consent or approval requested under this Lease by either Tenant or Landlord
shall be granted or withheld in such party's reasonable discretion.
aa. PRELIMINARY REPORT: Prior to the Lease Date, Landlord has
provided Tenant with a preliminary report concerning the Lot which sets forth
all matters encumbering such real property discovered by the issuer of such
report, which report establishes that Landlord holds fee title to the Lot.
LANDLORD: TENANT:
STANFORD RANCH I, LLC, FINANCIAL PACIFIC INSURANCE
a Delaware limited liability COMPANY, a California
company corporation
By: /s/ LARRY D. KELLEY By: /s/ [SIG]
------------------------------- -------------------------------
Larry D. Kelley
Its: President Its: [not legible]
Date: June 18, 1996 Date: June 18, 1996
----------------------------- -----------------------------
Address: Address:
Stanford Ranch I, LLC 8585 [not legible] Road
3715 Atherton Road Sacramento, CA 95828
Rocklin, California 95765
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EXHIBIT A
THAT CERTAIN REAL PROPERTY SITUATED IN THE STATE OF CALIFORNIA, CITY OF ROCKLIN,
COUNTY OF PLACER, DESCRIBED AS FOLLOWS:
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EXHIBIT B
SITE PLAN
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EXHIBIT C
AGREEMENT OF PURCHASE AND SALE
This Agreement of Purchase and Sale ("AGREEMENT"), dated for reference
purposes only , 19 , is entered into by and between STANFORD RANCH I,
LLC, a Delaware limited liability company ("SELLER"), and FINANCIAL PACIFIC
INSURANCE COMPANY, a California corporation ("BUYER").
RECITALS
A. Seller is the owner of certain real property ("REAL PROPERTY"),
located in Rocklin ("CITY"), Placer County ("COUNTY"), California ("STATE"),
also known as Assessor's Parcel Number ____________.
B. The Real Property has constructed thereon a certain building,
containing approximately twenty-five thousand (25,000) gross square feet
("IMPROVEMENTS"). The Real Property and Improvements are collectively referred
to as the "PROPERTY."
C. Buyer, as tenant, and Seller, as Landlord, prior to the Effective
Date, have entered into a certain Net Lease Agreement ("LEASE") dated _______,
pursuant to which Buyer and Seller have entered into this Agreement.
D. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer the Property pursuant to the provisions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
AGREEMENT
1. Purchase and Sale. Seller agrees to sell and convey to Buyer, and
Buyer agrees to purchase from Seller, the Property on the terms and subject to
the conditions set forth in this Agreement. For the purposes of this Agreement,
the date which the last party executes this Agreement and delivers it to the
other party shall hereinafter be referred to as the "EFFECTIVE DATE."
2. Purchase Price. The purchase price ("PURCHASE PRICE") for the
Property shall be Dollars ($ ) (to be determined pursuant to
Section 21 of the Lease).
3. Payment of Purchase Price. On or before the Close of Escrow, Buyer
shall deposit with Escrow Holder the remaining portion of the Purchase Price, in
immediately available funds, which shall be paid to Seller at Close of Escrow.
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4. Escrow.
(a) Opening of Escrow. Within two (2) days following the Effective
Date, Buyer shall open an escrow ("ESCROW") with Escrow Holder. Buyer and Seller
agree to execute and deliver to Escrow Holder, in a timely manner, all escrow
instructions necessary to consummate the transaction contemplated by this
Agreement. Any such instructions shall not conflict with, amend or supersede any
portion of this Agreement. If there is any inconsistency between such
instructions and this Agreement, this Agreement shall control.
(b) Close of Escrow. For purposes of this Agreement, "CLOSE OF
ESCROW" shall be defined as the date that the Grant Deed (as hereinafter
defined) is recorded in the Official Records of the County. The Close of Escrow
shall occur within thirty (30) days following the Effective Date ("OUTSIDE
DATE"), unless extended by the mutual written consent of the parties.
5. Conditions of Title. It shall be a condition to the Close of Escrow
and a covenant of Seller that title to the Property be conveyed to Buyer by
Seller by a Grant Deed, which shall be in the form customarily used by Escrow
Holder in the County ("GRANT DEED"), subject only to (a) a lien to secure
payment of real estate taxes, not yet due and payable; (b) the lien of
supplemental taxes, not yet due and payable; (c) exceptions which are approved
and/or accepted by Buyer in writing in accordance with this Agreement; (d) the
CC&Rs (as defined in the Lease); and (e) all applicable laws, ordinances, rules
and governmental regulations (including, but not limited to those relative to
building, zoning and land use) affecting the development, use, occupancy or
enjoyment of the Property (collectively, "APPROVED CONDITIONS OF TITLE").
6. Conditions to Close of Escrow.
(a) Conditions to Buyer's Obligations. The Close of Escrow and
Buyer's obligations to consummate the transactions contemplated by this
Agreement are subject to the satisfaction of the following conditions (or
Buyer's written waiver thereof) which are for Buyer's sole benefit, on or prior
to the dates designated below for the satisfaction of such conditions, or the
Close of Escrow in absence of a specified date:
(i) Title. Buyer shall have the right to approve any and all
matters of and exceptions to title of the Property, including the legal
description, as disclosed by the following documents and instruments
(collectively, "TITLE DOCUMENTS"): (A) a Preliminary Report ("PRELIMINARY
REPORT") issued by Escrow Holder with respect to the Property and all matters
referenced therein; and (B) legible copies of all documents, whether recorded or
unrecorded, referred to in such Preliminary Report. Buyer shall cause Escrow
Holder to deliver the Title Documents to Buyer and Seller within five (5)
calendar days following the Effective Date. Buyer shall have ten (10) calendar
days following its receipt of the Title Documents to give Seller and
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Escrow Holder written notice ("BUYER'S TITLE NOTICE") of Buyer's approval or
disapproval, which shall be made in Buyer's sole and absolute discretion, of the
legal description and every item or exception disclosed by the Title Documents.
The failure of Buyer to give Buyer's Title Notice to Seller within the specified
time period shall be deemed Buyer's disapproval of title to the Property, in
which case the Agreement shall be canceled pursuant to the provisions of this
Section. In the event that Buyer's Title Notice disapproves of any matter of
title shown in the Title Documents, Seller shall, within five (5) calendar days
after Buyer's Title Notice is received by Seller, give Buyer written notice
("SELLER'S TITLE NOTICE") of those disapproved title matters, if any, which
Seller is unable or unwilling to have eliminated from title to the Property by
Close of Escrow. In the event that Seller is unable to remove all of the title
matters objected to by Buyer in Buyer's Title Notice, Buyer shall have three (3)
calendar days from receipt of Seller's Title Notice to notify Seller in writing
that either (1) Buyer is willing to purchase the Property subject to such
disapproved exceptions, or (2) Buyer elects to cancel this transaction. Failure
of Buyer to take either one of the actions described in Subsection (1) or (2)
above shall be deemed to be Buyer's election to take the action described in
Subsection (2) above. In the event this Agreement is canceled or deemed canceled
pursuant to this Section, except as otherwise provided herein, the parties shall
have no further obligations under this Agreement, and all monies delivered to
Escrow Holder by Buyer shall immediately be returned to Buyer.
(ii) Title Insurance. As of the Close of Escrow, Title
Company (as hereinafter defined) shall have issued or shall have committed to
issue the Title Policy (as hereinafter defined) to Buyer.
(iii) Seller's Obligations. As of the Close of Escrow, Seller
shall have performed all of the obligations required to be performed by Seller
under this Agreement.
(b) Conditions to Seller's Obligations. The Close of Escrow and
Seller's obligations to consummate the transaction contemplated by this
Agreement are subject to the satisfaction of the following conditions (or
Seller's waiver thereof) which are for Seller's sole benefit, on or prior to the
dates designated below for the satisfaction of such conditions, or the Close of
Escrow in absence of a specified date:
(i) Buyer's Obligations. As of the Close of Escrow, Buyer
shall have timely performed all of the obligations required by the terms of this
Agreement to be performed by Buyer.
(ii) Buyer's Representations. As of the Close of Escrow, all
representations and warranties made by Buyer to Seller in this Agreement shall
be true and correct as of the Close of Escrow.
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(iii) Outside Date. The Close of Escrow shall occur on or
before the Outside Date.
(c) Failure of Condition to Close of Escrow. Except as provided in
Section 6(a) or 6(b), in the event any of the conditions set forth in Section
6(a) or 6(b) are not timely satisfied or waived by the appropriate benefitted
party, for a reason other than the default of Buyer or Seller, this Agreement
shall terminate, and all other monies delivered to Escrow Holder by Buyer shall
be immediately be returned to Buyer, and, except as otherwise provided herein,
the parties shall have no further obligations hereunder.
7. Deposits By Seller. Unless otherwise provided in this Section, at
least one (1) business day prior to the Close of Escrow, Seller shall deposit
with Escrow Holder the following documents:
(a) Grant Deed. The Grant Deed, duly executed and acknowledged in
recordable form by Seller, conveying fee title to the Property.
(b) FIRPTA Certificate. A certification, acceptable to Escrow
Holder and duly executed by Seller under penalty of perjury setting forth
Seller's address and federal tax identification number in accordance with and/or
for the purpose of the provisions of Sections 7701 and 1445, as may be amended,
of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated thereunder.
(c) California Franchise Tax Withholding. Evidence satisfactory to
Buyer and Escrow Holder that Seller is exempt from the provisions of the
withholding requirements of the California Revenue and Taxation Code, as
amended, and that neither Buyer nor Escrow Holder is required to withhold any
amounts from the Purchase Price pursuant to such provisions.
8. Deposits By Buyer. At least one (1) business day prior to the Close
of Escrow, Buyer shall deposit or cause to be deposited with Escrow Holder the
required funds which are to be applied towards the payment of the Purchase
Price.
9. Issuance of Title Insurance. At the Close of Escrow, Escrow Holder's
title insurer ("TITLE COMPANY"), shall issue to Buyer its standard form
California Land Title Association ("CLTA") Owner's Policy of Title Insurance
showing fee title to the Property vested in Buyer subject only to the Approved
Conditions of Title ("TITLE POLICY"). The Title Policy shall be issued with
liability in an amount equal to the Purchase Price. Seller shall pay for the
expense of the Title Policy. If Buyer elects to have Title Company issue its
American Land Title Association ("ALTA") Owner's Policy of Title Insurance,
Buyer shall pay for the expense of such ALTA premium increment, any endorsement
thereto and any survey costs.
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10. Costs and Expenses. Except as otherwise specified in this Agreement,
Seller and Buyer shall equally divide (a) all escrow fees and costs; (b) any
document recording charges; and (c) documentary transfer tax charged by the
County and any other transfer tax charged by the City. All other costs and
expense of escrow and title shall be shared pursuant to the custom in the
County. Buyer and Seller shall each pay all legal and professional fees and fees
of other consultants incurred by Buyer and Seller, respectively.
11. Prorations.
(a) Revenues. Rentals, revenues, and other income, if any, from
the Property, which includes the Lease, affecting the Property shall be prorated
as of 11:59 p.m. on the day following the Close of Escrow.
(b) Taxes/Assessments. All non-delinquent real estate taxes on the
Property shall be prorated as of 11:59 p.m. on the day following the Close of
Escrow based on the actual current tax bill, but if such tax bill has not yet
been received by Seller by the Close of Escrow, then the current year's taxes
shall be deemed to be one hundred two percent (102%) of the amount of the
previous year's tax bill for the Property. All delinquent taxes and all
assessments, if any, on the Property shall be paid at the Close of Escrow from
funds accruing to Seller.
(c) Other Expenses. All other expenses for the Property shall be
prorated as of 11:59 p.m. on the day following to the Close of Escrow between
the parties based upon the latest available information.
(d) Corrections. If any errors or omissions are made regarding
adjustments and prorations as set forth herein, the parties shall make the
appropriate corrections promptly upon discovery thereof. If any estimates are
made at the Close of Escrow regarding adjustments or prorations, the party shall
make the appropriate correction promptly when accurate information becomes
available. Any corrected adjustment or proration shall be paid in cash to the
party entitled thereto.
12. Condition and Inspection of Property. Seller makes no representation
or warranty regarding the condition of the Property, its past use, or its
suitability for Buyer's intended use, and the Property is sold AS-IS, WHERE-IS,
WITH ALL FAULTS, AND THERE IS NO WARRANTY, EXPRESS OR IMPLIED, REGARDING THE
CONDITION OF THE PROPERTY. Buyer is relying solely upon its own independent
inspection, investigation, and analysis of the Property as it deems necessary or
appropriate in so acquiring the Property from Seller, including, without
limitation, any and all matters concerning the condition, use and/or sale of the
Property.
13. Liquidated Damage. BUYER RECOGNIZES THAT THE PROPERTY WILL BE
REMOVED BY THE SELLER FROM THE MARKET DURING THE EXISTENCE OF THIS AGREEMENT,
AND THAT IF THIS AGREEMENT IS NOT
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CONSUMMATED BECAUSE OF BUYER'S DEFAULT, IT WOULD BE EXTREMELY DIFFICULT AND
IMPRACTICAL TO ASCERTAIN THE EXTENT OF THE DETRIMENT TO SELLER. THE PARTIES HAVE
DETERMINED AND AGREED THAT THE ACTUAL AMOUNT OF DAMAGES THAT WOULD BE SUFFERED
BY SELLER AS A RESULT OF ANY SUCH DEFAULT IS DIFFICULT OR IMPRACTICABLE TO
DETERMINE AS OF THE DATE OF THIS AGREEMENT AND THAT THE MOUNT OF FIFTY THOUSAND
AND NO/100THS DOLLARS ($50,000.00) IS A REASONABLE ESTIMATE OF THE AMOUNT OF
SUCH DAMAGES. FOR THESE REASONS, THE PARTIES AGREE THAT IF THIS PURCHASE AND
SALE IS NOT CONSUMMATED BECAUSE OF BUYER'S DEFAULT, SELLER SHALL BE ENTITLED TO
THE AMOUNT OF FIFTY THOUSAND AND NO/100THS DOLLARS ($50,000.00), AS LIQUIDATED
DAMAGES. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275
OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO
CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. SELLER HEREBY WAIVES THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 3389. SELLER AGREES THAT THESE
LIQUIDATED DAMAGES SHALL BE IN LIEU OF ANY OTHER MONETARY RELIEF OR OTHER
REMEDY, INCLUDING, WITHOUT LIMITATION, SPECIFIC PERFORMANCE, TO WHICH SELLER
MIGHT OTHERWISE BE ENTITLED UNDER THIS AGREEMENT, AT LAW OR IN EQUITY, AND SHALL
BE SELLER'S SOLE AND EXCLUSIVE RIGHT AND REMEDY. NOTHING CONTAINED HEREIN SHALL
IN ANY MANNER LIMIT THE AMOUNT OF DAMAGES OBTAINABLE BY SELLER PURSUANT TO AN
ACTION UNDER ANY HOLD HARMLESS, DEFENSE OR INDEMNIFICATION PROVISION HEREOF.
Seller _______ Buyer _______
14. Waiver of Right to Record Lis Pendens. AS PARTIAL CONSIDERATION FOR
SELLER ENTERING INTO THE AGREEMENT, BUYER EXPRESSLY WAIVES ANY RIGHT UNDER
CALIFORNIA CODE OF CIVIL PROCEDURE, PART II, TITLE 4.5 (SECTIONS 409-409.8) OR
AT COMMON LAW OR OTHERWISE TO RECORD OR FILE A LIS PENDENS OR A NOTICE OF LAW OR
OTHERWISE TO RECORD OR FILE A LIS PENDENS OR A NOTICE OF PENDENCY OF ACTION OR
SIMILAR NOTICE AGAINST ALL OR ANY PORTION OF THE PROPERTY IN CONNECTION WITH ANY
ALLEGED DEFAULT BY SELLER HEREUNDER. SUBJECT TO THE FOREGOING, BUYER FURTHER
AGREES THAT AN ACTION FOR DAMAGES WOULD BE AN ADEQUATE REMEDY FOR BUYER IF
SELLER WERE TO FAIL TO CONVEY TITLE TO THE PROPERTY TO BUYER IN DEFAULT OF
SELLER'S OBLIGATIONS UNDER THIS AGREEMENT. ACCORDINGLY, BUYER HEREBY WAIVES ANY
AND ALL RIGHTS WHICH BUYER OTHERWISE WOULD HAVE HAD TO SPECIFICALLY ENFORCE
SELLER'S OBLIGATION TO CONVEY TITLE TO THE PROPERTY PURSUANT TO THIS AGREEMENT.
BUYER AND SELLER HEREBY EVIDENCE THEIR SPECIFIC AGREEMENT TO THE TERMS OF THIS
WAIVER BY PLACING THEIR INITIALS IN THE PLACE PROVIDED HEREINAFTER.
Seller _______ Buyer _______
15. Condemnation and Destruction.
(a) Eminent Domain or Taking. If, prior to the Close of Escrow,
any material portion of the Real Property or Improvements is taken by eminent
domain or otherwise, Seller shall immediately notify Buyer of such fact. If such
taking is "material," Buyer shall have the option, in its reasonable
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discretion, to terminate this Agreement upon written notice to Seller given not
later than ten (10) days after receipt of Seller's notice. If this Agreement is
terminated pursuant to this Section, the provisions of Section 6(c) shall
govern. If Buyer does not exercise this option to terminate this Agreement, or
if there has not been a material taking by eminent domain or otherwise to give
rise to such option, neither party shall have the right to terminate this
Agreement, but the Seller shall assign and turn over, and the Buyer shall be
entitled to receive and keep, all awards for the taking by eminent domain which
accrue to Seller and the parties shall proceed to the Close of Escrow pursuant
to the terms hereof, without modification of the terms of this Agreement and
without any reduction in the Purchase Price. For the purpose hereof, "material"
shall be deemed to be any diminution in the value of the Property as a result of
a taking by eminent domain or otherwise which exceeds Fifty Thousand and
No/100ths Dollars ($50,000.00), as determined by Seller using its good faith
judgment.
(b) Fire or Casualty. Prior to the Close of Escrow, the entire
risk of loss or damage by earthquake, flood, landslide, fire or other casualty
shall be borne and assumed by Seller, except as otherwise provided in this
Section. If, prior to the Close of Escrow, any part of the Improvements are
damaged or destroyed by earthquake, flood, landslide, fire or other casualty,
Seller shall immediately notify Buyer of such fact. If such damage or
destruction is "material", Buyer shall have the option to terminate this
Agreement upon written notice to the Seller given not later than ten (10) days
after receipt of Seller's notice. For purposes hereof, "material" shall be
deemed to be any uninsured damage or destruction to the Property or any insured
damage or destruction where the cost of repair or replacement is estimated to be
Fifty Thousand Dollars ($50,000.00) or more or shall take more than ninety (90)
days to repair, in Seller's good faith judgment; provided, however, in the case
of uninsured damage or destruction, Seller may, at Seller's option, elect to
repair such damage and destruction and keep this Agreement in full force and
effect so long as such repair can be and is completed by Seller prior to the
Close of Escrow. If this Agreement is so terminated, the provisions of Section
6(c) shall govern. If Buyer does not exercise this option to terminate this
Agreement, or if the casualty is not material, neither party shall have the
right to terminate this Agreement but Seller shall assign and turn over, and
Buyer shall be entitled to receive and keep, all insurance proceeds payable to
it with respect to such destruction, and the parties shall proceed to the Close
of Escrow pursuant to the terms hereof without modification of the terms of this
Agreement and without any reduction in the Purchase Price.
16. Notices. All notices or other communications required or permitted
hereunder shall be in writing, and shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or sent
by electronic facsimile and shall be deemed received upon the earlier of (i) if
personally delivered, the date of delivery to the address of the
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person to receive such notice, (ii) if mailed, on the date of posting by the
United States Post Office, or (iii) if given by electronic facsimile, when
received by the other party.
TO BUYER: Financial Pacific Insurance Company
___________________________
___________________________
Telephone: ________________
Facsimile: ________________
Attention: ______________________________
TO SELLER: Stanford Ranch I
Post Office Box 1200
3715 Atherton Road
Rocklin, California 95765
Telephone: (916) 965-7100
Facsimile: (916) 624-0741
Attention: Larry Kelley, President
WITH COPY TO: Trainer - Robertson
701 University Avenue, Suite 200
Sacramento, California 95825-6708
Telephone: (916) 929-7000
Facsimile: (916) 929-7111
Attention: Jay Heckenlively, Esquire
TO ESCROW HOLDER: Placer Title Company
___________________________
___________________________
Telephone: ________________
Facsimile: ________________
Attention: ______________________________
Notice of change of address shall be given by written notice in the manner
described in this Section.
17. Brokers. There are no real estate brokers involved in the
transaction described herein. If any additional claims for brokers' or finders'
fees for the consummation of this Agreement arise, then Buyer hereby agrees to
indemnify, hold harmless and defend Seller from and against such claims if they
shall be based upon any statement, representation or agreement by Buyer, and
Seller hereby agrees to indemnify, hold harmless and defend Buyer if such claims
shall be based upon any statement, representation or agreement made by Seller.
18. Exchange. The parties to this Agreement acknowledge that either
party may desire to structure the sale and/or the purchase of the Property as an
exchange for like-kind property pursuant to Section 1031 of the Internal Revenue
Code of 1986, as amended, in order to defer recognition of income from the
disposition of the Property and other properties. The parties agree to
reasonably cooperate with each other to accomplish such exchanges and each party
hereby agrees that any and all costs associated with said exchange shall be
borne solely by the exchanging party and shall in no way be attributable to the
non-
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exchanging party. In no event shall the non-exchanging party be required to take
title to the exchanged property(ies) to effectuate the tax deferred exchange
contemplated by this Section.
19. Miscellaneous.
(a) Partial Invalidity. If any term or provision of this Agreement
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each such term and provision of this Agreement shall be valid, and shall be
enforced to the fullest extent permitted by law.
(b) Waivers. No waiver of any breach of any covenant or provision
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
time for performance of any other obligation or act except those of the waiving
party, which shall be extended by a period of time equal to the period of the
delay.
(c) Survival of Representations. The indemnification, defense and
hold harmless obligations, and the representations and warranties made by each
party herein shall survive (1) the Close of Escrow and shall not merge into the
Grant Deed and the recordation thereof, and (2) the termination and/or
cancellation of this Agreement.
(d) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the permitted successors and assigns of the
parties hereto.
(e) Professional Fees. If either party commences an action against
the other to interpret or enforce any of the terms of this Agreement or because
of the breach by the other party of any of the terms hereof, the losing party
shall pay to the prevailing party reasonable attorneys' fees, costs and expenses
and court costs and other costs of action incurred in connection with the
prosecution or defense of such action, whether or not the action is prosecuted
to a final judgment. For the purpose of this Agreement, the terms "attorneys'
fees" or "attorneys' fees and costs" shall mean the fees and expenses of counsel
to the parties hereto, which may include printing, photostating, duplicating and
other expenses, air freight charges, and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without-limitation, all such fees and expenses
incurred with respect to appeals, arbitrations and bankruptcy proceedings, and
whether or not any action or proceeding is brought with respect to the matter
for which said
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fees and expenses were incurred. The term "attorney" shall have the same meaning
as the term "counsel."
(f) Entire Agreement. This Agreement (including all Exhibits
attached hereto) is the final expression of, and contains the entire agreement
between, the parties with respect to the subject matter hereof and supersedes
all prior understandings with respect thereto. This Agreement may not be
modified, changed, supplemented, superseded, canceled or terminated, nor may any
obligations hereunder be waived, except by written instrument signed by the
party to be charged or by its agent duly authorized in writing or as otherwise
expressly permitted herein. The parties do not intend to confer any benefit
hereunder on any person, firm or corporation other than the parties hereto and
lawful assignees.
(g) Assignment. Buyer may not assign its right, title or interest
in this Agreement to any other party without the prior written consent of
Seller, which determination may be withheld in Seller's sole and absolute
discretion. Any attempted assignment without the prior written consent of Seller
shall be void and be deemed a default of Buyer hereunder. Any permitted
assignment shall not relieve the assigning party from any liability under this
Agreement.
(h) Time of Essence. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof and that failure to timely perform
any of the terms, conditions, obligations or provisions hereof by either party
shall constitute a material breach of and a non-curable (but waivable) default
under this Agreement by the party so failing to perform.
(i) Relationship of Parties. Nothing contained in this Agreement
shall be deemed or construed by the parties to create the relationship of
principal and agent, a partnership, joint venture or any other association
between Buyer and Seller.
(j) Construction. Headings at the beginning of each paragraph and
subparagraph are solely for the convenience of the parties and are not a part of
the Agreement. Whenever required by the context of this Agreement, the singular
shall include the plural and the masculine shall include the feminine and vice
versa. This Agreement shall not be construed as if it had been prepared by one
of the parties, but rather as if both parties had prepared the same. Unless
otherwise indicated, all references to paragraphs, sections, subparagraphs and
subsections are to this Agreement. All exhibits referred to in this Agreement
are attached and incorporated by this reference.
(k) Governing Law. The parties hereto acknowledge that this
Agreement has been negotiated and entered into in the State of California. The
parties hereto expressly agree that this Agreement shall be governed by,
interpreted under, and
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construed and enforced in accordance with the laws of the State of California.
(1) Possession of Property. Buyer shall be entitled to the
possession of the Property immediately following the Close of Escrow.
(m) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
(n) Days of Week. If any date for performance herein falls on a
Saturday, Sunday or holiday, as defined in Section 6700 of the California
Government Code, the time for such performance shall be extended to 5:00 p.m. on
the next business day.
(o) Representation by Counsel. Notwithstanding any rule or maxim of
construction to the contrary, any ambiguity or uncertainty shall not be
construed against either Seller or Buyer based upon authorship of any of the
provisions hereof. Seller and Buyer each hereby warrant, represent and certify
to the other as follows: (a) that the contents of this Agreement have been
completely and carefully read by the representing party and counsel for the
representing party; (b) that the representing party has been separately
represented by counsel and the representing party is satisfied with such
representation; (c) that the representing party's counsel has advised the
representing party of, and the representing party fully understands, the legal
consequences of this Agreement; and (d) that no other person (whether a party to
this Agreement or not) has made any threats, promises or representations of any
kind whatsoever to induce the execution hereof, other than the performance of
the terms and provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the dates set forth below.
BUYER: SELLER:
FINANCIAL PACIFIC INSURANCE STANFORD RANCH I, LLC
COMPANY, a California a Delaware limited liability
corporation company
By: [SIG] By: /s/ LARRY D. KELLEY
------------------------------ ------------------------------
Larry D. Kelley
Its: President & CEO Its: President
----------------------------- -----------------------------
Date: June 18, 1996 Date: June 18, 1996
---------------------------- ----------------------------
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EXHIBIT D
LEGAL DESCRIPTION OF PARCEL 11
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EXHIBIT E
LEGAL DESCRIPTION OF PARCEL 12
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<PAGE> 1
[U.S. BANK LOGO]
EXHIBIT 10.29
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$530,000.00 09-15-1997 07-01-1998 815-34 001 2908539323 47085
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: FINANCIAL PACIFIC INSURANCE LENDER: U.S. BANK
GROUP, INC. CALIFORNIA CORPORATE BANKING
8583 ELDER CREEK ROAD, #100 980 9TH STREET, SUITE 1100
SACRAMENTO, CA 95828 SACRAMENTO, CA 95814
- -------------------------------------------------------------------------------
Principal Amount: $530,000.00 Date of Note: September 15, 1997
PROMISE TO PAY. FINANCIAL PACIFIC INSURANCE GROUP, INC. ("Borrower") promises
to pay to U.S. BANK ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Five Hundred Thirty Thousand & 00/100
Dollars ($530,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on July
1, 1998. In addition, Borrower will pay regular monthly payments of accrued
unpaid interest beginning October 1, 1997, and all subsequent interest payments
are due on the same day of each month after that. The annual interest rate for
this Note is computed on a 365/360 basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the LENDER'S PRIME
RATE. THIS IS THE RATE OF INTEREST WHICH LENDER FROM TIME TO TIME ESTABLISHES
AS ITS PRIME RATE AND IS NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST WHICH
LENDER COLLECTS FROM ANY BORROWER OR CLASS OF BORROWERS (the "Index"). THE
INTEREST RATE SHALL BE ADJUSTED WITHOUT NOTICE EFFECTIVE ON THE DAY LENDER'S
PRIME RATE CHANGES. Lender will tell Borrower the current index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF
THIS NOTE WILL BE AT A RATE OF 1.000 PERCENTAGE POINT OVER THE INDEX. NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens:
(a) Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Borrower is in
default under any other note, security agreement, lease agreement or lease
schedule, loan agreement or other agreement, whether now existing or hereafter
made, between Borrower and U.S. Bancorp or any direct or indirect subsidiary of
U.S. Bancorp. (g) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (h) Any guarantor dies or any of the
other events described in this default section occurs with respect to any
guarantor of this Note. (i) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the indebtedness is impaired. (j) Lender in good faith deems itself
insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay
upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.000
percentage points over the Index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lenders' legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided by law. THIS
NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF SACRAMENTO COUNTY, THE STATE OF
CALIFORNIA. SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts, and, at Lender's option, to administratively freeze all such
accounts to allow Lender to protect Lender's charge and setoff rights provided
on this paragraph.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: ROBERT C. GOODELL,
President. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to
<PAGE> 2
09-15-1997 PROMISSORY NOTE PAGE 2
LOAN NO 815-34 (CONTINUED)
- -------------------------------------------------------------------------------
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor
has with Lender, including any agreement made in connection with the signing of
this Note; (b) Borrower or any guarantor ceases doing business or is insolvent;
(c) any guarantor seeks, claims or otherwise attempts to limit, modify or
revoke such guarantor's guarantee of this Note or any other loan with Lender;
(d) Borrower has applied funds provided pursuant to this Note for purposes
other than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Note or otherwise, including without limitation contract and
tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise of any
right, concerning any collateral securing this Note, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing this Note, shall also be arbitrated, provided however that no
arbitrator shall have the right or the power to enjoin or restrain any act of
any party. Lender and Borrower agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil Procedure Section
726, or any similar provision in any other state, the commencement of such an
action will not constitute a waiver of the right to arbitrate and the court
shall refer to arbitration as much of such action, including counterclaims, as
lawfully may be referred to arbitration. Judgment upon any award rendered by
any arbitrator may be entered in any court having jurisdiction. Nothing in this
Note shall preclude any party from seeking equitable relief from a court of
competent jurisdiction. The statute of limitations, estoppel, waiver, laches,
and similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement of
an action for these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
LATE CHARGE. If a payment is 15 days or more past due, borrower will be charged
a late charge of 5% of the delinquent payment.
OUT OF DEBT PERIOD. Borrower agrees to maintain a consecutive thirty (30) day
out-of-debt period during the term of this loan at which time the principal
balance on this Line of Credit shall be reduced to zero (0) dollars.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
FINANCIAL PACIFIC INSURANCE GROUP, INC.
By:
-----------------------------------------------
ROBERT C. GOODELL, President
LENDER:
U.S. BANK
By:
-----------------------------------------------
Authorized Officer
==============================================================================
Variable Rate, Line of Credit
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.24(c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-D20 FINPAC.LN C1.OVL]
<PAGE> 1
EXHIBIT 10.30
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of February 24, 1997 by and among Robert C. Goodell, an
individual ("Seller"), FinPac Partners, a California limited partnership
("FinPac"), St. Paul Fire and Marine Insurance Company ("St. Paul"), and The
Firemark Global Insurance Fund, L.P., a Delaware limited partnership, a Delaware
limited partnership ("Firemark") (FinPac, St. Paul and Firemark are collectively
referred to herein as the "Buyers" and individually as a "Buyer").
R E C I T A L S
A. The Seller is the owner of shares of common stock, $.001
par value per share (the "Common Stock"), of Financial Pacific Insurance Group,
Inc., a Delaware corporation (the "Company").
B. The Seller desires to sell to each Buyer and each Buyer
desires to purchase from the Seller 38.509 shares of Common Stock, upon the
terms and conditions hereinafter set forth.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties do hereby
agree as follows:
ARTICLE I
PURCHASE OF SHARES
1.1 Purchase of Shares. Subject to the terms and conditions
set forth in this Agreement, the Seller shall sell, convey, transfer and deliver
to each Buyer and each Buyer shall purchase and accept from the Seller 38.509
shares of Common Stock (collectively, the "Shares"), free and clear of all
liens, encumbrances, charges, restrictions or rights or interests of others of
any kind, including, but not limited to, any rights of any person to acquire,
own, hold or otherwise obtain any interest in any capital stock of the Company.
Such sale and purchase of the Shares shall occur at on such date and at such
location as is mutually acceptable to the parties, and the date of such sale is
hereinafter referred to as the "Closing Date."
1.2 Taxes. The Seller shall be liable for and shall pay all of
Seller's federal, state or local income or transfer taxes that may be or may
become due and payable by reason of the sale contemplated by Section 1.1 hereof.
1.
<PAGE> 2
1.3 Conveyances at the Closing. On the Closing Date, the
Seller shall deliver to the Buyers such stock certificates, stock powers and
other good and sufficient instruments of conveyance and assignment, satisfactory
in form and substance to the Buyers, as shall be necessary to warrant and vest
in the Buyers good and marketable right, title and interest in and to the Shares
to be sold, assigned, conveyed and delivered hereunder, against delivery to the
Seller of the aggregate purchase price of $450,000.
1.4 Purchase Price. As consideration for the Shares, each
Buyer shall pay the Seller on the Closing Date $150,000 by the delivery of a
check made payable to Robert C.
Goodell and Suzanne M. Goodell, JT TEN.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Buyers to enter into this Agreement,
the Seller makes the following representations and warranties:
2.1 Ownership of Stock. On the Closing Date, the Seller will
have valid and marketable title to the Shares, free and clear of all liens,
encumbrances or charges, restrictions, rights or interests of others of any
kind. Upon delivery of the purchase price for the Shares, and upon receipt of
certificates for the Shares, duly endorsed for transfer or accompanied by stock
powers, in each case with the signature of the Seller appropriately witnessed,
the Buyers will acquire valid title to the Shares, free and clear of all liens,
encumbrances or charges, restrictions or rights or interests of others of any
kind.
2.2 Authority. The Seller has full power, capacity and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement has been duly executed and delivered by, and
constitutes the valid, binding and enforceable obligation of, the Seller, except
as the same may be limited by bankruptcy, insolvency or similar laws relating to
or affecting the enforcement of creditors' rights and rules of law governing
specific performance, injunctive relief and other equitable remedies.
2.3 No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby by the
Seller, on the Closing Date, will be in conflict with, or will constitute a
default under, any contract, agreement or instrument to which the Seller is a
party or by which the Seller or any of his properties are bound, or will violate
any statute or law or any judgment, decree, order, regulation or rule of any
court or governmental authority.
2.4 Consents and Approvals of Governmental Authorities. No
consent, order, approval or authorization of, or declaration, filing or
registration with, any governmental or
2.
<PAGE> 3
regulatory authority is required in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby by the Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYERS
As an inducement to the Seller to enter into this Agreement,
each Buyer makes the following representations and warranties:
3.1 Authority. The Buyer has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement has been duly executed and delivered by, and constitutes the
valid, binding and enforceable obligation of the Buyer, except as the same may
be limited by bankruptcy, insolvency or similar laws relating to or affecting
the enforcement of creditors' rights and rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.2 No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby by the Buyer results or will result in any breach of any of
the terms or provisions of, or constitute or will constitute a default under,
the organizational documents of the Buyer or any contract, agreement or
instrument to which the Buyer is a party or by which the Buyer or any of its
properties is bound, or violates or will violate any applicable statute, law,
rule, regulation or any judgment, decree, order, regulation or rule of any court
or governmental authority.
3.3 Consents and Approvals of Governmental Authorities. No
consent, order, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required in
connection with the execution, delivery and performance of this Agreement by the
Buyer or the consummation of the transactions contemplated hereby by the Buyer.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Applicable Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California.
4.2 Non-Assignment. This Agreement may not be assigned by any
party.
4.3 Waiver and Amendment. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or be construed as a further or continuing
waiver of any such term, provision or
3.
<PAGE> 4
condition or as a waiver of any other term, provision or condition of this
Agreement. This Agreement may be amended only by a written agreement signed by
the parties hereto.
4.4 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single original agreement.
4.5 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto and supersedes and replace any and all prior
agreements and understandings, whether oral or written, among the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE BUYERS:
FINPAC PARTNERS, a California limited
partnership
By: Riordan, Lewis & Haden, General Partner
By: [SIG]
----------------------------------
Patrick C. Haden, General Partner
ST. PAUL FIRE AND MARINE INSURANCE
COMPANY
By: [SIG]
----------------------------------
THE FIREMARK GLOBAL INSURANCE FUND,
L.P., a Delaware limited partnership
By: [SIG]
----------------------------------
4.
<PAGE> 5
THE SELLER:
[SIG]
-------------------------------------
Robert C. Goodell
For purposes of agreeing and consenting in her capacity as the
spouse of Robert C. Goodell to this Agreement and the transactions contemplated
hereby, and for purposes of further representing to the Buyers that none of the
agreements, representations and warranties contained in this Agreement conflict
with, and that the transactions contemplated hereby will not conflict with,
either her separate or community property rights:
[SIG]
-------------------------------------
Suzanne M. Goodell
5.
<PAGE> 1
EXHIBIT 10.31
INDEMNIFICATION AGREEMENT
This Agreement is made as of the ____ day of ___________, by and between
Financial Pacific Insurance Company, a California Corporation ("the Company"),
and the undersigned Director of the Company (the "Indemnitee"), with reference
to the following facts:
The Indemnitee is currently serving as a Director of the Company and the
Company wishes the Indemnitee to continue in such capacity. The Indemnitee is
willing, under certain circumstances, to continue serving as a Director of the
Company.
The Indemnitee has indicated that he does not regard the indemnities
available under the Company's By-Laws as adequate to protect him against the
risks associated with his service to the Company and has noted that the Company
does not provide directors' and officers' liability insurance for his benefit.
In this connection the Company and the Indemnitee now agree they should enter
into this Indemnification Agreement in order to provide greater protection to
Indemnitee against such risks of service to the Company.
Section 145 of the General Corporation Law of the State of Delaware, under
which Law the Company is organized, empowers corporations to indemnify a person
serving as a director, officer, employee or agent of the corporation and a
person who serves at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, and said Section 145 and the By-Laws of the Company specify
that
<PAGE> 2
the indemnification set forth in said Section 145 and in the By-Laws,
respectively, shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
In order to induce the Indemnitee to continue to serve as a Director of
the Company and in consideration of his continued service, the Company hereby
agrees to indemnify the Indemnitee as follows:
1. Indemnity. The Company will indemnify the Indemnitee, his
executors, administrators or assigns, for any Expenses (as defined
below) which the Indemnitee is or becomes legally obligated to pay in
connection with any Proceeding. As used in this Agreement the term
"Proceeding" shall include any threatened, pending or completed claim,
action, suit or proceeding, whether brought by or in the right of the
Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which the Indemnitee may be or may have been
involved as a party or otherwise, by reason of the fact that Indemnitee
is or was a director or officer of the Company, by reason of any actual
or alleged error or misstatement or misleading statement made or
suffered by the Indemnitee, by reason of any action taken by him or of
any inaction on his part while acting as such director or officer, or by
reason of the fact that he was serving at the request of the Company as
a director, trustee, officer, employee or agent of
2
<PAGE> 3
another corporation, partnership, joint venture, trust or other enterprise;
provided, that in each such case Indemnitee acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Company, and, in the case of a criminal proceeding, in addition had no
reasonable cause to believe that his conduct was unlawful. As used in this
Agreement, the term "other enterprise" shall include (without limitation)
employee benefit plans and administrative committees thereof, and the term
"fines" shall include (without limitations) any excise tax assessed with respect
to any employee benefit plan.
2. Expenses. As used in this Agreement, the term "Expenses" shall
include, without limitation, damages, judgments, fines, penalties, settlements
and costs, attorneys' fees and disbursements and costs of attachment or similar
bonds, investigations, and any expenses of establishing a right to
indemnification under this Agreement.
3. Enforcement. If a claim or request under this Agreement is not paid by
the Company, or on its behalf, within thirty days after a written claim or
request has been received by the Company, the Indemnitee may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim or request and if successful in whole or in part, the Indemnitee shall be
entitled to be paid also the Expenses of prosecuting such suit. The Company
shall have the right to recoup
3
<PAGE> 4
from the Indemnitee the amount of any item or items of Expenses theretofore paid
by the Company pursuant to this Agreement, to the extent such Expenses are not
reasonable in nature or amounts; provided, however, that the Company shall have
the burden of proving such Expenses to be unreasonable. The burden of proving
that the Indemnitee is not entitled to indemnification for any other reason
shall be upon the Company.
4. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
5. Exclusions. The Company shall not be liable under this Agreement to pay
any Expenses in connection with any claim made against the Indemnitee:
(a) to the extent that payment is actually made to the Indemnitee
under a valid, enforceable and collectible insurance policy;
(b) to the extent that the Indemnitee is indemnified and actually
paid otherwise than pursuant to this Agreement;
(c) in connection with a judicial action by or in the right of the
Company, in respect of any claim, issue or matter as to which the
Indemnitee
4
<PAGE> 5
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Company unless and only to the extent that
any court in which such action was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, the Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper;
(d) if it is proved by final judgment in a court of law or other
final adjudication to have been based upon or attributable to the
Indemnitee's in fact having gained any personal profit or advantage to
which he was not legally entitled;
(e) for a disgorgement of profits made from the purchase and sale by
the Indemnitee of securities pursuant to Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
state statutory law or common law;
(f) brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; however, notwithstanding the
foregoing, the Indemnitee shall be protected under this Agreement as to
any claims upon which suit may be brought against him by reason of any
alleged dishonesty on his part, unless a judgment or other final
adjudication thereof adverse to the
5
<PAGE> 6
Indemnitee shall establish that he committed (i) acts of active and
deliberate dishonesty, (ii) with actual dishonest purpose and intent,
(iii) which acts were material to the cause of action so adjudicated; or
(g) for any judgment, fine or penalty which the Company is
prohibited by applicable law from paying as indemnity or for any other
reason.
6. Indemnification of Expenses of Successful Party. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against any and all Expenses incurred in
connection therewith.
7. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the Indemnitee for the portion of such Expenses to
which the Indemnitee is entitled.
8. Advance of Expenses. Expenses incurred by the Indemnitee in connection
with any Proceeding, except the amount of any settlement, shall be paid by the
Company in advance upon request of the Indemnitee that the Company pay such
Expenses. The Indemnitee hereby
6
<PAGE> 7
undertakes to repay to the Company the amount of any Expenses theretofore paid
by the Company to the extent that it is ultimately determined that such Expenses
were not reasonable or that the Indemnitee is not entitled to indemnification.
9. Approval of Expenses. No Expenses for which indemnity shall be sought
under this Agreement, other than those in respect of judgments and verdicts
actually rendered, shall be incurred without the prior consent of the Company,
which consent shall not be unreasonably withheld.
10. Notice of Claim. The Indemnitee, as a condition precedent to his right
to be indemnified under this Agreement, shall give to the Company notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement; provided, however, that any
failure to give prompt notice shall not affect or limit the Company's
obligations hereunder unless the Company has actually been prejudiced by such
failure, in which event the Company shall be relieved of its obligations
hereunder solely to the extent of such prejudice. Notice to the Company shall be
given at its principal office and shall be directed to the Corporate Secretary
(or such other address as the Company shall designate in writing to the
Indemnitee); notice shall be deemed received if sent by prepaid mail properly
addressed, the date of such notice being the date postmarked. In
7
<PAGE> 8
addition, the Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within the Indemnitee's power.
11. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one instrument.
12. Indemnification Hereunder Not Exclusive. Nothing herein shall be
deemed to diminish or otherwise restrict the Indemnitee's right to
indemnification under any provision of the Certificate of Incorporation or
By-Laws of the Company and amendments thereto or under law.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with Delaware law.
14. Saving Clause. Wherever there is conflict between any provision of
this Agreement and any applicable present or future statute, law or regulation
contrary to which the Company and the Indemnitee have no legal right to
contract, the latter shall prevail, but in such event the affected provisions of
this Agreement shall be curtailed and restricted only to the extent necessary to
bring them within applicable legal requirements.
15. Coverage. The provisions of this Agreement shall apply with respect to
the Indemnitee's service as a Director of the Company prior to the date of this
Agreement and with respect to all periods of such service after the date of this
Agreement, even though
8
<PAGE> 9
the Indemnitee may have ceased to be a Director of the Company.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
Financial Pacific Insurance
Company
By [SIG]
-------------------------------------
/s/
-----------------------------------------
[Director]
10
<PAGE> 1
EXHIBIT 11.1
FINANCIAL PACIFIC INSURANCE GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding
- (fully diluted):
# of shares outstanding @ EOY 5,271.571 6,046.571 7,551.971 7,576.971 7,606.971
Stock split adjustment (394.375 to 1) 394.375 394.375 394.375 394.375 394.375
-------------------------------------------------------------------------------
Net adjusted shares 2,078,976.376 2,384,617.083 2,978,309.369 2,988,168.747 3,000,000.000
===============================================================================
Weighted average # of shares outstanding 2,078,976.376 2,231,796.730 2,681,463.226 2,983,239.058 2,994,084.374
Rounded 2,079 2,232 2,681 2,983 2,994
Earnings per share:
Net Income $ 1,209,783 $ 777,080 $ 2,149,504 $ 2,003,286 $ 2,342,003
Weighted average # of shares outstanding 2,078,976.376 2,231,796.730 2,681,463.226 2,983,239.058 2,994,084.374
-------------------------------------------------------------------------------
Earnings per share $ 0.58 $ 0.35 $ 0.80 $ 0.67 $ 0.78
===============================================================================
</TABLE>
<PAGE> 2
FINANCIAL PACIFIC INSURANCE GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
FOR THE FIVE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Supporting Schedule of Number of Shares
Outstanding - Fully Diluted:
Preferred Stock 3,650.001 4,400.001 4,400.001 4,400.001 4,400.001
Common Stock 1,232.284 1,232.284 1,232.284 1,232.284 1,232.284
Original Purchase - Common Stock Warrants 389.286 389.286 389.286 389.286 389.286
Senior Notes - Commons Stock Warrants 1,505.400 1,505.400 1,505.400
Vested management options 25.000 25.000 50.000 80.000
---------------------------------------------------------------------
5,271.571 6,046.571 7,551.971 7,576.971 7,606.971
=====================================================================
</TABLE>
<PAGE> 1
SUBSIDIARIES
<TABLE>
<CAPTION>
PERCENTAGE
OWNED BY STATE OF
NAME COMPANY INCORPORATION
- ---- ---------- -------------
<S> <C> <C>
Financial Pacific
Insurance Agency 100% California
Financial Pacific
Insurance Company 100% California
Financial Pacific
Technology, Inc. 100% California
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
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0 0
5 5
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22,854 14,987
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</TABLE>
