<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 1-9627
ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]
DELAWARE 95-2702776
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] identification No.]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
[818] 713-1000
[Registrant's telephone number, including area code]
Not Applicable
[Former name, former address and former fiscal year, if changed
since last report.]
Indicate by check mark whether the registrant [1] has filed all reports
required to be filed by Section 13 or 15[d] of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and [2] has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At July 31, 1997,
17,697,000 shares of common stock were outstanding, net of 6,854,000 shares
of treasury stock.
<PAGE>
PART I FINANCIAL INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
ITEM 1:
Dollars and Shares in Thousands
<TABLE>
<CAPTION>
ASSETS JUN. 30, 1997 DEC. 31, 1996
<S> <C> <C>
Investments
Fixed maturities:
At amortized cost (fair value $50,717 & $53,113) $ 50,668 $ 53,353
At fair value (cost $610,975 & $608,756) 607,050 605,630
Floating rate preferred stocks, at fair value (cost $14,614) 14,352 14,071
Convertible and non-redeemable preferred stocks, at fair value
(cost $750) 759 784
Common stocks, at fair value (cost $11,513 & $18,030) 16,572 22,771
Short-term investments (at cost, which approximates fair value) 122,392 106,712
Other investments 45,045 49,478
----------- ------------
TOTAL INVESTMENTS 856,838 852,799
Cash 10,968 12,125
Accrued investment income 11,352 10,973
Premiums receivable 89,389 80,545
Receivable from reinsurers,state trust funds, and prepaid reinsurance premiums 108,563 104,748
Deposits receivable 12,710 14,776
Federal income taxes 22,198 29,939
Deferred policy acquisition costs 21,778 20,752
Properties and equipment, less accumulated depreciation 56,359 49,179
Other assets 64,306 66,888
----------- ------------
TOTAL ASSETS $1,254,461 $1,242,724
----------- ------------
----------- ------------
LIABILITIES
Policy liabilities and accruals
Unpaid losses and loss expenses $ 627,431 $ 620,078
Unearned premiums 135,017 127,209
Policyholders' dividends accrued 4,950 7,670
Other policyholder funds 6,288 9,109
Reserves on loss portfolio transfers 12,231 8,359
Senior notes payable, less unamortized issue costs of $586 & $647 13,133 14,508
Payable to banks and other notes payable 74,414 74,353
Other liabilities 35,470 43,935
----------- ------------
TOTAL LIABILITIES 908,934 905,221
----------- ------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par - shares authorized 1,000; issued and outstanding,
none in 1997 and 1996
Common stock, $1 par - shares authorized 50,000; issued 24,542,
outstanding 17,688, 1997; issued 24,447, outstanding 17,604, 1996 24,542 24,447
Additional paid-in capital 260,841 258,875
Retained earnings 181,842 175,684
Net unrealized appreciation on investments, net of deferred
tax expense of $332 & $284 618 528
----------- ------------
467,843 459,534
Less treasury stock at cost (6,854 shares 1997 & 6,843 shares 1996) (122,316) (122,031)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 345,527 337,503
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,254,461 $1,242,724
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of this statement.
Page 2
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
Dollars in thousands, except per share data 1997 1996 1997 1996
<S> <C> <C> <C> <C>
CONSOLIDATED REVENUES:
Premium earned $ 125,831 $ 108,255 $ 248,194 $ 220,492
Net investment income 13,406 12,836 25,854 24,890
Realized gains on investments 1,996 3,778 3,872 8,050
Real estate sales 11,174 8,810 21,137 14,795
---------- ---------- ---------- ----------
Total revenues 152,407 133,679 299,057 268,227
EXPENSES:
Property and casualty losses and loss expenses incurred 89,180 74,429 176,947 147,844
Policy acquisition costs 23,248 19,887 46,362 42,251
Other underwriting and operating expenses 16,443 13,247 31,619 25,373
Policyholders' dividends and participation 2 316 (966) 875
Real estate construction and operating costs 10,495 8,233 20,199 13,983
Interest expense 816 1,416 1,952 2,836
---------- ---------- ---------- ----------
Total expenses 140,184 117,528 276,113 233,162
Income before federal income tax 12,223 16,151 22,944 35,065
Federal income tax expense 4,323 5,451 7,944 11,965
---------- ---------- ---------- ----------
NET INCOME $ 7,900 $ 10,700 $ 15,000 $ 23,100
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE:
Net income per common share $ 0.44 $ 0.60 $ 0.84 $ 1.30
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
Page 3
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
Dollars in thousands ENDED JUNE 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected $ 257,706 $ 227,111
Investment income received 25,281 23,219
Proceeds from sales of real estate 21,137 14,795
Losses & loss expenses paid (173,034) (162,866)
Underwriting & other operating expenses paid (79,224) (64,610)
Real estate construction costs paid (18,894) (26,595)
Reinsurance premiums paid (14,810) (11,644)
Dividends paid to policyholders (308) (1,387)
Interest paid (3,883) (3,863)
Income taxes paid 104 (12,563)
----------- -----------
Net cash flows from operating activities, excluding cash from trading portfolio 14,075 (18,403)
Net cash from sales of trading portfolio investments 1,416 7,050
----------- -----------
Net cash flows from operating activities, including cash from trading portfolio 15,491 (11,353)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Debt securities Held-to-Maturity (5,342)
Debt and equity securities Available-for-Sale (53,997) (240,091)
Other investments (919) (1,659)
Proceeds from maturities and exchanges of investments:
Debt securities Held-to-Maturity 2,620 5,781
Debt and equity securities Available-for-Sale 14,338 8,932
Other investments 361
Proceeds from sales of investments:
Debt and equity securities Available-for-Sale 45,265 277,132
Other investments 5,410 2,491
Capital and other expenditures (10,136) (2,674)
Cash received from portfolio transfers 4,647
Losses paid on portfolio transfers (775) (492)
Net change in short-term investments (14,744) (14,766)
Other 12
----------- -----------
Net cash flows from investing activities (7,918) 29,312
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash advanced from bank construction loans 17,749 14,751
Cash repaid on bank construction loans (19,193) (16,272)
Cash dividends paid to common stockholders (8,826) (8,824)
Proceeds from exercise of stock options 1,825 962
Purchase of treasury shares (285) (7,404)
----------- -----------
Net cash flows from financing activities (8,730) (16,787)
----------- -----------
Net increase (decrease) in cash (1,157) 1,172
Cash at beginning of period 12,125 6,919
----------- -----------
Cash at June 30, $ 10,968 $ 8,091
----------- -----------
----------- -----------
(continued)
</TABLE>
Page 4
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1997 1996
(Dollars in Thousands)
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES:
Net Income $ 15,000 $ 23,100
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 2,843 1,730
Realized gains on investments (3,870) (8,050)
Net cash from trading portfolio 1,416 7,050
Decrease (increase) in:
Accrued investment income (379) (449)
Premiums receivable (8,844) (12,678)
Receivable from reinsurers (1,749) (1,764)
Deferred policy acquisition costs (1,026) (974)
Federal income taxes 8,057 (599)
Real estate construction in progress 987 (12,064)
Increase (decrease) in:
Unpaid losses and loss expenses 7,353 (13,403)
Unearned premiums 7,808 10,335
Policyholders' dividends accrued (2,720) (1,975)
Other policyholder funds (2,821) (2,431)
Other (6,564) 819
---------- ----------
Net cash flows from operating activities $ 15,491 $ (11,353)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Computation of earnings per share:
Dollars and shares in thousands, except
per share data
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(A) Net income $ 7,900 $ 10,700 $ 15,000 $ 23,100
-------- --------- --------- ---------
-------- --------- --------- ---------
(B) Number of shares used in calculating
primary earnings per share:
Weighted average outstanding shares
during the period 17,898 17,524 17,910 17,615
Additional common shares issuable under
employee stock options using the
treasury stock method (1) 250 166
-------- --------- --------- ---------
17,898 17,774 17,910 17,781
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income per share (A)/(B) $ 0.44 $ 0.60 $ 0.84 $ 1.30
-------- --------- --------- ---------
-------- --------- --------- ---------
(C) Number of fully diluted shares:
Weighted average outstanding shares
during the period 17,946 17,524 17,934 17,615
Additional common shares issuable under
employee stock options using the
treasury stock method (2) 344 224
-------- --------- --------- ---------
17,946 17,868 17,934 17,839
-------- --------- --------- ---------
-------- --------- --------- ---------
Net income per share (A)/(C) $ 0.44 $ 0.60 $ 0.84 $ 1.29
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
(1) Based on the average market price during the period.
(2) Based on the higher of the average market price or price at the end of each
period.
Note 2. New Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS
No. 128). The accounting standard is effective for periods ending after
December 15, 1997, including interim periods. SFAS No. 128 requires dual
presentation of newly defined basic and diluted earnings per share on the
face of the income statement for all entities with complex capital
structures. Based on its current capital structure, Zenith National Insurance
Corp. (Zenith) will present basic earnings per share based on its
weighted-average shares outstanding for the period, without considering
options outstanding. Diluted earnings per share will be the equivalent of
primary earnings per share under current guidance. The following table shows
the pro-forma effect of adoption of SFAS No. 128 for Zenith.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
Basic earnings per share $.45 $.61 $.85 $1.31
Diluted earnings per share .44 .60 .84 1.30
Page 6
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). This accounting
standard is effective for periods ending after December 15, 1997, including
interim periods. SFAS No. 130 requires companies to report comprehensive
income and its components in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital. Comprehensive income includes all
changes in equity during a period except those resulting from investments by
shareholders and distributions to shareholders. Zenith has not determined the
impact of SFAS No. 130.
Also, in June 1997, the FASB issued Statement of Financial Accounting
Standards, No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). This statement specifies revised guidelines
for determining an entity's operating segments and the type and level of
financial information to be disclosed. SFAS No. 131 is effective for periods
ending after December 15, 1997, including interim periods. Zenith has not
determined the impact of SFAS No. 131.
Note 3. Proposed Acquisition
On June 17, 1997, Zenith announced that its wholly-owned subsidiary, Zenith
Insurance Company (Zenith Insurance), had entered into an agreement with
RISCORP, Inc. (RISCORP) to purchase all of the assets of RISCORP related to
its workers' compensation business, including RISCORP's existing in-force
business, as well as the right to all new and renewal policies. Zenith
Insurance will also purchase RISCORP's "First Call" managed care workers'
compensation system. After the transaction closes, RISCORP will no longer
engage in the workers' compensation or managed care businesses. In connection
with the transaction, Zenith Insurance will assume certain liabilities
related to RISCORP's insurance businesses, including $15 million in
indebtedness of RISCORP. The purchase price, which will be in cash, will be
the difference between the book value of the assets purchased and the book
value of the liabilities assumed by Zenith Insurance on the closing date,
subject to a minimum purchase price of $35 million. Zenith intends to finance
the purchase price with bank financing and internal funds.
Effective June 18, 1997, Zenith Insurance entered into a reinsurance
agreement with RISCORP. Under the reinsurance agreement, Zenith Insurance
has reinsured all of RISCORP's liabilities on or after June 18, 1997 in
respect of new, renewal, and in-force Florida workers' compensation policies
in the event RISCORP is declared insolvent under applicable insurance law
pursuant to court order. RISCORP has assigned to Zenith Insurance its right
to receive certain payments from other reinsurers in respect of the business
Zenith Insurance has reinsured. In addition, RISCORP has established a trust
account of approximately $50 million to reimburse Zenith Insurance for any
amounts paid under the reinsurance agreement. Although there can be no
assurance that such amount ultimately would be sufficient to reimburse Zenith
fully for such payments, Zenith believes that any contingent liability under
this agreement as of June 30, 1997 would not be material.
The closing of the purchase of RISCORP's assets and liabilities is subject to
several conditions, including the review and approval by appropriate state
and federal regulatory agencies and by RISCORP's shareholders. The agreement
has been approved by the Boards of Directors of Zenith, Zenith Insurance, and
RISCORP. It cannot be predicted at this time when or whether the closing will
occur.
Page 7
<PAGE>
Note 4. Contingencies
The following updates contingencies set forth in Note 8 of Zenith's
consolidated financial statement as of December 31, 1996.
Florida has created a State Disability Trust Fund ("SDTF") and assesses
workers' compensation insurers to pay for what is commonly referred to as
"Second Injuries". Assessments, based upon premiums written, have been
inadequate to completely fund obligations of SDTF. Zenith expects future
political changes to affect SDTF, the nature of which cannot be determined at
this time. Zenith has recorded a receivable from SDTF at June 30, 1997 based
upon specific claims identified by Associated General Commerce - Self
Insurers' Trust Fund ("AGC-SIF"), and its historical recovery experience, the
recoverability of which is dependent upon such political changes, if any.
Zenith has not recorded a liability for any future assessments from SDTF.
On July 5, 1995, Zenith's new workers' compensation computer system became
operational. In addition to enhancing data processing, the new system is
designed, among other things, to improve workflow in the workers'
compensation claims handling process. Management observed certain unusual
claim reserving trends and patterns in 1995, 1996, and 1997, possibly related
to disruption of normal workflows due to implementation of the new system.
Workflows in the future may continue to be impacted as training and
optimization of the new system continues. Management believes that its
estimate of liabilities for unpaid workers' compensation losses and loss
adjustment expenses (amounting to $411,223,000 of the total reserves for
unpaid losses and loss adjustment expenses of $627,431,000) at June 30,1997
included in these financial statements is adequate. However, subsequent
re-interpretation of currently available data or any new information that
becomes available may change the estimate of such liabilities in future
periods and such changes, if any, will be reflected in the financial
statements of the period in which they occur.
Note 5. Subsequent Event
On July 24, 1997, Zenith entered into a credit agreement with Bank of America
NT & SA providing for a $50 million revolving line of credit in two tranches.
One tranche for $20 million is for a one year term; the other for $30
million, a five year term.
Page 8
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
In the opinion of management, all adjustments necessary for a fair
presentation of the results of operations for the periods presented
(consisting only of normal recurring adjustments) have been included. The
results of operations for an interim period are not necessarily indicative of
the results for an entire year.
On May 15, 1997, the Board of Directors declared a regular quarterly cash
dividend of $.25 per share on the outstanding shares, payable August 15, 1997
to stockholders of record at the close of business on July 31, 1997.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW:
Zenith's principal source of consolidated earnings is the income, including
investment income, from operations of its property and casualty insurance
businesses. The comparative results of operations are set forth in the table
below, followed by a discussion of significant changes.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
Dollars in thousands 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income, after tax $8,877 $8,536 $17,142 $16,552
Realized gains on investments, after tax 1,298 2,456 2,517 5,233
- ----------------------------------------------------------------------------------------------------
Sub-total 10,175 10,992 19,659 21,785
- ----------------------------------------------------------------------------------------------------
Property-casualty underwriting, after tax:
Income (loss) excluding catastrophes (1,506) 688 (1,929) 3,464
Catastrophe losses (910)
- ----------------------------------------------------------------------------------------------------
Property-casualty underwriting income (loss) (1,506) 688 (2,839) 3,464
- ----------------------------------------------------------------------------------------------------
Income from real estate operations, after tax 442 375 599 538
Interest expense, after tax (531) (920) (1,269) (1,843)
Parent expenses, after tax (680) (435) (1,150) (844)
- ----------------------------------------------------------------------------------------------------
Net income $7,900 $10,700 $15,000 $23,100
- ----------------------------------------------------------------------------------------------------
</TABLE>
Page 9
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
Condition and Results of Operations (continued)
PROPERTY AND CASUALTY INSURANCE OPERATIONS:
Premiums earned, underwriting results and combined ratios before tax for the
three and six months ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months ended June 30, Six Months Ended June 30,
Dollars in Thousands 1997 1996 Change 1997 1996 Change
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums Earned
Workers' Compensation
California $35,292 $35,722 (1%) $69,237 $73,686 (6%)
Outside California 27,586 13,651 102% 54,386 27,213 100%
--------- --------- --------- ---------
Total Workers' Compensation 62,878 49,373 27% 123,623 100,899 23%
Other Property & Casualty 54,751 49,820 10% 107,475 99,989 7%
Reinsurance 8,202 9,062 (9%) 17,096 19,604 (13%)
--------- --------- --------- ---------
Total $125,831 $108,255 16% $248,194 $220,492 13%
--------- --------- --------- ---------
--------- --------- --------- ---------
Underwriting Income (Loss) Before Taxes
Workers' Compensation ($6,777) ($4,322) ($12,758) ($5,632)
Other Property & Casualty 1,664 2,493 2,636 4,702
Reinsurance 2,996 2,875 6,001 6,378
--------- --------- --------- ---------
Total ($2,117) $1,046 ($4,121) $5,448
--------- --------- --------- ---------
--------- --------- --------- ---------
Combined Loss and Loss Expense Ratios
Workers' Compensation
Losses and Loss Expenses 77.7% 74.3% 78.0% 71.6%
Underwriting Expenses 33.1% 33.8% 33.1% 33.1%
Dividends to Policyholders 0.7% (0.8%) 0.9%
--------- --------- --------- ---------
Combined Ratio 110.8% 108.8% 110.3% 105.6%
Other Property & Casualty
Losses and Loss Expenses 66.8% 65.3% 67.1% 65.4%
Underwriting Expenses 30.2% 29.7% 30.4% 29.9%
--------- --------- --------- ---------
Combined Ratio 97.0% 95.0% 97.5% 95.3%
Reinsurance
Losses and Loss Expenses 46.4% 57.3% 49.1% 52.2%
Underwritng Expenses 17.1% 11.0% 15.8% 15.3%
--------- --------- --------- ---------
Combined Ratio 63.5% 68.3% 64.9% 67.5%
Total Property & Casualty
Losses and Loss Expenses 70.9% 68.8% 71.3% 67.1%
Underwriting Expenses 30.8% 29.9% 30.8% 30.0%
Dividends to Policyholders 0.3% (0.4%) 0.4%
--------- --------- --------- ---------
Combined Ratio 101.7% 99.0% 101.7% 97.5%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 10
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
Condition and Results of Operations (continued)
Underwriting results declined in the quarter and six months ended June 30,
1997 compared to the corresponding periods in 1996 principally because of the
continued decline in workers' compensation profitability.
The decline in workers' compensation profitability is primarily due to
adverse development of prior year loss and loss expenses in the quarter and
six months ended June 30, 1997. Workers' compensation premium growth is
primarily due to the previously announced Florida acquisition, which was
effective December 31, 1996. Management expects that workers' compensation
premiums generated outside of California will increase in future periods if
the acquisition of RISCORP's insurance assets is consummated.
Competition in the workers' compensation business continues to be intense and
profitability is dependent upon the ability to maintain adequate rates,
manage claims costs and keep operating expenses in line with premium volume.
Zenith is unable to predict when its California Workers' Compensation
operation will return to underwriting profitability that is consistent with
Zenith's historical experience.
The results of Other Property and Casualty operations reflect an increase in
the severity of newly reported claims in the quarter and six months ended
June 30, 1997, compared to the corresponding periods in 1996. In addition,
the six months ended June 30, 1997 includes losses from severe weather damage
in California, which amounted to $1.4 million, before tax.
Reinsurance premiums earned declined in the quarter and six months ended June
30, 1997 compared to the corresponding periods in 1996 due primarily to
selected non-renewal of certain reinsurance treaties and softening of
property catastrophe rates.
Page 11
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
Condition and Results of Operations (continued)
INVESTMENTS:
Fluctuations in interest rates continue to impact stockholders' equity due to
changes in the market value of fixed maturity securities classified as
Available-for-Sale. At June 30, 1997, the unrealized loss on such fixed
maturities was $3.8 million, before deferred taxes, compared to an unrealized
loss of $3.0 million, before deferred taxes, at December 31, 1996. This
change resulted in a decrease in stockholders' equity of $.5 million, after
deferred taxes, between December 31, 1996 and June 30, 1997. Stockholders'
equity will continue to be affected by volatility in the fixed maturity
securities markets.
Investment income increased in the quarter and six months ended June 30, 1997
compared to the corresponding periods in 1996 principally due to the increase
in invested assets for Zenith Insurance associated with its merger with
AGC-SIF.
The yields on invested assets, which vary with the general level of interest
rates, were as follows:
- -------------------------------------------------------------------
Three Months Six Months
Investment Yields Ended June 30, Ended June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------
Pre-tax 6.1% 6.2% 5.9% 6.0%
Post-tax 4.0% 4.1% 3.9% 4.0%
- -------------------------------------------------------------------
Bonds with investment grade ratings represented 97% of the consolidated
carrying values of investments in bonds at both June 30, 1997 and December
31, 1996. At June 30, 1997 and December 31, 1996, the average maturity of
the investment portfolio was 5.1 years.
Page 12
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
Condition and Results of Operations (continued)
The change in the carrying value of Zenith's consolidated investment
portfolio during the six months ended June 30, 1997 was as follows:
Dollars in thousands
- -----------------------------------------------------------------------------
Carrying Value at December 31, 1996 $852,799
Purchases at cost 54,916
Maturities and exchanges of investments (17,319)
Proceeds from sales of fixed maturity investments (52,090)
Realized gains from maturities and exchanges of investments:
Available-for-sale 46
Realized gains from sales of investments:
Available-for-sale 2,785
Trading portfolio 190
Other investments 849
-------
Total realized gains on investments 3,870
Unrealized gains on investments 137
Increase in short-term investments 15,680
Net amortization of bonds and preferred stocks and other changes (1,155)
- -----------------------------------------------------------------------------
Carrying Value at June 30, 1997 $856,838
- -----------------------------------------------------------------------------
LIQUIDITY:
Zenith is principally dependent upon its portfolio of marketable securities
and the investment yields thereon; dividends from its insurance subsidiaries,
whose operations are supported by their own cash flows; and available lines
of credit to pay its expenses, service debt and pay any cash dividends which
may be declared to its stockholders.
On July 24, 1997, Zenith entered into a Credit Agreement with Bank of America
NT&SA, providing for a $50 million revolving line of credit in two tranches.
One tranche for $20 million is for a one year term; the other for $30
million, a five year term. This new line, together with existing lines,
provide Zenith with $100 million of revolving credit, which is currently
available, along with internal funds, to fund the closing of the proposed
acquisition of certain assets and liabilities from RISCORP. The closing date
and ultimate purchase price cannot be determined at this time, although the
purchase agreement calls for a minimum purchase price of $35 million.
The increase in net cash flows from operations for the six months ended June
30, 1997 compared to the same period last year is due primarily to increased
premiums collected in the Workers' Compensation operations, resulting from
the acquisition of AGC-SIF on December 31, 1996.
Page 13
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
Condition and Results of Operations (continued)
FORWARD LOOKING INFORMATION:
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements if accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed. Forward-looking statements include
those related to the plans and objectives of management for future
operations, future economic performance, or projections of revenues, income,
earnings per share, capital expenditures, dividends, capital structure, or
other financial items. Statements containing words such as EXPECT,
ANTICIPATE, BELIEVE, or similar words that are used in Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations, in other parts of this Report or in other written or oral
information conveyed by or on behalf of Zenith are intended to identify
forward-looking statements. Zenith undertakes no obligation to update such
forward-looking statements, which are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
projected. These risks and uncertainties include but are not limited to the
following: (1) heightened competition, particularly intense price
competition; (2) adverse state and federal legislation and regulations; (3)
changes in interest rates causing a reduction of investment income; (4)
general economic and business conditions which are less favorable than
expected; (5) unanticipated changes in industry trends; (6) adequacy of loss
reserves; (7) catastrophic events or the occurrence of a significant number
of storms, and wind and hail losses; and (8) other risks detailed herein and
from time to time in Zenith's other reports and filings with the Securities
and Exchange Commission.
Page 14
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Stockholders' Meeting of Zenith was held on May 15, 1997. The
only matter presented to Stockholders was the election of Directors.
The tabulation of votes for the nominees, all of whom were elected, is as
follows:
Director Votes for Votes Withheld
- -------- --------- --------------
George E. Bello 14,849,646 113,647
Max M. Kampelman 14,847,206 116,087
Jack M. Ostrow 14,847,206 116,087
William Steele Sessions 14,849,846 113,447
Harvey L. Silbert 14,847,206 116,087
Robert M. Steinberg 14,194,710 768,583
Saul P. Steinberg 14,194,510 768,783
Gerald Tsai, Jr. 14,849,846 113,447
Stanley R. Zax 14,849,846 113,447
There were no votes cast against any Director, no abstentions and no broker
non-votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
[a] Exhibits
[3.1] Certificate of Incorporation of Zenith as in effect immediately prior
to November 22, 1985. (Incorporated herein by reference to Exhibit 3
to Zenith's amendment on Form 8, date of amendment October 10, 1985,
to Zenith's Current Report on Form 8-K, date of report July 26, 1985.)
Certificate of Amendment to Certificate of Incorporation of Zenith,
effective November 22, 1985. (Incorporated herein by reference to
Zenith's Current Report on Form 8-K, date of report November 22, 1985.)
[3.2] By-Laws of Zenith, as currently in effect. (Incorporated herein by
reference to Exhibit 3.2 to Zenith's Annual Report on Form 10-K for
the year ended December 31, 1988.)
[10.1] Interim Reinsurance Agreement by and among Zenith Insurance Company,
RISCORP Insurance Company and RISCORP Property & Casualty Insurance
Company dated as June 18, 1997, together with (1) related Trust
Agreement by and among RISCORP Insurance Company, as guarantor, Zenith
Insurance Company, as beneficiary, and First Union National Bank, as
trustee, dated as of June 18, 1997 (with amendment no. 1 thereto), and
(2) related Trust Agreement by and among RISCORP Property & Casualty
Insurance Company, as guarantor, Zenith Insurance Company, as
beneficiary, and First Union National Bank, as trustee, dated as of
June 18, 1997 (with amendment no. 1 thereto).
[10.2] Revolving Note dated July 1, 1997, from Zenith National Insurance
Corp. to City National Bank.
[10.3] Credit Agreement dated as of July 24, 1997 between Zenith National
Insurance Corp. and Bank of America National Trust and Savings
Association, together with Tranche A and Tranche B Promissory Notes
referenced therein.
[11] Statement re: computation of per share earnings. Part I, Item 1,
Note 1 of the consolidated financial statements is incorporated herein
by reference.
[27] Financial Data Schedule
Page 15
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART II OTHER INFORMATION
[b] Reports on Form 8-K
The registrant filed a Form 8-K Current Report dated June 25, 1997,
followed by amendment No. 1 thereto on Form 8-K/A Current Report
dated July 11, 1997, in connection with the proposed acquisition
by Zenith Insurance Company of certain assets of RISCORP, Inc.
Page 16
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZENITH NATIONAL INSURANCE CORP.
Registrant
Date: August 14, 1997 /s/ Stanley R. Zax
--------------------------------------------
Stanley R. Zax, Chairman of the Board
& President (Principal Executive Officer)
Date: August 14, 1997 /s/ Fredricka Taubitz
--------------------------------------------
Fredricka Taubitz, Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
Page 17
<PAGE>
EXECUTION COPY
7/8/97
INTERIM REINSURANCE AGREEMENT
by and among
ZENITH INSURANCE COMPANY
and
RISCORP INSURANCE COMPANY
and
RISCORP PROPERTY & CASUALTY INSURANCE COMPANY
Dated as of June 18, 1997
<PAGE>
INTERIM REINSURANCE AGREEMENT
This Interim Reinsurance Agreement (this "Agreement"), dated as of
12:01 a.m. Eastern Daylight Savings Time on June 18, 1997 (the "Effective
Date"), is made by and among Zenith Insurance Company, a stock insurance
company organized under the laws of the State of California ("Zenith"), and
RISCORP Insurance Company, a stock insurance company organized under the laws
of the State of Florida ("RIC"), and RISCORP Property & Casualty Insurance
Company, a stock insurance company organized under the laws of the State of
Florida ("RP&C"), (RIC and RP&C being sometimes hereinafter referred to
individually as an "Insurance Subsidiary" and collectively as the "Insurance
Subsidiaries").
WHEREAS, Zenith and the Insurance Subsidiaries are entering into
this Agreement pursuant to the Purchase Agreement (as defined below);
WHEREAS, the Insurance Subsidiaries have agreed to cede to Zenith,
and Zenith has agreed to assume, certain liabilities and obligations of the
Insurance Subsidiaries under the Insurance Contracts (as defined below) on
the terms set forth herein; and
WHEREAS, the Florida Department of Insurance has approved this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises and upon the terms and conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Capitalized terms used herein and not otherwise
defined in this Agreement shall have the meanings given to them in the
Purchase Agreement. As used in this Agreement, the following terms shall have
the following meanings:
"AAA" shall have the meaning set forth in Section 10.1 hereof.
"EFFECTIVE DATE" means the date specified in the first paragraph
hereof.
"ENDORSEMENT" means an endorsement in the form of Exhibit A.
"EXPECTED AMOUNT" means an aggregate of $51 million of direct gross
premiums written by both Insurance Subsidiaries on and after the Effective
Date with respect to the Insurance Contracts.
"INSURANCE COMMISSIONER" means the Insurance Commissioner of the
State of Florida.
"INSURANCE CONTRACTS" means the treaties, policies, binders, slips
and other agreements of workers' compensation and employers liability
insurance written by the Insurance Subsidiaries for
<PAGE>
their own account (including all supplements, endorsements, riders and
ancillary agreements in connection therewith) covering risks in the State of
Florida to the extent that the foregoing are (i) in force on the Effective
Date or (ii) issued by an Insurance Subsidiary in compliance with the written
underwriting guidelines attached hereto as Exhibit B on or after the
Effective Date and prior to the earlier of (A) the Closing Date and (B) the
date of termination of the Purchase Agreement pursuant to its terms.
"INSURANCE LIABILITIES" means (i) all liabilities and obligations of
the Insurance Subsidiaries to policyholders under the Insurance Contracts, to
the extent the same arise from losses occurring on or after the Effective
Date, before any deduction for reinsurance ceded and (ii) all amounts payable
for returns or refunds of premiums under the Insurance Contracts.
"PURCHASE AGREEMENT" means the Asset Purchase Agreement, dated as of
June 17, 1997, among Zenith, the Insurance Subsidiaries, RISCORP, Inc.,
RISCORP of Florida, Inc., RISCORP Management Services, Inc., RISCORP Managed
Care Services, Inc., RISCORP Insurance Services, Inc., CompSource, Inc.,
RISCORP of Illinois, Inc., Independent Association Administrators
Incorporated, RISCORP Real Estate Holdings, Inc., RISCORP Acquisition, Inc.,
RISCORP West, Inc., RISCORP Services, Inc., RISCORP Staffing Solutions
Holdings, Inc., RISCORP Staffing Solutions, Inc. I and RISCORP Staffing
Solutions, Inc. II.
"SAP" means statutory accounting principles prescribed or permitted
by the Insurance Commissioner.
"TRUST ACCOUNT" means the Trust Account as defined in the relevant
Trust Agreement.
"TRUST AGREEMENTS" mean the Trust Agreements among Zenith, each
Insurance Subsidiary, and the Trustee, which are substantially in the form of
Exhibit C hereto.
"TRUSTEE" means the trustee named in the Trust Agreements and any
successor trustee appointed as such pursuant to the terms of the Trust
Agreements.
ARTICLE II.
BUSINESS REINSURED
Section 2.1. INDEMNITY REINSURANCE. Each of the Insurance
Subsidiaries hereby cedes, and Zenith hereby accepts and assumes, and agrees
to indemnify each of the Insurance Subsidiaries for, one hundred percent
(100%) of the Insurance Liabilities under the Insurance Contracts issued by
such Insurance Subsidiary in the event that such Insurance Subsidiary shall
be declared insolvent under applicable insurance law pursuant to court order;
PROVIDED, HOWEVER, that the amount due from Zenith shall be limited to the
portion of the Insurance Liabilities remaining unpaid under the terms and
conditions of such Insurance Contracts.
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<PAGE>
Section 2.2. CONDITIONS; PRESERVATION OF DEFENSES. All Insurance
Liabilities for which Zenith shall assume liability hereunder are subject in
all respects to the same written terms, conditions, waivers, modifications,
alterations and cancellations as the Insurance Contracts. Zenith accepts and
assumes the Insurance Liabilities in accordance with the terms of this
Agreement and subject to all defenses, setoffs and counterclaims to which the
Insurance Subsidiaries would be entitled with respect to the Insurance
Contracts. The parties agree that no such defenses, setoffs or counterclaims
are waived under this Agreement and that as of the Effective Date, Zenith
shall be fully subrogated to all such defenses, setoffs and counterclaims and
be entitled to the full benefits thereof.
Section 2.3. REINSURANCE ENDORSEMENTS. Zenith shall promptly issue
an Endorsement to each holder of an Insurance Contract, as an endorsement to
this Agreement for the benefit of such holder.
ARTICLE III.
CONSIDERATION
Section 3.1. INITIAL CONSIDERATION. In consideration of Zenith's
assumption of the Insurance Liabilities hereunder, each of the Insurance
Subsidiaries hereby transfers (i) to Zenith an initial reinsurance premium
equal to one percent (1%) of the gross unearned premium reserve of such
Insurance Subsidiary as of the Effective Date with respect to such Insurance
Subsidiary's Insurance Contracts calculated in accordance with SAP and (ii)
to the Trustee for deposit in the appropriate Trust Account an amount equal
to the sum of (A) thirty-three percent (33%) of such gross unearned premium
reserve as of the Effective Date and (B) (1) $12 million, in the case of RIC,
and (2) $5 million, in the case of RP&C.
Section 3.2. FUTURE CONSIDERATION. As additional consideration for
Zenith's assumption of the Insurance Liabilities hereunder, each of the
Insurance Subsidiaries shall transfer (i) to Zenith as additional reinsurance
premiums an amount equal to one percent (1%) of the direct gross premiums
written by such Insurance Subsidiary on or after the Effective Date with
respect to such Insurance Subsidiary's Insurance Contracts and (ii) to the
Trustee for deposit in the appropriate Trust Account thirty-three percent
(33%) of any direct gross premiums written in excess of the Expected Amount
by such Insurance Subsidiary on or after the Effective Date with respect to
the Insurance Contracts.
Section 3.3. ADDITIONAL REINSURANCE PREMIUM. In the event that
Zenith pays any amount of Insurance Liabilities pursuant to this Agreement,
the applicable Insurance Subsidiary shall pay to Zenith, as additional
reinsurance premium, an amount equal to such Insurance Liabilities so paid.
Section 3.4. RETURN OF REINSURANCE PREMIUM. Upon the termination of
the Purchase Agreement pursuant to its terms, Zenith shall cause the Trustee
to remit to the Insurance Subsidiaries the amount (if any) by which (i) $17
million exceeds (ii) thirty-three percent (33%) of the aggregate
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<PAGE>
direct gross premiums written by both Insurance Subsidiaries on and after the
Effective Date with respect to the Insurance Contracts.
ARTICLE IV.
ASSIGNMENT OF CEDED REINSURANCE AGREEMENTS
Section 4.1. ASSIGNMENT. As of the Effective Date, each of the
Insurance Subsidiaries hereby transfers, sets over, assigns and conveys to
Zenith all of such Insurance Subsidiary's right, title and interest under the
reinsurance agreements set forth on Schedule A hereto to the extent that any
such agreement relates to Insurance Liabilities actually paid by Zenith
pursuant to this Agreement (collectively, the "Subsidiaries' Reinsurance
Agreements"), including (i) amounts held by or which may become due from
assuming reinsurers with respect to any Subsidiaries' Reinsurance Agreement,
and (ii) letters of credit, trust funds and other security mechanisms
outstanding for the benefit of the Insurance Subsidiaries pursuant to the
terms of any of the Subsidiaries' Reinsurance Agreements.
The Insurance Subsidiaries shall reasonably cooperate with Zenith in
obtaining the consent of reinsurers under the Subsidiaries' Reinsurance
Agreements to such assignment.
Section 4.2. CEDED REINSURANCE COLLATERAL. To the extent necessary
to effect transfer of any Subsidiaries' Reinsurance Agreement, each Insurance
Subsidiary hereby appoints Zenith as attorney-in-fact for such Insurance
Subsidiary to act for and on behalf of it with respect to letters of credit,
trust funds and other security mechanisms outstanding for the benefit of such
Insurance Subsidiary pursuant to the terms of any of the Subsidiaries'
Reinsurance Agreements, and such Insurance Subsidiary shall execute and
deliver to Zenith such additional instruments as Zenith may reasonably
request to give effect to such appointment as attorney-in-fact, and to
provide appropriate evidence that the Insurance Subsidiaries have assigned to
Zenith all of their rights under the Subsidiaries' Reinsurance Agreements
with respect to any such letters of credit, trust funds or other accounting
mechanism.
ARTICLE V.
ADMINISTRATION
Section 5.1. ADMINISTRATION. Notwithstanding anything to the contrary
in this Agreement, the Insurance Subsidiaries shall not, without the prior
written consent of Zenith (a) settle any claims relating to the Insurance
Contracts, other than in the ordinary course of business and consistent with
past practice, or (b) settle any litigation relating to the Insurance
Contracts for more than $100,000.
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<PAGE>
ARTICLE VI.
GENERAL PROVISIONS
Section 6.1. INSPECTION. Zenith and the Insurance Subsidiaries,
or their designated representatives, may inspect, at the place where such
records are located, any and all books and records of the other parties
hereto reasonably relating to this Agreement, during normal business hours
and upon reasonable notice. The rights of the parties under this Section 6.1
shall survive termination of this Agreement.
Section 6.2. MISUNDERSTANDINGS AND OVERSIGHTS. Any delay,
omission, error or failure to pay amounts due or to perform any other act
required by this Agreement that is unintentional and caused by
misunderstanding or oversight shall not be held to relieve either party to
this Agreement from any obligation hereunder if such delay, omission, error
or failure is corrected within 20 Business Days of receipt of notice of such
delay, omission, error or failure and neither party shall have been
prejudiced.
Section 6.3. ADJUSTMENTS. If the liability of any of the
Insurance Subsidiaries under any of the Insurance Contracts is changed as a
result of a change required by law or regulation or any other reason, Zenith
will share in the change proportionately to the amount reinsured hereunder.
Section 6.4. COMMUNICATIONS RELATING TO THE INSURANCE CONTRACTS.
After the Effective Date, the Insurance Subsidiaries and Zenith each shall
forward promptly to the other copies of all notices and other written
communications it receives relating to the Insurance Contracts (including,
without limitation, all inquiries and complaints from state insurance
regulators, brokers and other service providers and reinsurers and all
notices of claims, suits and actions for which it receives service of
process).
Section 6.5. DUTY OF COOPERATION. The Insurance Subsidiaries and
Zenith shall cooperate fully with the other in all reasonable respects in
order to accomplish the objectives of this Agreement.
Section 6.6. SUBROGATION. Zenith shall be subrogated, as respects
any loss for which Zenith shall actually pay or become liable, but only to
the extent of the amount of payment by or the amount of liability to Zenith,
to all the rights of the applicable Insurance Subsidiary against any person
or other entity who may be legally responsible in damages for said loss. In
addition, in such event, Zenith shall have all of the rights of the Insurance
Subsidiaries to any collateral that secures obligations arising out of the
applicable Insurance Contract. Zenith is hereby authorized and empowered to
bring any appropriate action in the name of the such Insurance Subsidiary or
otherwise to enforce such rights. Zenith's obligation to make payment of any
Insurance Liabilities shall also be conditioned on the agreement of the
policyholder under each applicable Insurance Contract that Zenith shall be
subrogated to all rights of such policyholder against the applicable
Insurance Subsidiary and/or any applicable guarantee funds.
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<PAGE>
Section 6.7 INDEMNIFICATION. The Insurance Subsidiaries' sole and
exclusive remedy with respect to a breach of this Agreement shall be the
indemnities provided by Section 9.02 of the Purchase Agreement, except that
any dispute between the parties arising hereunder for which such indemnities
are being sought shall be subject to arbitration pursuant to Article X hereof.
ARTICLE VII.
ACCOUNTING
Section 7.1. ACCOUNTING REPORTS. On or before the last day of
each month following the Effective Date, each of the Insurance Subsidiaries
will render a written statement of account to Zenith and the Insurance
Commissioner showing reinsurance premium due Zenith with respect to the prior
month and amounts to be deposited in the Trust Account established by it.
Concurrent with the delivery of the statement of account for each month, each
Insurance Subsidiary shall remit to the Trustee any amounts due under such
account.
In the event of any dispute between Zenith and any Insurance
Subsidiary, the undisputed portion of the amount due shall be paid
immediately. The parties will promptly clarify the amount of difference, and
the difference shall be paid promptly thereafter.
Section 7.2. REPORTS TO INSURANCE DEPARTMENTS. During the term of
this Agreement, Zenith and the Insurance Subsidiaries will promptly furnish
to the other, copies of any and all filings with, and reports or
communications received from, any regulatory authority which relate directly
and materially to the Insurance Contracts.
Section 7.3. UNDERWRITING REPORTS. Concurrent with the delivery of
the reports delivered pursuant to Section 7.1 of this Agreement, each of the
Insurance Subsidiaries will render to Zenith and the Insurance Commissioner a
written report showing the number of Insurance Contracts issued by such
Insurance Subsidiary during the prior month and the premium charged with
respect to each such Insurance Contract; PROVIDED, HOWEVER, that with respect
to Insurance Contracts subject to any retrospective premium adjustment, such
reports shall be delivered weekly, on or before Friday of each week with
respect to Insurance Contracts issued during the prior week. In addition,
such Insurance Subsidiary shall concurrently with each weekly report deliver
a certificate signed by a duly authorized officer of such Insurance
Subsidiary, certifying that each such Insurance Contract was issued in
compliance with the underwriting guidelines attached as Exhibit B hereto.
ARTICLE VIII.
TERMINATION
Section 8.1. TERMINATION. Except as mutually agreed by the
Insurance Subsidiaries and Zenith following 60 days advance written notice by
the Insurance Subsidiaries and Zenith to the Insurance Commissioner of an
intent to terminate this Agreement, this Agreement shall terminate
-6-
<PAGE>
when all Insurance Contracts expire and Zenith shall remain liable for losses
occurring subsequent to the natural expiry of the Insurance Contracts.
ARTICLE IX.
INSOLVENCY
Section 9.1. PAYMENTS BY ZENITH. In the event that any Insurance
Subsidiary shall be declared insolvent under applicable insurance law
pursuant to court order, Zenith will pay to each policyholder or other
claimant under an Insurance Contract that is identified in an Endorsement
issued pursuant to Section 2.3 hereof, as a direct beneficiary of this
Agreement, the remaining unpaid Insurance Liabilities due under such
Insurance Contract as the direct obligation of Zenith. A list of the initial
insureds to be issued an Endorsement is attached hereto as Schedule B. Such
Schedule shall be deemed amended automatically as to any Endorsements that
are issued pursuant to this Agreement with respect to Insurance Contracts
issued on or after the Effective Date.
ARTICLE X.
ARBITRATION
Section 10.1. APPOINTMENT OF ARBITRATORS. Any dispute or
difference arising under this Agreement that cannot be resolved by agreement
among the parties hereto shall be decided by arbitration in accordance with
this Article X. Any such arbitration shall be conducted expeditiously and
confidentially in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") as such rules shall be in effect on
the date of delivery of demand for arbitration. Any such arbitration shall
be heard and conducted in New York, New York. Notwithstanding the rules of
the AAA, the arbitration panel in any such arbitration shall consist of three
persons who must be disinterested current or retired officers of insurance or
reinsurance companies other than the parties to this Agreement or their
affiliates. Within twenty days of delivery of any demand for arbitration
hereunder, the applicable Insurance Subsidiary and Zenith shall each appoint
one arbitrator, and the two arbitrators so selected shall appoint the third
arbitrator within twenty days of their appointment. In the event the two
selected arbitrators are unable to agree upon the selection of a third
arbitrator after reasonable efforts, a panel of seven qualified persons shall
be requested from the AAA. The parties shall alternately strike one person
with the last remaining person being the third designated arbitrator. Each
party shall pay the fees of its own attorneys, expenses of witnesses and all
other expenses connected with the presentation of such party's case.
One-half of any remaining costs of any arbitration, including the cost of the
record or transcripts thereof, if any, administrative fees and all other fees
involved shall be paid by Zenith, and the remaining one-half shall be paid by
the applicable Insurance Subsidiary.
Section 10.2. DECISION. The arbitrators shall consider customary
and standard practices in the insurance business. They shall decide by a
majority vote of the arbitrators. All decisions of the arbitrators shall be
made in accordance with the laws of the State of Florida without
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<PAGE>
regard to conflict of laws principles. Any award rendered by the arbitrators
shall be accompanied by a written opinion setting forth the findings of fact
and conclusions of law relied upon in reaching their decision. There shall
be no appeal from their written decision. Judgment may be entered on the
decision of the arbitrators by any court having jurisdiction.
Section 10.3. CONFIDENTIALITY. Zenith and each of the Insurance
Subsidiaries agree that the existence, conduct and content of any arbitration
shall be kept confidential and no party shall disclose to any person any
information about such arbitration, except as may be required by law or for
financial reporting purposes in each party's financial statements.
Section 10.4. SURVIVAL OF ARTICLE. This Article X shall survive
termination of this Agreement.
Section 10.5. OTHER ACTIONS. Submission of a matter to arbitration
shall be a condition precedent to any right to institute a proceeding at law
or in equity concerning such matter, except for injunctive or other
provisional relief pending the arbitration of a matter subject to arbitration
pursuant to this Agreement.
ARTICLE XI.
TRUST ACCOUNTS
Section 11.1. TRUST AGREEMENTS. To provide for the prompt, due and
complete payment of the obligations of each Insurance Subsidiary to pay
reinsurance premiums to Zenith under this Agreement, each Insurance
Subsidiary shall establish, pursuant to a Trust Agreement, and maintain, for
the benefit of Zenith, a Trust Account into which certain assets are
transferred, conveyed and deposited into trust pursuant to the Trust
Agreement.
Section 11.2. TRUST ACCOUNTS. (a) Zenith and each of the Insurance
Subsidiaries agree that the assets in the Trust Accounts may be withdrawn by
Zenith in accordance with the procedures set forth in the Trust Agreements,
PROVIDED such assets are applied and utilized by Zenith (or any successor of
Zenith by operation of law, including, without limitation, any liquidator,
rehabilitator, receiver or conservator of Zenith) without diminution because
of the insolvency of Zenith or any Insurance Subsidiary, to satisfy the
obligations of an Insurance Subsidiary to pay to Zenith any reinsurance
premium due to Zenith from such Insurance Subsidiary pursuant to this
Agreement.
(b) Zenith and each of the Insurance Subsidiaries agree that the
assets in the Trust Accounts may not be withdrawn by or for the benefit of
the Insurance Subsidiaries except as provided in the Trust Agreements.
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<PAGE>
ARTICLE XII.
REPRESENTATIONS AND WARRANTIES OF INSURANCE SUBSIDIARIES
The Insurance Subsidiaries hereby represent and warrant to Zenith
that the following statements are true and correct as of the date hereof or
such other time as may be specified in such statements.
Section 12.1. SOLVENCY. After giving effect to the transactions
contemplated by this Agreement, the Insurance Subsidiaries, individually and
on a consolidated basis, are solvent, able to pay their debts as they mature,
have capital sufficient to carry on their businesses and all businesses in
which they are about to engage, and:
(i) the assets of the Insurance Subsidiaries, individually and on
a consolidated basis, at a fair evaluation, exceed the total
liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities other than any such liabilities
arising pursuant to Article IX of the Purchase Agreement) of
the Insurance Subsidiaries;
(ii) current projections which are based on underlying assumptions
which provide a reasonable basis for the projections and
which reflect the Insurance Subsidiaries' judgment based on
present circumstances, the most likely set of conditions and
the Insurance Subsidiaries most likely course of action for
the period projected, demonstrate that the Insurance
Subsidiaries, individually and on a consolidated basis, will
have sufficient cash flow to enable them to pay their debts
as they mature or the Insurance Subsidiaries are reasonably
satisfied that they will be able to refinance such debt at or
prior to maturity on commercial reasonable terms; and
(iii) the Insurance Subsidiaries, individually and on a
consolidated basis, do not have unreasonably small capital
base with which to engage in their anticipated businesses.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
Section 13.1. HEADINGS. Headings used herein are not a part of
this Agreement and shall not affect the terms hereof.
Section 13.2. NOTICES. All notices and communications hereunder
shall be in writing and shall be deemed given if delivered personally or sent
by overnight delivery service (providing for proof of delivery). All notices
or communications with Zenith under this Agreement shall be directed to:
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<PAGE>
Zenith Insurance Company
21255 Califa Street
Woodland Hills, CA 91367-5021
Attention: Stanley R. Zax
with copies to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Alexander M. Dye, Esq.
and
Florida Department of Insurance
200 E. Gaines Street
Tallahassee, Florida 32399-0329
Attention: Wayne Johnson
All notices and communications with the Insurance Subsidiaries under this
Agreement shall be directed to:
RISCORP, Inc.
1390 Main Street
Sarasota, Florida 34236
Attention: Walter E. Riehemann, Esq.
with copies to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309-3424
Attention: J. Vaughan Curtis, Esq.
Polsinelli, White, Vardeman & Shalton
Suite 1000 Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
Attention: Robert B. Sullivan, Esq.
and
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<PAGE>
Florida Department of Insurance
200 E. Gaines Street
Tallahassee, Florida 32399-0329
Attention: Wayne Johnson
Section 13.3. SEVERABILITY. If any term or provision of this
Agreement shall be held void, illegal or unenforceable, the validity of the
remaining portions or provisions shall not be affected thereby.
Section 13.4. SUCCESSORS AND ASSIGNS. This Agreement may not be
assigned by either party without the prior written consent of the other. The
provisions of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
and assigns as permitted herein.
Section 13.5. INTERPRETATION. For purposes of this Agreement, the
words "hereof," "herein," "hereby" and other words of similar import refer to
this Agreement as a whole unless otherwise indicated. Whenever the words
"include", "includes", or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation". Whenever the
singular is used herein, the same shall include the plural, and whenever the
plural is used herein. the same shall include the singular, where appropriate.
Section 13.6. EXECUTION IN COUNTERPARTS. This Agreement may be
executed by the parties hereto in any number of counterparts and by each of
the parties hereto in separate counterparts, each of which counterparts, when
so executed and delivered, shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
Section 13.7. AMENDMENTS; ENTIRE AGREEMENT. This Agreement may be
amended only by written agreement of the parties. This Agreement, together
with the Purchase Agreement and the Ancillary Agreements, supersedes all
prior discussions and written and oral agreements and constitutes the sole
and entire agreement between the parties with respect to the subject matter
hereof.
Section 13.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF FLORIDA, WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAWS THEREOF.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first
above written.
ZENITH INSURANCE COMPANY
By: /s/ STANLEY R. ZAX
--------------------------------
Name: Stanley R. Zax
Title: Chairman & President
RISCORP INSURANCE COMPANY
By: /s/ FREDERICK DAWSON
--------------------------------
Name: Frederick Dawson
Title: Chief Executive Officer
RISCORP PROPERTY & CASUALTY
INSURANCE COMPANY
By: /s/ FREDERICK DAWSON
--------------------------------
Name: Frederick Dawson
Title: Chief Executive Officer
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<PAGE>
SCHEDULE A
REINSURANCE AGREEMENTS
1. Workers Compensation Quota Share Reinsurance Agreement (No. 2078-0001)
between RISCORP Insurance Company, RISCORP Property and Casualty
Insurance Company and American Re-Insurance Company effective as of
12:01 a.m. January 1, 1995.
2. Reinsurance Agreement between RISCORP Insurance Company, RISCORP
Property and Casualty Insurance Company and CNA.
<PAGE>
SCHEDULE B
INITIAL INSUREDS
----------------
[RISCORP TO PROVIDE]
<PAGE>
EXHIBIT A
ENDORSEMENT
-----------
This Endorsement is issued by Zenith Insurance Company, a California
stock insurance company (hereinafter "Reinsurer"), for the benefit of [ ]
(hereinafter "Payee"). This Endorsement is part of and shall attach to the
Interim Reinsurance Agreement by and among Reinsurer, RISCORP Insurance
Company and RISCORP Property & Casualty Insurance Company, effective as of
June 18, 1997 (hereinafter, "Reinsurance Agreement").
The Reinsurer and [ ], a Florida stock insurance company
(hereinafter, "Company"), have entered into the Reinsurance Agreement with
respect to the loss payment obligations under the Company's Policy Number
[ ](hereinafter "Policy") to the extent that such obligations relate to
losses occurring on or after June 18, 1997 ("reinsured losses"). Pursuant to
the Reinsurance Agreement, the Company and the Reinsurer have agreed as
follows:
1. In the event that the Company is declared insolvent under applicable
insurance law pursuant to court order, the Reinsurer shall become
liable to pay 100% of the reinsured losses directly to the Payee, or
other claimant under the Policy, as a direct beneficiary under the
Reinsurance Agreement. In addition, in such event, the Reinsurer shall
become liable to pay 100% of any return premiums due under the Policy.
2. The Reinsurer's obligation to make payments directly to the Payee or
other claimant pursuant to this Endorsement and the Reinsurance
Agreement shall be limited by the Company's liability under the terms,
limits and conditions contained in the Policy.
3. The Reinsurer's obligation to make payment directly to the Payee or
other claimant pursuant to this Endorsement and the Reinsurance
Agreement shall be conditioned on the Payee's agreement that the
Reinsurer shall be entitled to all rights of the Company under the
Policy, including but not limited to subrogation rights and any rights
the Company may have to collateral securing obligations arising under
the Policy. The Reinsurer's obligation to make such payment shall also
be conditioned on the Payee's agreement that the Reinsurer shall be
subrogated to all rights of the Payee against the Company and/or any
applicable guarantee funds.
4. The application of this Endorsement to the Reinsurance Agreement shall
terminate upon the cancellation of the Policy. In the event the
Reinsurance Agreement is terminated, this Endorsement shall survive
until the end of the Policy period in which the Endorsement was issued.
IN WITNESS WHEREOF Zenith Insurance Company has issued this
Endorsement on this day of , 1997.
ZENITH INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
UNDERWRITING GUIDELINES
-----------------------
Accounts with one or more of the following characteristics should not be
written without prior approval from Zenith.
1. Current year Loss Ratio in excess of 150%.
2. Two years of preceding 3 years with Loss Ratios in excess of 100%.
3. Gaps in coverage during the past 3 years.
4. Debtor in Possession (Chapter 11).
5. New Venture or Material Change in Ownership during past 12 months.
6. Level of Exposure not contemplated by classification.
7. More than 25% of Gross Receipts paid to Sub-Contractors.
8. Engage in the providing of Temporary Help to others or Employee Leasing.
9. Engaged in Interstate Trucking.
10. New and Renewal Retrospectively Rated Policies other than those in
accordance with agreed parameters and reported weekly to Zenith
11. New & Renewal Participating Policies other than those in accordance with
agreed parameters and reported weekly to Zenith.
12. New & Renewal Deferred Premium Plans other than those in accordance with
agreed parameters and reported weekly to Zenith.
13. New & Renewal Policies with Commissions greater than 10%.
14. New & Renewal Policies with Deposit Premiums of less than:
10% (if subsequent billings are monthly)
30% (if subsequent billings are quarterly)
60% (if subsequent billing is semi-annual)
100% (if no interim billings)
<PAGE>
EXECUTION COPY
7/8/97
==============================================================================
TRUST AGREEMENT
by and among
RISCORP INSURANCE COMPANY, as grantor,
and
ZENITH INSURANCE COMPANY, as beneficiary,
and
FIRST UNION NATIONAL BANK, as trustee
Dated as of June 18, 1997
==============================================================================
<PAGE>
TRUST AGREEMENT
THIS TRUST AGREEMENT (this "Agreement"), dated as of June 18, 1997,
is entered into by and among RISCORP INSURANCE COMPANY, a stock insurance
company organized under the laws of the State of Florida ("Riscorp"), as
grantor, and ZENITH INSURANCE COMPANY, a stock insurance company organized
under the laws of the State of California ("Zenith"), as beneficiary, and
First Union National Bank, as trustee, a national banking association
organized and existing under the laws of the United States of America
("Trustee").
W I T N E S S E T H
WHEREAS, Zenith and Riscorp have entered into an Interim Reinsurance
Agreement dated as of June 18, 1997 (the "Reinsurance Agreement"), pursuant
to which Zenith has agreed to accept reinsurance ceded by Riscorp;
WHEREAS, Riscorp desires to establish a trust account hereunder and
deliver certain assets into trust for the benefit of Zenith to assure that
Zenith will have access to sufficient assets in the event that Riscorp
becomes unable to meet its obligations under the Reinsurance Agreement to pay
reinsurance premiums to Zenith;
WHEREAS, Trustee is willing to act as trustee of the trust account
to be established hereunder; and
WHEREAS, the Florida Department of Insurance (the "Department") has
approved this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and upon the terms and conditions set forth herein,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set forth
below throughout the Agreement:
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"ASSETS" shall mean the assets of Riscorp, title to which is
transferred and delivered by Riscorp to the Trustee to be maintained by the
Trustee in the Trust Account, and held in trust for the sole and exclusive
benefit of Zenith, pursuant to this Agreement, and in which Riscorp has a
reversionary interest upon termination of this Agreement.
"AUTHORIZED INVESTMENTS" shall have the meaning set forth in Section
2.03 hereof.
<PAGE>
"BOOK-ENTRY SYSTEM" shall mean a book-entry system for Authorized
Investments maintained at a clearing corporation (as defined in the Uniform
Commercial Code).
"BUSINESS DAY," for purposes of this Agreement, shall mean any day
which is not a Saturday, Sunday or other day on which banks located in the
State of Florida are authorized or required by law to remain closed. Any
payment due hereunder on a day that is not a Business Day shall be due and
payable on the next succeeding Business Day.
"CASH EQUIVALENTS" means, as of any particular date, money market
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit (not exceeding $100,000), bankers'
acceptances and other similar liquid investments, in each case with a
maturity date of not more than 90 days from the date on which any such
instrument is transferred pursuant to the terms of this Agreement, the market
value of which on the date of transfer will be counted as equivalent to cash
for purposes of satisfying the aggregate amount of cash and Cash Equivalents
required to be transferred as described in Section 2.01 hereof.
"CREDITED TO THE TRUST ACCOUNT" means: (a) in the case of
securities, (i) the making by the Trustee of an appropriate recordation on
the pertinent books and records of the Trustee that the Assets constituting
securities that are Delivered from time to time are being held in the Trust
Account, for the benefit of Zenith, and (ii) the sending by the Trustee, to
Zenith, of a written confirmation of the Delivery clearly identifying the
Delivered Assets by types, issuers, numbers, amounts, maturities and other
descriptions customary in the banking and securities industries; and (b) in
the case of cash, the deposit of cash Assets into the Trust Account. The
confirmation described in (a)(ii) above shall be forwarded to Zenith within
one (1) Business Day of the Delivery by the Trustee of Delivered Assets to
the Trust Account.
"DELIVER" means (A) in the case of Assets in the form of cash, to
transfer by wire to the Trustee, without any offset and free and clear of all
liens, claims and interests (other than any interest created by this
Agreement); and (B) in the case of Assets in the form of Authorized
Investments, the ownership of which is transferred by possession of a
physical certificate, delivery, free and clear of all liens, claims and
interests (other than the interest created by this Agreement) of a physical
certificate or certificates representing such Assets in suitable form for
delivery and transfer, either registered in the name of the party to whom
Delivery is effected, its nominee or accompanied by duly executed instruments
of transfer or assignment in blank, and, in any case, accompanied by any
required transfer tax stamps, or (C) in the case of Authorized Investments in
book-entry form, (i) the issuance by Riscorp or any other person of
entitlement orders or instructions appropriate to cause such Assets to be
credited by a clearing corporation, including, where appropriate, any Federal
Reserve Bank, to a securities account of the Trustee at such clearing
corporation; (ii) by the making by the relevant clearing corporation of an
appropriate recordation that such Assets have been credited to a securities
account of the Trustee at such clearing corporation; and (iii) the sending of
an appropriate confirmation from such clearing corporation to the Trustee
that it holds such Assets in such securities account. The terms "Delivery"
used as a noun or "Delivered" used as an adjective or participle have a
corresponding meaning.
"LIENS" shall mean any security interest, mortgage, pledge, charge,
hypothecation, assignment, encumbrance, lien (statutory or other), or
preference, priority or other security
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<PAGE>
arrangement of any kind or nature whatsoever, and the filing of any financing
statement or similar instrument under the Uniform Commercial Code, the common
law or other applicable law of any jurisdiction, domestic foreign.
"PROCEEDS" shall mean, collectively: (a) any cash, instruments,
securities or other rights or property received from the sale, lease,
exchange or other disposition of any Assets, (b) any cash, instruments,
securities or other property collected on or with respect to any Assets,
whether in the ordinary course of business, upon realization on any Assets or
otherwise, including, without limitation, any payments of principal,
interest, premium or dividends with respect to the Assets, and (c) any
proceeds of any guaranty, indemnity, hold-harmless arrangement, letter of
credit, insurance, co-insurance or re-insurance covering all or any portion
of the Assets.
"REINSURANCE AGREEMENT" has the meaning set forth in the first
recital hereof.
"REINSURANCE OBLIGATIONS" shall mean all of Riscorp's now existing
and hereafter arising or assumed actual and contingent obligations and
liabilities to Zenith under the Transaction Documents, as the same may be
amended, modified, extended, supplemented and/or restated or novated from
time to time.
"RISCORP" shall have meaning set forth in the introductory paragraph.
"SECURITIES" means corporate securities with a rating of AA or
better by Standard & Poors Corporation, and any and all related security
entitlements. In determining whether any corporate securities are rated AA or
better by Standard & Poors Corporation, the Trustee shall be fully protected
in relying on any written advice of Zenith.
"TERMINATION CERTIFICATE" shall have the meaning set forth in
Section 6.02 hereof.
"TRANSACTION DOCUMENTS" shall mean, collectively this Agreement and
the Reinsurance Agreement.
"TREASURIES" means security entitlements in and to debt obligations,
having a maturity of not more than two years, of the United States Department
of the Treasury.
"TRUST ACCOUNT" shall have the meaning set forth in Section 2.01
hereof.
"TRUSTEE" shall have the meaning set forth in the introductory
paragraph hereof.
"WRITTEN NOTIFICATIONS" shall have the meaning set forth in Section
3.04 hereof.
"ZENITH" shall have the meaning set forth in the introductory
paragraph and in Section 6.05 hereof.
"ZENITH'S BENEFICIAL INTEREST" shall mean Zenith's beneficial
interest in the Assets, as set forth and limited herein.
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<PAGE>
ARTICLE II
PROVISIONS RELATING TO THE TRUST ACCOUNT
----------------------------------------
Section 2.01. ESTABLISHMENT OF TRUST ACCOUNT; INITIAL DELIVERY OF
ASSETS. The Trustee shall establish a trust account (the "Trust Account") in
the name of the Trustee, as trustee for the benefit of Zenith and such Trust
Account shall bear the designation "First Union National Bank, as trustee,
for the benefit of Zenith Insurance Company." Pursuant to the Reinsurance
Agreement and in accordance with the terms thereof, Riscorp agrees to Deliver
to the Trustee on the Business Day following the date of execution of this
Agreement and the Reinsurance Agreement cash, Cash Equivalents, Treasuries
and Securities with a market value of at least $35 million, and the Trustee
shall cause to be Credited to the Trust Account such amount. Riscorp hereby
transfers, assigns and conveys to the Trustee, for the benefit of Zenith, all
right, title and interest of Riscorp in the Assets in the Trust Account.
Section 2.02. AUTHORIZATION AND POWER OF TRUSTEE. Trustee and its
lawfully appointed successors are authorized and shall have the power to (a)
receive such additional Assets as Riscorp from time to time may transfer or
remit to or vest in Trustee or place in Trustee's hands or under Trustee's
control or such additional Assets as are otherwise deposited in the Trust
Account and (b) hold, invest, reinvest, manage and dispose of the same for
the uses and purposes and in the manner and according to the provisions
hereinafter set forth. All such Assets at all times shall be maintained as a
trust account, separate and distinct from all other assets of the Trustee and
Riscorp, and all Assets shall be continuously kept in a safe place at
Trustee's office within the United States of America.
Section 2.03. AUTHORIZED INVESTMENTS. Assets initially credited to
the Trust Account shall consist only of cash, Cash Equivalents, Treasuries
and Securities, and any investments and reinvestments thereof shall consist
only of cash, Cash Equivalents and Treasuries (the "Authorized Investments").
Section 2.04. ASSIGNMENTS AND ENDORSEMENTS. Zenith and Riscorp
shall, upon execution of this Agreement and from time to time thereafter as
required, execute assignments or endorsements in blank of all securities, or
other property, standing in the name of Riscorp, as appropriate which are
delivered to Trustee to form a part of the Trust Account so that, whenever
necessary, Assets held in the Trust Account can be negotiated as provided
herein without the consent or signature of Riscorp, or of any other person or
entity. Any Assets received by Trustee which are not in such proper
negotiable form shall not be accepted by Trustee and shall be returned to
Riscorp as unacceptable. In addition, Trustee may hold Assets of the Trust
Account in bearer form or in its own name or that of a nominee.
Section 2.05. REINVESTMENT OF PROCEEDS OF AUTHORIZED INVESTMENTS.
All proceeds, including payments of interest, dividends and, upon maturity,
principal actually received in respect of Assets in the Trust Account shall
be reinvested by the Trustee, at the direction of Riscorp, in cash, Cash
Equivalents and Treasuries, and Credited to the Trust Account.
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<PAGE>
Section 2.06. WITHDRAWALS. (a) Withdrawals from the Trust Account
may be made by or at the direction of Zenith at any time and from time to
time, with concurrent notice to, but without the necessity for any consent
of, Riscorp and the Department, solely for the purpose of paying reinsurance
premiums pursuant to the Reinsurance Agreement, upon the issuance by Zenith
of a written instruction to the Trustee. No other statements or documents
need be presented by Zenith in order to withdraw or direct the withdrawal of
Assets, except that, prior to the initial withdrawal, Zenith agrees that it
will present to the Trustee a certified copy of an order or other appropriate
document issued by a court or the Department declaring Riscorp insolvent
under applicable insurance law, and Zenith may be required by Trustee to
acknowledge receipt of withdrawn Assets. Upon receipt of an instruction from
Zenith directing a withdrawal, Trustee shall immediately take any and all
necessary steps to transfer absolutely and unequivocally to Zenith or as
otherwise directed by Zenith all right, title and interest in the Assets
being withdrawn, and to deliver the custody thereof to Zenith or as otherwise
directed by Zenith. Trustee shall be protected in relying upon any
instruction by Zenith for withdrawal of Assets.
(b) No withdrawals from the Trust Account may be made by, for
the benefit of, or at the direction of Riscorp, except upon the termination
of this Trust Agreement or, at the direction of Zenith, in accordance with
Section 3.04 of the Reinsurance Agreement.
Section 2.07. ACCOUNTINGS AND NOTICES. Trustee shall furnish to
Zenith and Riscorp an accounting of all Assets in the Trust Account upon its
inception and thereafter at intervals no less frequent than as of the end of
each month, valued in accordance with their current market value. Such
accounting shall be given as soon as practicable, but in no event later than
30 days after such date.
Section 2.08. CREDIT FOR ASSETS. Riscorp and Zenith agree that, so
long as Riscorp shall not be declared insolvent under applicable insurance
law pursuant to court order, the Assets shall be admitted assets of Riscorp.
ARTICLE III
PROVISIONS RELATING TO TRUSTEE
------------------------------
Section 3.01. QUALIFICATIONS. The Trustee shall be a bank or trust
company which is a member of the Federal Reserve System of the United States
of America with capital and surplus in excess of $1,000,000,000 and shall not
be an Affiliate of Zenith or Riscorp.
Section 3.02. COMPENSATION. The Trustee shall be entitled to
receive, as compensation for its services hereunder, an annual fee, computed
and payable quarterly in advance, at such rate as may be agreed from time to
time in writing between the Trustee and Riscorp. Riscorp shall be solely
responsible for the payment of the fee of the Trustee and all reasonable
expenses of the Trustee, including reasonable fees of counsel. The Trust
Account shall not be utilized for the payment of such fees and expenses
except in the event that Riscorp shall fail to pay such fees or expenses.
-5-
<PAGE>
Section 3.03. FIDUCIARY RELATIONSHIP; LIABILITY. The Trustee shall
receive and hold all Assets transferred to it in a fiduciary capacity. The
Trustee shall be liable for the safekeeping of the Assets and administration
of the Trust Account in accordance with provisions of this Agreement. The
Trustee shall not be liable nor responsible for any loss to the Trust Account
unless such loss shall be caused by its own negligence, wilful misconduct or
lack of good faith or failure to comply with its obligations under this
Agreement.
Section 3.04. RELIANCE ON WRITTEN NOTIFICATIONS. Subject to its
obligations under Section 3.03 hereof, the Trustee shall be protected in
acting upon any Termination Certificate, statement, instruction, direction,
notice, resolution, request, consent, order, certificate, report, appraisal,
opinion, telegram, telex, letter or other paper or document (collectively,
"Written Notifications") believed by the Trustee to be genuine and to have
been signed, sent or presented by the proper party or parties. All Written
Notifications to the Trustee (unless otherwise provided therein) shall be
deemed to be effective when received by the Trustee.
Section 3.05. PROOF OF CERTAIN MATTERS. Whenever the Trustee, in
the administration of the Trust Account created by this Agreement, shall deem
it necessary or desirable that a matter be proved or established prior to
taking, suffering or omitting any action thereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a Written Notification
signed by or on behalf of Zenith or Riscorp, as appropriate, and delivered to
the Trustee, and said Written Notification shall be full warrant to the
Trustee for any action taken, suffered or omitted by it on the faith thereof;
however, in its discretion, the Trustee may in lieu thereof accept other
evidence of the fact or matter or may require such other or additional
evidence as it may deem reasonable.
Section 3.06. DESIGNATION OF AUTHORIZED OFFICERS. Except when
otherwise expressly provided in this Agreement, any Written Notification to
be delivered or furnished by Zenith or Riscorp shall be sufficiently executed
if executed in the name of Zenith or Riscorp by such officer or officers of
Zenith or Riscorp or by such other agent or agents of Zenith or Riscorp as
may be designated in a resolution certified, or a letter of advice executed,
by an authorized officer of Zenith or Riscorp. Written notice of such
designation by Zenith or Riscorp shall be filed with the Trustee. The
Trustee shall be protected in acting upon any Written Notification made by
such officer or agent of Zenith or Riscorp with respect to the authority
conferred on him.
Section 3.07. RECORDS. The Trustee shall keep full and complete
records of the administration of the Trust Account. Zenith and/or Riscorp
may examine such records at any time during business hours. Such
examinations may be made by any person or persons duly authorized in writing
by Zenith or Riscorp.
Section 3.08. ACCEPTANCE OF TRUST; RESIGNATION. (a) The Trustee
hereby accepts the trust herein created and declared upon the terms herein
expressed.
(b) The Trustee may resign, by written resignation, effective
not less than 90 days after receipt thereof by Zenith and Riscorp, and Zenith
and Riscorp may remove the Trustee at any time, without assigning any cause
therefor, by the delivery to the Trustee of a written notice of removal
(executed by Zenith and Riscorp), effective not less than 90 days after
receipt by the
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<PAGE>
Trustee of the notice, provided that no such resignation or removal shall be
effective until a successor trustee has been appointed by Zenith and Riscorp
and has accepted such appointment and all Assets in the Trust Account have
been duly transferred to such successor trustee. In case of the appointment
of a successor trustee, all of the powers, rights and duties of Trustee named
herein shall survive and continue in the successor Trustee and every
successor Trustee shall succeed to, take and have all the estate, powers,
rights and duties which belonged to or were held by its predecessor. In the
case of the resignation or removal of a Trustee, such Trustee shall have the
right to a final accounting with respect to the Trust Account.
Section 3.09. ACKNOWLEDGMENT OF TRUST AND REPRESENTATIONS OF THE
TRUSTEE. The Trustee acknowledges receipt of notice of Zenith's Beneficial
Interest in the Assets, and the Trustee will mark its records, by book-entry
or otherwise, to indicate Zenith's Beneficial Interest in the Assets.
Without limiting the foregoing, the Trustee agrees to so mark its records
relating to the Trust Account and the securities and other investment
property and Assets Credited to the Trust Account. As of the date hereof:
(a) Zenith's Beneficial Interest in the Assets is identified on the books and
records of the Trustee, by book-entry or otherwise; (b) the Trustee has not
confirmed an interest in the Trust Account or the Assets Credited to the
Trust Account to any person other than to Zenith; and (c) the Trustee's
records do not indicate any claim to the Trust Account or the Assets Credited
to the Trust Account adverse to that of Zenith nor do they indicate any
person, other than Riscorp and Zenith, as having any interest in such Assets
or authority to issue instructions or entitlement orders with respect to such
Assets or the Trust Account. The Trustee will not take any action to permit
anyone other than Zenith simultaneously or subsequently to create or perfect
a security interest in the Assets or the Trust Account except as expressly
provided in Section 5.02 hereof. The Trustee also hereby subordinates in
favor of Zenith any contractual or statutory security interest or lien that
the Trustee may acquire with respect to the Assets or the Trust Account. In
connection with any investment or reinvestment of any amounts hereunder in
Authorized Investments to be held in the Trust Account, Riscorp and the
Trustee will take all steps necessary to ensure that such Authorized
Investments are Delivered to the Trustee and Credited to the Trust Account.
Pursuant to Zenith's agreement with Riscorp, under which, as between Zenith
and Riscorp, Zenith agrees that withdrawals may only be made to pay
reinsurance premiums due pursuant to the Reinsurance Agreement, the Trustee
is authorized and directed by Riscorp, and the Trustee hereby agrees with
Riscorp, to comply with and follow (without the necessity of obtaining
Riscorp's further consent) any instructions and entitlement orders that
Zenith may give with respect to the Trust Account or the Assets Credited to
the Trust Account. Until the Trustee receives written instructions from
Zenith to the contrary, the Trustee agrees not to permit or allow Riscorp to
redeem or to withdraw any of the Assets, or any income or proceeds derived or
to be derived therefrom.
Section 3.10. RELIANCE ON COUNSEL. The Trustee shall be fully
protected in relying on any written advice of counsel rendered in conjunction
with its duties hereunder.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RISCORP
-----------------------------------------
Section 4.01. FURTHER ASSURANCES. (a) Riscorp will give notice to
the Trustee and Zenith of, and defend the Assets against, any suit, action
or proceeding against the Assets or which could adversely affect the interest
of the Trustee or Zenith's Beneficial Interest therein.
(b) Riscorp hereby waives any and all rights of offset, recoupment
and counterclaim that it may now or hereafter have against any of the
Reinsurance Obligations.
(c) At any time and from time to time, upon the request of Zenith,
and at the sole expense of Riscorp, Riscorp will promptly and duly execute
and deliver any and all such further instruments, endorsements, powers of
attorney and other documents, make such filings, give such notices and take
such further action as Zenith may reasonably deem desirable in obtaining the
full benefits of the Transaction Documents and of the rights, remedies and
powers herein granted, including, without limitation, the following:
(i) the filing of any financing statements, in a form acceptable
to Zenith under the Uniform Commercial Code in effect in any
jurisdiction, with respect to the interests granted hereby. Riscorp
also hereby authorizes Zenith to file any such financing statement
without the signature of Riscorp to the extent permitted by applicable
law. A photocopy or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in lieu of the
original to the extent permitted by applicable law. Riscorp will pay
or reimburse Zenith for all filing fees and related expenses;
(ii) making (or reimbursing Zenith upon demand for making) all
searches deemed necessary by Zenith to establish and determine the
priority of Zenith's Beneficial Interest or to determine the presence
or priority of other secured parties; and
(iii) furnishing to Zenith from time to time statements and
schedules further identifying and describing the Assets and such other
reports in connection with the Assets as Zenith may reasonably
request, all in reasonable detail and in form satisfactory to Zenith.
(d) Riscorp will not take or permit to be taken any action which
could impair Zenith's Beneficial Interest in the Assets.
(e) Riscorp will not create, incur or permit to exist, will defend
the Assets against, and will take such other action as is necessary to
remove, any Lien or claim on or to the Assets, other than the interests
created hereby and will defend the right, title and interest of the Trustee,
and Zenith in and to any of the Assets against the claims and demands of all
Persons whomsoever.
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<PAGE>
(f) Riscorp will not sell, transfer, lease or otherwise dispose of
any of the Assets, or attempt, offer or contract to do so, except as provided
hereunder.
(g) Riscorp will advise Zenith promptly, in reasonable detail, in
accordance with the provisions hereof: (i) of any Lien on, or claim asserted
against, any of the Assets and (ii) of the occurrence of any other event
which could reasonably be expected to have a material adverse effect on the
aggregate value of the Assets or on Zenith's Beneficial Interest created
hereunder.
Section 4.02 RECOURSE. Riscorp shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Assets are
insufficient to satisfy the Reinsurance Obligations. Riscorp shall also be
liable for all expenses of Zenith incurred in connection with collecting such
deficiency, including, without limitation, the fees and disbursements of any
attorneys employed by Zenith to collect such deficiency.
ARTICLE V
INDEMNITY
---------
Section 5.01. INDEMNITY. (a) Riscorp agrees to indemnify,
reimburse and hold the Trustee and Zenith, and their respective officers,
directors, employees, representatives and agents (hereinafter in this Section
referred to individually as "Indemnitee" and collectively as "Indemnitees")
harmless from any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, and reasonable costs and
expenses, including reasonable fees of counsel) (for the purposes of this
Section the foregoing are collectively called "expenses") for whatsoever kind
or nature which may be imposed on, asserted against or incurred by any of the
Indemnitees in any way relating to or arising out of this Agreement or the
documents executed in connection herewith or in any other way connected with
the administration of the transactions contemplated hereby or the enforcement
of any of the terms of or the preservation of any rights hereunder, or in any
way relating to or arising out of the ownership, delivery, control,
acceptance, possession or other disposition of the Assets, the violation of
the laws of any country, state or other governmental body or unit, any tort
or any contract claim; provided, that Riscorp shall have no obligation to
reimburse Zenith for expenses of Zenith's counsel in connection with the
preparation and negotiation of this Agreement; provided, further, that no
indemnitee shall be indemnified pursuant to this Section for expenses to the
extent caused by the negligence or wilful misconduct of such Indemnitee.
Riscorp agrees that upon written notice by any Indemnitee of any assertion
that could give rise to an expense, Riscorp shall assume full responsibility
for the defense thereof. Each Indemnitee agrees to use its best efforts to
promptly notify Riscorp of any such assertion of which such Indemnitee has
knowledge. The indemnity provided by this Section shall survive the
termination of this Agreement.
(b) Without limiting the application of clause (a) of this Section,
Riscorp agrees to pay, or reimburse Zenith for any and all fees, costs and
expenses of whatever kind or nature incurred in connection with the
creation, preservation or protection for Zenith's Beneficial Interest in, the
Assets, including, without limitation, all fees and taxes in connection with
the recording or filing of instruments and documents in public offices,
payment or discharge of any taxes or Liens upon or in respect of the Assets,
premiums for insurance with respect to the Assets and all other fees, costs
and expenses in connection with protection, maintaining or preserving the
Assets and Zenith's Beneficial
-9-
<PAGE>
Interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Assets.
(c) Without limiting the application of clauses (a) and (b) of this
Section, Riscorp agrees to pay, indemnify and hold each Indemnitee harmless
from and against any expenses which such Indemnitee may suffer, expend or
incur in consequence of or growing out of any misrepresentation by Riscorp in
this Agreement or in any statement or writing contemplated by or made or
delivered pursuant to or in connection with this Agreement.
(d) if and to the extent that the obligations of Riscorp under this
Section are unenforceable for any reason, Riscorp hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
Section 5.02. INDEMNITY OBLIGATIONS SECURED BY ASSETS; SURVIVAL.
Any amounts paid by any Indemnitee as to which such Indemnitee has the right
to reimbursement shall constitute obligations of Riscorp secured by the
Assets. The indemnity obligations of Riscorp contained in this Article shall
continue in full force and effect notwithstanding the full payment and
performance of the Reinsurance Obligations and notwithstanding the discharge
thereof.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.01. NOTICES. Any notice required or permitted hereunder
shall be in writing and shall be delivered personally (by courier or
otherwise), telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice
shall be deemed given when so delivered personally, telegraphed, telexed or
sent by facsimile transmission or, if mailed, three days after the date of
deposit in the United States mails, as follows:
(1) If to Zenith to:
Zenith Insurance Company
21255 Califa Street
Woodland Hills, CA 91367-5021
Attention: Stanley R. Zax
Telecopier No.: (818) 713-0177
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Attention: Alexander M. Dye, Esq.
Telecopier No.: (212) 424-8500
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<PAGE>
(2) If to Trustee to:
First Union National Bank
225 Water Street
Third Floor
Jacksonville, FL 32202
Attention: Donnie Hurrelbrink
Telecopier No.: (904) 361-7735
with a concurrent copy to:
Irv Weinstein
Rogers, Towers, Bailey, Jones & Gay
1301 Riverplace Boulevard
Suite 1500
Jacksonville, FL 32207
Telecopier No.: (904)-396-0663
(3) If to Riscorp to:
RISCORP, Inc.
1390 Main Street
Sarasota, FL 34236
Attention: Walter Riehemann, Esq.
Telecopier No.: (941) 362-6120
With a concurrent copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309
Attention: J. Vaughan Curtis, Esq.
Telecopier No.: (404) 881-7777
Polsinelli, White, Vardeman & Shalton
Suite 1000 Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
Attention: Robert B. Sullivan, Esq.
Telecopier No.: (816) 753-1536
Any party may, by notice given in accordance with this Agreement to
the other parties, designate another address or person for receipt of notices
hereunder.
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<PAGE>
Section 6.02. TERMINATION. This Agreement shall be terminated upon
Trustee's receipt of a certificate substantially in the form of Exhibit A
hereto (a "Termination Certificate") signed by a duly authorized officer of
Zenith and a duly authorized officer of Riscorp. Within 10 days of the
termination of this Agreement, Trustee shall transfer, pay over and deliver
to Zenith or Riscorp, as applicable, all right, title and interest in the
remaining assets of the Trust Account in exchange for a written receipt from
the receiving party. The Department shall, not less than 30 days prior to
Zenith's delivery of a Termination Certificate to the Trustee, be provided
with a copy of such Termination Certificate and notified in writing by Zenith
of its intention regarding termination of the Trust Account.
Section 6.03. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAWS OF THE STATE OF FLORIDA AND, WITH RESPECT TO ANY
ASSETS CONSISTING OF AUTHORIZED INVESTMENTS THAT ARE SUBJECT TO FEDERAL "BOOK
ENTRY" REGULATIONS, BY FEDERAL LAW, WHICH INCORPORATES REVISED ARTICLE 8 OF
THE UNIFORM COMMERCIAL CODE.
Section 6.04. AMENDMENT. This Agreement may be amended at any time
by written agreement signed by Zenith and Riscorp and delivered to Trustee;
PROVIDED, HOWEVER, that no such amendment shall affect the powers, rights or
duties of Trustee without Trustee's written consent.
Section 6.05. AGREEMENT FOR BENEFIT OF ZENITH. This Agreement
shall be for the sole use and benefit of Zenith and the Trustee. The powers
conferred on Zenith hereunder are solely to protect Zenith's Beneficial
Interest in the Assets and shall not impose any duty upon Zenith to exercise
any such powers. Zenith shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers, and neither
Zenith nor any of its officers, directors, employees or agents shall be
responsible to Riscorp for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct. As used herein, the term
"Zenith" shall include any successor to Zenith by operation of law,
including, without limit, any liquidator, rehabilitator, receiver or
conservator.
Section 6.06. LIMITATION ON DUTIES REGARDING PRESERVATION OF ASSETS.
The sole duty of the Trustee with respect to the custody, safekeeping and
physical preservation of the Assets in its possession shall be to deal with
it in the same manner as the Trustee with similar property for its own
account. The Trustee shall not have any obligation to take any steps to
preserve rights against prior parties to any Assets. Neither the Trustee,
nor any of its respective directors, officers, employees or agents shall be
liable for failure to demand, collect or realize upon all or any part of the
Assets or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Assets upon the request of Riscorp or otherwise.
Section 6.07. WAIVER OF CLAIMS. Except as otherwise provided in this
Agreement, RISCORP HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH ZENITH'S TAKING POSSESSION OR
ZENITH'S DISPOSITION OF ANY OF THE ASSETS, INCLUDING, WITHOUT LIMITATION, ANY
AND ALL PRIOR NOTICE AND HEARING FOR ANY
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<PAGE>
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH RISCORP WOULD
OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE STATES OR OF ANY
STATE, AND RISCORP HEREBY FURTHER WAIVES, TO THE EXTENT PERMITTED BY LAW:
(a) all damages occasioned by such taking of possession except any
damages which are the direct result of the negligence or willful misconduct
of the Trustee or Zenith;
(b) all other requirements as to the time, place and terms of sale
or other requirements with respect to the enforcement of the rights of Zenith
hereunder;
(c) demand of performance or other demand, notice of intent to
demand or accelerate, notice of acceleration presentment, protest,
advertisement or notice of any kind to or upon Riscorp or any other Person;
and
(d) all rights of redemption, appraisement, valuation, diligence,
stay, extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement, the
absolute sale of the Assets or any portion thereof, and Riscorp, for itself
and all who may claim under it, insofar as it or they now or hereafter
lawfully may, hereby waives the benefit of all such laws.
Section 6.08. ENTIRE AGREEMENT. This Agreement is not subject to
any conditions or qualifications outside this Agreement. This Agreement
constitutes the entire agreement of the parties and no other documents will
be referred to or apply.
Section 6.09. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed shall
be an original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the
parties hereto.
Section 6.10. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the successors and assigns of the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ZENITH INSURANCE COMPANY, as beneficiary
By /s/ STANLEY R. ZAX
---------------------------------------
Name: Stanley R. Zax
Title: Chairman & President
RISCORP INSURANCE COMPANY, as grantor
By /s/ FREDERICK DAWSON
---------------------------------------
Name: Frederick Dawson
Title: Chief Executive Officer
FIRST UNION NATIONAL BANK, as trustee
By /s/ DONALD T. HURRELBRINK
---------------------------------------
Name: Donald T. Hurrelbrink
Title: Assistant Vice President
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<PAGE>
Exhibit A
TERMINATION CERTIFICATE
Each of the undersigned, the [insert position] and a duly authorized
officer of Zenith Insurance Company ("Zenith"), the [insert position] and a
duly authorized officer of RISCORP Insurance Company ("RIC"), do hereby
certify as follows:
(1) The Interim Reinsurance Agreement dated as of June 18, 1997 by and
among Zenith and RIC and RISCORP Property & Casualty Insurance Company
has been terminated in accordance with the provisions thereof.
(2) The Trustee is directed to transfer all assets remaining in the Trust
Account as follows: [wire transfer instructions]
This Certificate is a "Termination Certificate" within the meaning of
Section 6.02 of the Trust Agreement dated as of June 18, 1997 entered into by
and among Zenith, RIC and First Union National Bank, as a trustee.
Dated:
------------------ ---------------------------------------
Name:
Title:
Zenith Insurance Company
Dated:
------------------ ---------------------------------------
Name:
Title:
RISCORP Insurance Company
<PAGE>
EXECUTION COPY
7/10/97
=============================================================================
AMENDMENT NO. 1
to
TRUST AGREEMENT
by and among
RISCORP INSURANCE COMPANY, as grantor
and
ZENITH INSURANCE COMPANY, as beneficiary,
and
FIRST UNION NATIONAL BANK, as trustee
Dated as of June 18, 1997
=============================================================================
<PAGE>
AMENDMENT NO. 1
to
TRUST AGREEMENT
---------------
THIS AMENDMENT NO. 1 TO TRUST AGREEMENT (this "Amendment No. 1"), dated
as of June 18, 1997, is entered into by and among RISCORP INSURANCE COMPANY,
a stock insurance company organized under the laws of the State of Florida
("Riscorp"), as grantor, and ZENITH INSURANCE COMPANY, a stock insurance
company organized under the laws of the State of California ("Zenith"), as
beneficiary, and FIRST UNION NATIONAL BANK, as trustee, a national banking
association organized and existing under the laws of United States of
America ("Trustee").
W I T N E S S E T H
-------------------
WHEREAS, Zenith and Riscorp have entered into an Interim Reinsurance
Agreement dated as of June 18, 1997 (the "Reinsurance Agreement"), pursuant
to which Zenith has agreed to accept reinsurance ceded by Riscorp.
WHEREAS, Zenith, Riscorp and Trustee have entered into a Trust Agreement
dated as of June 18, 1997 (the "Trust Agreement"), in order to establish a
trust account for the benefit of Zenith to assure that Zenith will have
access to sufficient assets in the event that Riscorp becomes unable to meet
its obligations under the Reinsurance Agreement to pay reinsurance premiums
to Zenith; and
WHEREAS, Zenith, Riscorp and Trustee desire to amend the Trust Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the
parties hereto agree as follows:
ARTICLE I
AMENDMENTS
----------
Section 1.01. Article I of the Trust Agreement is hereby amended by
deleting the definition of "Securities" in its entirety and, in lieu thereof,
replacing it with the following definition of "Securities":
"SECURITIES" means securities with a rating of AA or better by Standard
& Poors Corporation, and any and all related security entitlements. In
determining whether any securities are rated AA or better by Standard & Poors
Corporation, the Trustee shall be fully protected in relying on any written
advice of Zenith.
Section 1.02. Article II, Section 2.01 of the Trust Agreement is hereby
amended by adding the word "second" on the sixth line thereof before the
words "Business Day."
<PAGE>
ARTICLE II
MISCELLANEOUS
-------------
2.01. OTHER TERMS AND CONDITIONS RATIFIED AND CONFIRMED. Except as
amended in Article I above, all other terms and conditions of the Trust
Agreement are hereby ratified and confirmed by Zenith, Riscorp, and
Trustee, and shall remain in full force and effect.
2.02. COUNTERPARTS. This Amendment No. 1 may be executed by the parties
hereto in separate counterparts, each of which when so executed shall be an
original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ZENITH INSURANCE COMPANY, as beneficiary
By /s/ STANLEY R. ZAX
------------------------------------
Name: Stanley R. Zax
Title: Chairman & President
RISCORP INSURANCE COMPANY, as grantor
By /s/ FREDERICK DAWSON
------------------------------------
Name: Frederick Dawson
Title: Chief Executive Officer
FIRST UNION NATIONAL BANK, as trustee
By /s/ DONALD T. HURRELBRINK
------------------------------------
Name: Donald T. Hurrelbrink
Title: Assistant Vice President
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<PAGE>
EXECUTION COPY
7/8/97
=============================================================================
TRUST AGREEMENT
by and among
RISCORP PROPERTY & CASUALTY INSURANCE COMPANY, as grantor,
and
ZENITH INSURANCE COMPANY, as beneficiary,
and
FIRST UNION NATIONAL BANK, as trustee
Dated as of June 18, 1997
===============================================================================
<PAGE>
TRUST AGREEMENT
THIS TRUST AGREEMENT (this "Agreement"), dated as of June 18, 1997,
is entered into by and among RISCORP PROPERTY & CASUALTY INSURANCE COMPANY, a
stock insurance company organized under the laws of the State of Florida
("Riscorp"), as grantor, and ZENITH INSURANCE COMPANY, a stock insurance
company organized under the laws of the State of California ("Zenith"), as
beneficiary, and First Union National Bank, as trustee, a national banking
association organized and existing under the laws of the United States of
America ("Trustee").
W I T N E S S E T H
WHEREAS, Zenith and Riscorp have entered into an Interim Reinsurance
Agreement dated as of June 18, 1997 (the "Reinsurance Agreement"), pursuant
to which Zenith has agreed to accept reinsurance ceded by Riscorp;
WHEREAS, Riscorp desires to establish a trust account hereunder and
deliver certain assets into trust for the benefit of Zenith to assure that
Zenith will have access to sufficient assets in the event that Riscorp
becomes unable to meet its obligations under the Reinsurance Agreement to pay
reinsurance premiums to Zenith;
WHEREAS, Trustee is willing to act as trustee of the trust account
to be established hereunder; and
WHEREAS, the Florida Department of Insurance (the "Department") has
approved this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and upon the terms and conditions set forth herein,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings set forth
below throughout the Agreement:
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"ASSETS" shall mean the assets of Riscorp, title to which is
transferred and delivered by Riscorp to the Trustee to be maintained by the
Trustee in the Trust Account, and held in trust for the sole and exclusive
benefit of Zenith, pursuant to this Agreement, and in which Riscorp has a
reversionary interest upon termination of this Agreement.
"AUTHORIZED INVESTMENTS" shall have the meaning set forth in Section
2.03 hereof.
<PAGE>
"BOOK-ENTRY SYSTEM" shall mean a book-entry system for Authorized
Investments maintained at a clearing corporation (as defined in the Uniform
Commercial Code).
"BUSINESS DAY," for purposes of this Agreement, shall mean any day
which is not a Saturday, Sunday or other day on which banks located in the
State of Florida are authorized or required by law to remain closed. Any
payment due hereunder on a day that is not a Business Day shall be due and
payable on the next succeeding Business Day.
"CASH EQUIVALENTS" means, as of any particular date, money market
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit (not exceeding $100,000), bankers'
acceptances and other similar liquid investments, in each case with a
maturity date of not more than 90 days from the date on which any such
instrument is transferred pursuant to the terms of this Agreement, the market
value of which on the date of transfer will be counted as equivalent to cash
for purposes of satisfying the aggregate amount of cash and Cash Equivalents
required to be transferred as described in Section 2.01 hereof.
"CREDITED TO THE TRUST ACCOUNT" means: (a) in the case of
securities, (i) the making by the Trustee of an appropriate recordation on
the pertinent books and records of the Trustee that the Assets constituting
securities that are Delivered from time to time are being held in the Trust
Account, for the benefit of Zenith, and (ii) the sending by the Trustee, to
Zenith, of a written confirmation of the Delivery clearly identifying the
Delivered Assets by types, issuers, numbers, amounts, maturities and other
descriptions customary in the banking and securities industries; and (b) in
the case of cash, the deposit of cash Assets into the Trust Account. The
confirmation described in (a)(ii) above shall be forwarded to Zenith within
one (1) Business Day of the Delivery by the Trustee of Delivered Assets to
the Trust Account.
"DELIVER" means (A) in the case of Assets in the form of cash, to
transfer by wire to the Trustee, without any offset and free and clear of all
liens, claims and interests (other than any interest created by this
Agreement); and (B) in the case of Assets in the form of Authorized
Investments, the ownership of which is transferred by possession of a
physical certificate, delivery, free and clear of all liens, claims and
interests (other than the interest created by this Agreement) of a physical
certificate or certificates representing such Assets in suitable form for
delivery and transfer, either registered in the name of the party to whom
Delivery is effected, its nominee or accompanied by duly executed instruments
of transfer or assignment in blank, and, in any case, accompanied by any
required transfer tax stamps, or (C) in the case of Authorized Investments in
book-entry form, (i) the issuance by Riscorp or any other person of
entitlement orders or instructions appropriate to cause such Assets to be
credited by a clearing corporation, including, where appropriate, any Federal
Reserve Bank, to a securities account of the Trustee at such clearing
corporation; (ii) by the making by the relevant clearing corporation of an
appropriate recordation that such Assets have been credited to a securities
account of the Trustee at such clearing corporation; and (iii) the sending of
an appropriate confirmation from such clearing corporation to the Trustee
that it holds such Assets in such securities account. The terms "Delivery"
used as a noun or "Delivered" used as an adjective or participle have a
corresponding meaning.
"LIENS" shall mean any security interest, mortgage, pledge, charge,
hypothecation, assignment, encumbrance, lien (statutory or other), or
preference, priority or other security
-2-
<PAGE>
arrangement of any kind or nature whatsoever, and the filing of any financing
statement or similar instrument under the Uniform Commercial Code, the common
law or other applicable law of any jurisdiction, domestic foreign.
"PROCEEDS" shall mean, collectively: (a) any cash, instruments,
securities or other rights or property received from the sale, lease,
exchange or other disposition of any Assets, (b) any cash, instruments,
securities or other property collected on or with respect to any Assets,
whether in the ordinary course of business, upon realization on any Assets or
otherwise, including, without limitation, any payments of principal,
interest, premium or dividends with respect to the Assets, and (c) any
proceeds of any guaranty, indemnity, hold-harmless arrangement, letter of
credit, insurance, co-insurance or re-insurance covering all or any portion
of the Assets.
"REINSURANCE AGREEMENT" has the meaning set forth in the first
recital hereof.
"REINSURANCE OBLIGATIONS" shall mean all of Riscorp's now existing
and hereafter arising or assumed actual and contingent obligations and
liabilities to Zenith under the Transaction Documents, as the same may be
amended, modified, extended, supplemented and/or restated or novated from
time to time.
"RISCORP" shall have meaning set forth in the introductory paragraph.
"SECURITIES" means corporate securities with a rating of AA or
better by Standard & Poors Corporation, and any and all related security
entitlements. In determining whether any corporate securities are rated AA or
better by Standard & Poors Corporation, the Trustee shall be fully protected
in relying on any written advice of Zenith.
"TERMINATION CERTIFICATE" shall have the meaning set forth in
Section 6.02 hereof.
"TRANSACTION DOCUMENTS" shall mean, collectively this Agreement and
the Reinsurance Agreement.
"TREASURIES" means security entitlements in and to debt obligations,
having a maturity of not more than two years, of the United States Department
of the Treasury.
"TRUST ACCOUNT" shall have the meaning set forth in Section 2.01
hereof.
"TRUSTEE" shall have the meaning set forth in the introductory
paragraph hereof.
"WRITTEN NOTIFICATIONS" shall have the meaning set forth in Section
3.04 hereof.
"ZENITH" shall have the meaning set forth in the introductory
paragraph and in Section 6.05 hereof.
"ZENITH'S BENEFICIAL INTEREST" shall mean Zenith's beneficial
interest in the Assets, as set forth and limited herein.
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<PAGE>
ARTICLE II
PROVISIONS RELATING TO THE TRUST ACCOUNT
Section 2.01. ESTABLISHMENT OF TRUST ACCOUNT; INITIAL DELIVERY OF
ASSETS. The Trustee shall establish a trust account (the "Trust Account") in
the name of the Trustee, as trustee for the benefit of Zenith and such Trust
Account shall bear the designation "First Union National Bank, as trustee,
for the benefit of Zenith Insurance Company." Pursuant to the Reinsurance
Agreement and in accordance with the terms thereof, Riscorp agrees to Deliver
to the Trustee on the Business Day following the date of execution of this
Agreement and the Reinsurance Agreement cash, Cash Equivalents, Treasuries
and Securities with a market value of at least $15 million, and the Trustee
shall cause to be Credited to the Trust Account such amount. Riscorp hereby
transfers, assigns and conveys to the Trustee, for the benefit of Zenith, all
right, title and interest of Riscorp in the Assets in the Trust Account.
Section 2.02. AUTHORIZATION AND POWER OF TRUSTEE. Trustee and its
lawfully appointed successors are authorized and shall have the power to (a)
receive such additional Assets as Riscorp from time to time may transfer or
remit to or vest in Trustee or place in Trustee's hands or under Trustee's
control or such additional Assets as are otherwise deposited in the Trust
Account and (b) hold, invest, reinvest, manage and dispose of the same for
the uses and purposes and in the manner and according to the provisions
hereinafter set forth. All such Assets at all times shall be maintained as a
trust account, separate and distinct from all other assets of the Trustee and
Riscorp, and all Assets shall be continuously kept in a safe place at
Trustee's office within the United States of America.
Section 2.03. AUTHORIZED INVESTMENTS. Assets initially credited to
the Trust Account shall consist only of cash, Cash Equivalents, Treasuries
and Securities, and any investments and reinvestments thereof shall consist
only of cash, Cash Equivalents and Treasuries (the "Authorized Investments").
Section 2.04. ASSIGNMENTS AND ENDORSEMENTS. Zenith and Riscorp
shall, upon execution of this Agreement and from time to time thereafter as
required, execute assignments or endorsements in blank of all securities, or
other property, standing in the name of Riscorp, as appropriate which are
delivered to Trustee to form a part of the Trust Account so that, whenever
necessary, Assets held in the Trust Account can be negotiated as provided
herein without the consent or signature of Riscorp, or of any other person or
entity. Any Assets received by Trustee which are not in such proper
negotiable form shall not be accepted by Trustee and shall be returned to
Riscorp as unacceptable. In addition, Trustee may hold Assets of the Trust
Account in bearer form or in its own name or that of a nominee.
Section 2.05. REINVESTMENT OF PROCEEDS OF AUTHORIZED INVESTMENTS.
All proceeds, including payments of interest, dividends and, upon maturity,
principal actually received in respect of Assets in the Trust Account shall
be reinvested by the Trustee, at the direction of Riscorp, in cash, Cash
Equivalents and Treasuries, and Credited to the Trust Account.
-4-
<PAGE>
Section 2.06. WITHDRAWALS. (a) Withdrawals from the Trust Account
may be made by or at the direction of Zenith at any time and from time to
time, with concurrent notice to, but without the necessity for any consent
of, Riscorp and the Department, solely for the purpose of paying reinsurance
premiums pursuant to the Reinsurance Agreement, upon the issuance by Zenith
of a written instruction to the Trustee. No other statements or documents
need be presented by Zenith in order to withdraw or direct the withdrawal of
Assets, except that, prior to the initial withdrawal, Zenith agrees that it
will present to the Trustee a certified copy of an order or other appropriate
document issued by a court or the Department declaring Riscorp insolvent
under applicable insurance law, and Zenith may be required by Trustee to
acknowledge receipt of withdrawn Assets. Upon receipt of an instruction from
Zenith directing a withdrawal, Trustee shall immediately take any and all
necessary steps to transfer absolutely and unequivocally to Zenith or as
otherwise directed by Zenith all right, title and interest in the Assets
being withdrawn, and to deliver the custody thereof to Zenith or as otherwise
directed by Zenith. Trustee shall be protected in relying upon any
instruction by Zenith for withdrawal of Assets.
(b) No withdrawals from the Trust Account may be made by, for
the benefit of, or at the direction of Riscorp, except upon the termination
of this Trust Agreement or, at the direction of Zenith, in accordance with
Section 3.04 of the Reinsurance Agreement.
Section 2.07. ACCOUNTINGS AND NOTICES. Trustee shall furnish to
Zenith and Riscorp an accounting of all Assets in the Trust Account upon its
inception and thereafter at intervals no less frequent than as of the end of
each month, valued in accordance with their current market value. Such
accounting shall be given as soon as practicable, but in no event later than
30 days after such date.
Section 2.08. CREDIT FOR ASSETS. Riscorp and Zenith agree that, so
long as Riscorp shall not be declared insolvent under applicable insurance
law pursuant to court order, the Assets shall be admitted assets of Riscorp.
ARTICLE III
PROVISIONS RELATING TO TRUSTEE
Section 3.01. QUALIFICATIONS. The Trustee shall be a bank or trust
company which is a member of the Federal Reserve System of the United States
of America with capital and surplus in excess of $1,000,000,000 and shall not
be an Affiliate of Zenith or Riscorp.
Section 3.02. COMPENSATION. The Trustee shall be entitled to
receive, as compensation for its services hereunder, an annual fee, computed
and payable quarterly in advance, at such rate as may be agreed from time to
time in writing between the Trustee and Riscorp. Riscorp shall be solely
responsible for the payment of the fee of the Trustee and all reasonable
expenses of the Trustee, including reasonable fees of counsel. The Trust
Account shall not be utilized for the payment of such fees and expenses
except in the event that Riscorp shall fail to pay such fees or expenses.
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Section 3.03. FIDUCIARY RELATIONSHIP; LIABILITY. The Trustee shall
receive and hold all Assets transferred to it in a fiduciary capacity. The
Trustee shall be liable for the safekeeping of the Assets and administration
of the Trust Account in accordance with provisions of this Agreement. The
Trustee shall not be liable nor responsible for any loss to the Trust Account
unless such loss shall be caused by its own negligence, wilful misconduct or
lack of good faith or failure to comply with its obligations under this
Agreement.
Section 3.04. RELIANCE ON WRITTEN NOTIFICATIONS. Subject to its
obligations under Section 3.03 hereof, the Trustee shall be protected in
acting upon any Termination Certificate, statement, instruction, direction,
notice, resolution, request, consent, order, certificate, report, appraisal,
opinion, telegram, telex, letter or other paper or document (collectively,
"Written Notifications") believed by the Trustee to be genuine and to have
been signed, sent or presented by the proper party or parties. All Written
Notifications to the Trustee (unless otherwise provided therein) shall be
deemed to be effective when received by the Trustee.
Section 3.05. PROOF OF CERTAIN MATTERS. Whenever the Trustee, in
the administration of the Trust Account created by this Agreement, shall deem
it necessary or desirable that a matter be proved or established prior to
taking, suffering or omitting any action thereunder, such matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a Written Notification
signed by or on behalf of Zenith or Riscorp, as appropriate, and delivered to
the Trustee, and said Written Notification shall be full warrant to the
Trustee for any action taken, suffered or omitted by it on the faith thereof;
however, in its discretion, the Trustee may in lieu thereof accept other
evidence of the fact or matter or may require such other or additional
evidence as it may deem reasonable.
Section 3.06. DESIGNATION OF AUTHORIZED OFFICERS. Except when
otherwise expressly provided in this Agreement, any Written Notification to
be delivered or furnished by Zenith or Riscorp shall be sufficiently executed
if executed in the name of Zenith or Riscorp by such officer or officers of
Zenith or Riscorp or by such other agent or agents of Zenith or Riscorp as
may be designated in a resolution certified, or a letter of advice executed,
by an authorized officer of Zenith or Riscorp. Written notice of such
designation by Zenith or Riscorp shall be filed with the Trustee. The
Trustee shall be protected in acting upon any Written Notification made by
such officer or agent of Zenith or Riscorp with respect to the authority
conferred on him.
Section 3.07. RECORDS. The Trustee shall keep full and complete
records of the administration of the Trust Account. Zenith and/or Riscorp may
examine such records at any time during business hours. Such examinations may
be made by any person or persons duly authorized in writing by Zenith or
Riscorp.
Section 3.08. ACCEPTANCE OF TRUST; RESIGNATION. (a) The Trustee
hereby accepts the trust herein created and declared upon the terms herein
expressed.
(b) The Trustee may resign, by written resignation, effective
not less than 90 days after receipt thereof by Zenith and Riscorp, and Zenith
and Riscorp may remove the Trustee at any time, without assigning any cause
therefor, by the delivery to the Trustee of a written notice of removal
(executed by Zenith and Riscorp), effective not less than 90 days after
receipt by the
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<PAGE>
Trustee of the notice, provided that no such resignation or removal shall be
effective until a successor trustee has been appointed by Zenith and Riscorp
and has accepted such appointment and all Assets in the Trust Account have
been duly transferred to such successor trustee. In case of the appointment
of a successor trustee, all of the powers, rights and duties of Trustee named
herein shall survive and continue in the successor Trustee and every
successor Trustee shall succeed to, take and have all the estate, powers,
rights and duties which belonged to or were held by its predecessor. In the
case of the resignation or removal of a Trustee, such Trustee shall have the
right to a final accounting with respect to the Trust Account.
Section 3.09. ACKNOWLEDGMENT OF TRUST AND REPRESENTATIONS OF THE
TRUSTEE. The Trustee acknowledges receipt of notice of Zenith's Beneficial
Interest in the Assets, and the Trustee will mark its records, by book-entry or
otherwise, to indicate Zenith's Beneficial Interest in the Assets. Without
limiting the foregoing, the Trustee agrees to so mark its records relating to
the Trust Account and the securities and other investment property and Assets
Credited to the Trust Account. As of the date hereof: (a) Zenith's Beneficial
Interest in the Assets is identified on the books and records of the Trustee, by
book-entry or otherwise; (b) the Trustee has not confirmed an interest in the
Trust Account or the Assets Credited to the Trust Account to any person other
than to Zenith; and (c) the Trustee's records do not indicate any claim to the
Trust Account or the Assets Credited to the Trust Account adverse to that of
Zenith nor do they indicate any person, other than Riscorp and Zenith, as having
any interest in such Assets or authority to issue instructions or entitlement
orders with respect to such Assets or the Trust Account. The Trustee will not
take any action to permit anyone other than Zenith simultaneously or
subsequently to create or perfect a security interest in the Assets or the Trust
Account except as expressly provided in Section 5.02 hereof. The Trustee also
hereby subordinates in favor of Zenith any contractual or statutory security
interest or lien that the Trustee may acquire with respect to the Assets or the
Trust Account. In connection with any investment or reinvestment of any amounts
hereunder in Authorized Investments to be held in the Trust Account, Riscorp and
the Trustee will take all steps necessary to ensure that such Authorized
Investments are Delivered to the Trustee and Credited to the Trust Account.
Pursuant to Zenith's agreement with Riscorp, under which, as between Zenith and
Riscorp, Zenith agrees that withdrawals may only be made to pay reinsurance
premiums due pursuant to the Reinsurance Agreement, the Trustee is authorized
and directed by Riscorp, and the Trustee hereby agrees with Riscorp, to comply
with and follow (without the necessity of obtaining Riscorp's further consent)
any instructions and entitlement orders that Zenith may give with respect to the
Trust Account or the Assets Credited to the Trust Account. Until the Trustee
receives written instructions from Zenith to the contrary, the Trustee agrees
not to permit or allow Riscorp to redeem or to withdraw any of the Assets, or
any income or proceeds derived or to be derived therefrom.
Section 3.10. RELIANCE ON COUNSEL. The Trustee shall be fully
protected in relying on any written advice of counsel rendered in conjunction
with its duties hereunder.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RISCORP
Section 4.01. FURTHER ASSURANCES. (a) Riscorp will give notice to
the Trustee and Zenith of, and defend the Assets against, any suit, action or
proceeding against the Assets or which could adversely affect the interest of
the Trustee or Zenith's Beneficial Interest therein.
(b) Riscorp hereby waives any and all rights of offset, recoupment and
counterclaim that it may now or hereafter have against any of the Reinsurance
Obligations.
(c) At any time and from time to time, upon the request of Zenith, and
at the sole expense of Riscorp, Riscorp will promptly and duly execute and
deliver any and all such further instruments, endorsements, powers of attorney
and other documents, make such filings, give such notices and take such further
action as Zenith may reasonably deem desirable in obtaining the full benefits of
the Transaction Documents and of the rights, remedies and powers herein granted,
including, without limitation, the following:
(i) the filing of any financing statements, in a form acceptable
to Zenith under the Uniform Commercial Code in effect in any
jurisdiction, with respect to the interests granted hereby. Riscorp
also hereby authorizes Zenith to file any such financing statement
without the signature of Riscorp to the extent permitted by applicable
law. A photocopy or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in lieu of the
original to the extent permitted by applicable law. Riscorp will pay
or reimburse Zenith for all filing fees and related expenses;
(ii) making (or reimbursing Zenith upon demand for making) all
searches deemed necessary by Zenith to establish and determine the
priority of Zenith's Beneficial Interest or to determine the presence
or priority of other secured parties; and
(iii) furnishing to Zenith from time to time statements and
schedules further identifying and describing the Assets and such other
reports in connection with the Assets as Zenith may reasonably
request, all in reasonable detail and in form satisfactory to Zenith.
(d) Riscorp will not take or permit to be taken any action which could
impair Zenith's Beneficial Interest in the Assets.
(e) Riscorp will not create, incur or permit to exist, will defend the
Assets against, and will take such other action as is necessary to remove, any
Lien or claim on or to the Assets, other than the interests created hereby and
will defend the right, title and interest of the Trustee, and Zenith in and to
any of the Assets against the claims and demands of all Persons whomsoever.
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<PAGE>
(f) Riscorp will not sell, transfer, lease or otherwise dispose of any
of the Assets, or attempt, offer or contract to do so, except as provided
hereunder.
(g) Riscorp will advise Zenith promptly, in reasonable detail, in
accordance with the provisions hereof: (i) of any Lien on, or claim asserted
against, any of the Assets and (ii) of the occurrence of any other event which
could reasonably be expected to have a material adverse effect on the aggregate
value of the Assets or on Zenith's Beneficial Interest created hereunder.
Section 4.02 RECOURSE. Riscorp shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Assets are
insufficient to satisfy the Reinsurance Obligations. Riscorp shall also be
liable for all expenses of Zenith incurred in connection with collecting such
deficiency, including, without limitation, the fees and disbursements of any
attorneys employed by Zenith to collect such deficiency.
ARTICLE V
INDEMNITY
Section 5.01. INDEMNITY. (a) Riscorp agrees to indemnify, reimburse
and hold the Trustee and Zenith, and their respective officers, directors,
employees, representatives and agents (hereinafter in this Section referred to
individually as "Indemnitee" and collectively as "Indemnitees") harmless from
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, judgments, suits, and reasonable costs and expenses, including
reasonable fees of counsel) (for the purposes of this Section the foregoing are
collectively called "expenses") for whatsoever kind or nature which may be
imposed on, asserted against or incurred by any of the Indemnitees in any way
relating to or arising out of this Agreement or the documents executed in
connection herewith or in any other way connected with the administration of
the transactions contemplated hereby or the enforcement of any of the terms of
or the preservation of any rights hereunder, or in any way relating to or
arising out of the ownership, delivery, control, acceptance, possession or other
disposition of the Assets, the violation of the laws of any country, state or
other governmental body or unit, any tort or any contract claim; provided, that
Riscorp shall have no obligation to reimburse Zenith for expenses of Zenith's
counsel in connection with the preparation and negotiation of this Agreement;
provided, further, that no indemnitee shall be indemnified pursuant to this
Section for expenses to the extent caused by the negligence or wilful misconduct
of such Indemnitee. Riscorp agrees that upon written notice by any Indemnitee
of any assertion that could give rise to an expense, Riscorp shall assume full
responsibility for the defense thereof. Each Indemnitee agrees to use its best
efforts to promptly notify Riscorp of any such assertion of which such
Indemnitee has knowledge. The indemnity provided by this Section shall survive
the termination of this Agreement.
(b) Without limiting the application of clause (a) of this Section,
Riscorp agrees to pay, or reimburse Zenith for any and all fees, costs and
expenses of whatever kind or nature incurred in connection with the
creation, preservation or protection for Zenith's Beneficial Interest in, the
Assets, including, without limitation, all fees and taxes in connection with
the recording or filing of instruments and documents in public offices,
payment or discharge of any taxes or Liens upon or in respect of the Assets,
premiums for insurance with respect to the Assets and all other fees, costs
and expenses in connection with protection, maintaining or preserving the
Assets and Zenith's Beneficial
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<PAGE>
Interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Assets.
(c) Without limiting the application of clauses (a) and (b) of this
Section, Riscorp agrees to pay, indemnify and hold each Indemnitee harmless from
and against any expenses which such Indemnitee may suffer, expend or incur in
consequence of or growing out of any misrepresentation by Riscorp in this
Agreement or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement.
(d) if and to the extent that the obligations of Riscorp under this
Section are unenforceable for any reason, Riscorp hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.
Section 5.02. INDEMNITY OBLIGATIONS SECURED BY ASSETS; SURVIVAL. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute obligations of Riscorp secured by the Assets.
The indemnity obligations of Riscorp contained in this Article shall continue in
full force and effect notwithstanding the full payment and performance of the
Reinsurance Obligations and notwithstanding the discharge thereof.
ARTICLE VI
MISCELLANEOUS
Section 6.01. NOTICES. Any notice required or permitted hereunder
shall be in writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, three days after the date of deposit in the United
States mails, as follows:
(1) If to Zenith to:
Zenith Insurance Company
21255 Califa Street
Woodland Hills, CA 91367-5021
Attention: Stanley R. Zax
Telecopier No.: (818) 713-0177
With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Attention: Alexander M. Dye, Esq.
Telecopier No.: (212) 424-8500
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<PAGE>
(2) If to Trustee to:
First Union National Bank
225 Water Street
Third Floor
Jacksonville, FL 32202
Attention: Donnie Hurrelbrink
Telecopier No.: (904) 361-7735
with a concurrent copy to:
Irv Weinstein
Rogers, Towers, Bailey, Jones & Gay
1301 Riverplace Boulevard
Suite 1500
Jacksonville, FL 32207
Telecopier No.: (904)-396-0663
(3) If to Riscorp to:
RISCORP, Inc.
1390 Main Street
Sarasota, FL 34236
Attention: Walter Riehemann, Esq.
Telecopier No.: (941) 362-6120
With a concurrent copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, GA 30309
Attention: J. Vaughan Curtis, Esq.
Telecopier No.: (404) 881-7777
Polsinelli, White, Vardeman & Shalton
Suite 1000 Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
Attention: Robert B. Sullivan, Esq.
Telecopier No.: (816) 753-1536
Any party may, by notice given in accordance with this Agreement to
the other parties, designate another address or person for receipt of notices
hereunder.
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<PAGE>
Section 6.02. TERMINATION. This Agreement shall be terminated upon
Trustee's receipt of a certificate substantially in the form of Exhibit A
hereto (a "Termination Certificate") signed by a duly authorized officer of
Zenith and a duly authorized officer of Riscorp. Within 10 days of the
termination of this Agreement, Trustee shall transfer, pay over and deliver
to Zenith or Riscorp, as applicable, all right, title and interest in the
remaining assets of the Trust Account in exchange for a written receipt from
the receiving party. The Department shall, not less than 30 days prior to
Zenith's delivery of a Termination Certificate to the Trustee, be provided
with a copy of such Termination Certificate and notified in writing by Zenith
of its intention regarding termination of the Trust Account.
Section 6.03. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH
AND BE GOVERNED BY THE LAWS OF THE STATE OF FLORIDA AND, WITH RESPECT TO ANY
ASSETS CONSISTING OF AUTHORIZED INVESTMENTS THAT ARE SUBJECT TO FEDERAL "BOOK
ENTRY" REGULATIONS, BY FEDERAL LAW, WHICH INCORPORATES REVISED ARTICLE 8 OF
THE UNIFORM COMMERCIAL CODE.
Section 6.04. AMENDMENT. This Agreement may be amended at any time
by written agreement signed by Zenith and Riscorp and delivered to Trustee;
PROVIDED, HOWEVER, that no such amendment shall affect the powers, rights or
duties of Trustee without Trustee's written consent.
Section 6.05. AGREEMENT FOR BENEFIT OF ZENITH. This Agreement shall
be for the sole use and benefit of Zenith and the Trustee. The powers conferred
on Zenith hereunder are solely to protect Zenith's Beneficial Interest in the
Assets and shall not impose any duty upon Zenith to exercise any such powers.
Zenith shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither Zenith nor any of its
officers, directors, employees or agents shall be responsible to Riscorp for any
act or failure to act hereunder, except for their own gross negligence or
willful misconduct. As used herein, the term "Zenith" shall include any
successor to Zenith by operation of law, including, without limit, any
liquidator, rehabilitator, receiver or conservator.
Section 6.06. LIMITATION ON DUTIES REGARDING PRESERVATION OF ASSETS.
The sole duty of the Trustee with respect to the custody, safekeeping and
physical preservation of the Assets in its possession shall be to deal with it
in the same manner as the Trustee with similar property for its own account.
The Trustee shall not have any obligation to take any steps to preserve rights
against prior parties to any Assets. Neither the Trustee, nor any of its
respective directors, officers, employees or agents shall be liable for failure
to demand, collect or realize upon all or any part of the Assets or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Assets upon the request of Riscorp or otherwise.
Section 6.07. WAIVER OF CLAIMS. Except as otherwise provided in this
Agreement, RISCORP HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH ZENITH'S TAKING POSSESSION OR
ZENITH'S DISPOSITION OF ANY OF THE ASSETS, INCLUDING, WITHOUT LIMITATION, ANY
AND ALL PRIOR NOTICE AND HEARING FOR ANY
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<PAGE>
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH RISCORP WOULD
OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE STATES OR OF ANY
STATE, AND RISCORP HEREBY FURTHER WAIVES, TO THE EXTENT PERMITTED BY LAW:
(a) all damages occasioned by such taking of possession except any
damages which are the direct result of the negligence or willful misconduct of
the Trustee or Zenith;
(b) all other requirements as to the time, place and terms of sale or
other requirements with respect to the enforcement of the rights of Zenith
hereunder;
(c) demand of performance or other demand, notice of intent to demand
or accelerate, notice of acceleration presentment, protest, advertisement or
notice of any kind to or upon Riscorp or any other Person; and
(d) all rights of redemption, appraisement, valuation, diligence,
stay, extension or moratorium now or hereafter in force under any applicable law
in order to prevent or delay the enforcement of this Agreement, the absolute
sale of the Assets or any portion thereof, and Riscorp, for itself and all who
may claim under it, insofar as it or they now or hereafter lawfully may, hereby
waives the benefit of all such laws.
Section 6.08. ENTIRE AGREEMENT. This Agreement is not subject to any
conditions or qualifications outside this Agreement. This Agreement constitutes
the entire agreement of the parties and no other documents will be referred to
or apply.
Section 6.09. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
Section 6.10. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the successors and assigns of the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ZENITH INSURANCE COMPANY, as beneficiary
By /s/ Stanley R. Zax
----------------------------------
Name: Stanley R. Zax
Title: Chairman & President
RISCORP PROPERTY & CASUALTY
INSURANCE COMPANY, as grantor
By /s/ Frederick Dawson
-----------------------------------
Name: Frederick Dawson
Title: Chief Executive Officer
FIRST UNION NATIONAL BANK, as trustee
By /s/ Donald T. Hurrelbrink
------------------------------------
Name: Donald T. Hurrelbrink
Title: Assistant Vice President
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<PAGE>
Exhibit A
TERMINATION CERTIFICATE
Each of the undersigned, the [insert position] and a duly authorized
officer of Zenith Insurance Company ("Zenith"), the [insert position] and a
duly authorized officer of RISCORP Property & Casualty Insurance Company
("RP&C"), do hereby certify as follows:
(1) The Interim Reinsurance Agreement dated as of June 18, 1997 by and
among Zenith and RISCORP Insurance Company and RP&C has been
terminated in accordance with the provisions thereof.
(2) The Trustee is directed to transfer all assets remaining in the Trust
Account as follows: [wire transfer instructions]
This Certificate is a "Termination Certificate" within the meaning of
Section 6.02 of the Trust Agreement dated as of June 18, 1997 entered into by
and among Zenith, RP&C and First Union National Bank, as a trustee.
Dated: _______________________ ________________________________
Name:
Title:
Zenith Insurance Company
Dated: _______________________ ________________________________
Name:
Title:
RISCORP Property & Casualty
Insurance Company
<PAGE>
EXECUTION COPY
7/10/97
===============================================================================
AMENDMENT NO. 1
to
TRUST AGREEMENT
by and among
RISCORP PROPERTY & CASUALTY INSURANCE COMPANY, as grantor,
and
ZENITH INSURANCE COMPANY, as beneficiary,
and
FIRST UNION NATIONAL BANK, as trustee
Dated as of June 18, 1997
===============================================================================
<PAGE>
AMENDMENT NO. 1
to
TRUST AGREEMENT
THIS AMENDMENT NO. 1 TO TRUST AGREEMENT (this "Amendment No. 1"),
dated as of June 18, 1997, is entered into by and among RISCORP PROPERTY &
CASUALTY INSURANCE COMPANY, a stock insurance company organized under the laws
of the State of Florida ("Riscorp"), as grantor, and ZENITH INSURANCE COMPANY, a
stock insurance company organized under the laws of the State of California
("Zenith"), as beneficiary, and FIRST UNION NATIONAL BANK, as trustee, a
national banking association organized and existing under the laws of the United
States of America ("Trustee").
W I T N E S S E T H
WHEREAS, Zenith and Riscorp have entered into an Interim Reinsurance
Agreement dated as of June 18, 1997 (the "Reinsurance Agreement"), pursuant to
which Zenith has agreed to accept reinsurance ceded by Riscorp;
WHEREAS, Zenith, Riscorp and Trustee have entered into a Trust
Agreement dated as of June 18, 1997 (the "Trust Agreement"), in order to
establish a trust account for the benefit of Zenith to assure that Zenith will
have access to sufficient assets in the event that Riscorp becomes unable to
meet its obligations under the Reinsurance Agreement to pay reinsurance premiums
to Zenith; and
WHEREAS, Zenith Riscorp and Trustee desire to amend the Trust
Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and upon the terms and conditions set forth herein,
the parties hereto agree as follows:
ARTICLE I
AMENDMENTS
Section 1.01. Article I of the Trust Agreement is hereby amended by
deleting the definition of "Securities" in its entirety and, in lieu
thereof, replacing it with the following definition of "Securities":
"SECURITIES" means securities with a rating of AA or better by
Standard & Poors Corporation, and any and all related security entitlements.
In determining whether any securities are rated AA or better by Standard &
Poors Corporation, the Trustee shall be fully protected in relying on any
written advice of Zenith.
Section 1.02. Article II, Section 2.01 of the Trust Agreement is
hereby amended by adding the word "second" on the sixth line thereof before
the words "Business Day."
<PAGE>
ARTICLE II
MISCELLANEOUS
2.01. OTHER TERMS AND CONDITIONS RATIFIED AND CONFIRMED. Except as
amended in Article I above, all other terms and conditions of the Trust
Agreement are hereby ratified and confirmed by Zenith, Riscorp and Trustee, and
shall remain in full force and effect.
2.02. COUNTERPARTS. This Amendment No. 1 may be executed by the
parties hereto in separate counterparts, each of which when so executed shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ZENITH INSURANCE COMPANY, as beneficiary
By /s/ Stanley R. Zax
--------------------------------------
Name: Stanley R. Zax
Title: Chairman & President
RISCORP PROPERTY & CASUALTY INSURANCE
COMPANY, as grantor
By /s/ Frederick Dawson
---------------------------------------
Name: Frederick Dawson
Title: Chief Executive Officer
FIRST UNION NATIONAL BANK, as trustee
By /s/ Donald T. Hurrelbrink
---------------------------------------
Name: Donald T. Hurrelbrink
Title: Assistant Vice President
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<PAGE>
REVOLVING NOTE
$20,000,000.00 Beverly Hills, California
July 1, 1997
On July 1, 1998 ("Termination Date"), ZENITH NATIONAL INSURANCE CORP., a
Delaware corporation ("Borrower"), promises to pay to the order of CITY
NATIONAL BANK, a national banking association ("CNB"), at its office in this
city, in United States Dollars and in immediately available funds, the
principal sum of TWENTY MILLION DOLLARS ($20,000,000.00) ("Revolving Credit
Commitment") or so much thereof as may be advanced and then outstanding, plus
interest on the unpaid balance, until fully repaid, at a rate computed on the
basis of a 360-day year, actual days elapsed, at the rates, times and in
accordance with the terms set forth below.
Anything to the contrary notwithstanding, all principal and interest
thereon remaining unpaid on the Termination Date shall be due and payable at
that time.
As provided herein, the principal of this Note may be borrowed, repaid
and reborrowed from time to time prior to the Termination Date, provided at
the time of any borrowing no Event of Default (as hereinafter defined)
exists, and provided further that the total borrowings outstanding at any one
time shall not exceed the Revolving Credit Commitment. Each borrowing and
repayment shall be noted in the books and records of CNB. The excess of
borrowing over repayments shall evidence the principal balance due hereon
from time to time and at any time. Borrowings hereunder shall be
conclusively presumed to have been made to or for the benefit of Borrower
when noted in such books and records, unless Borrower objects within 30 days
of receipt of notification of such notation.
Interest shall accrue daily on this Note and shall be payable quarterly,
in arrears, on the first (1st) day of each January, April, July, and October.
Borrower shall pay CNB a commitment fee equal to $25,000.00, payable in
four (4) equal consecutive quarterly installments of $6,250.00 each, payable
on the first (1st) day of each January, April, July and October, with the
first payment due October 1st.
Borrower shall pay CNB an unused facility fee equal to one-eighth of one
percent per annum (0.125%) applied on a daily basis to the unused portion of
the Revolving Credit Commitment, payable quarterly, in arrears, on the first
(1st) day of each January, April, July and October, with the first payment
due October 1st.
INTEREST RATE SELECTION
1. For purposes of this Note, the following definitions apply:
1.1 "BUSINESS DAY" shall mean a day that CNB's Head Office is open and
conducts a substantial portion of its business.
1
<PAGE>
1.2 "EUROCURRENCY RESERVE REQUIREMENT" mean the aggregate (without
duplication) of the rates (expressed as a decimal) of reserves (including,
without limitation, any basic, marginal, supplemental, or emergency reserves)
that are required to be maintained by CNB during the Interest Period under
any regulations of the Board of Governors of the Federal Reserve System, or
any other governmental authority having jurisdiction with respect thereto,
applicable to funding based on so-called "Eurocurrency Liabilities",
including Regulation D (12 CFR 224).
1.3 "INTEREST PERIOD" means the period commencing on the date the
LIBOR Loan is made (including the date a Prime Loan is converted to a LIBOR
Loan, or a LIBOR Loan is renewed as a LIBOR Loan, which, in the latter case,
shall be the last day of the expiring Interest Period) and ending one (1),
two (2), three (3) or six (6) months thereafter, as selected by the Borrower
in its irrevocable Notice of Borrowing/Interest Selection; provided, however,
(a) any Interest Period that would end on a day not a Business Day, shall
extend to the next Business Day; and (b) no Interest Period may extend beyond
the Termination Date.
1.4 "LIBOR BASE RATE" shall mean the British Banker's Association
definition of the London InterBank Offered Rates as made available by
Telerate Monitor on Telerate Screen 3750, or such other information service
available to CNB, for the applicable Interest Period for the LIBOR Loan
selected by Borrower in its irrevocable Notice of Borrowing/Interest
Selection, and as quoted by CNB on the Business Day Borrower requests a LIBOR
Loan.
1.5 "LIBOR INTEREST RATE" means the rate per year (rounded upward to
the nearest one-sixteenth (1/16th) of one percent (0.0625%), if necessary)
determined by CNB to be the quotient of (a) the LIBOR Base Rate divided by
(b) one minus the Eurocurrency Reserve Requirement for the Interest Period;
which is expressed by the following formula:
LIBOR BASE RATE
------------------------------------
1 - Eurocurrency Reserve Requirement
1.6 "LIBOR LOAN" means any loan tied to the LIBOR Interest Rate.
1.7 "LOAN(S)" shall mean the principal balance outstanding on this
Note, and any LIBOR Loan and/or any Prime Loan made thereunder, as the case
may be.
1.8 "NOTICE OF BORROWING/INTEREST SELECTION" or "NOTICE" shall mean
that Notice of Borrowing/Interest Selection attached hereto as Exhibit "A".
1.9 "PRIME LOAN" means any loan tied to the Prime Rate.
1.10 "PRIME RATE" shall mean the rate most recently announced by CNB at
its principal office in Beverly Hills, California, as its "Prime Rate." Any
change in interest rate resulting from a change in the Prime Rate shall be
effective on the day on which each change on the Prime Rate on loans is
announced by CNB.
2. INTEREST. Each Loan shall bear interest from disbursement until due
(whether at stated maturity, by acceleration or otherwise), at a rate equal to,
at the Borrower's option as indicated on
2
<PAGE>
Borrower's Notice of Borrowing/Interest Selection, either (a) for a LIBOR
Loan, the sum of the LIBOR Interest Rate plus THREE-QUARTERS OF ONE PERCENT
(0.75%) per year, or (b) for a Prime Loan, the fluctuating Prime Rate, minus
FIFTY-FIVE HUNDREDTHS OF ONE PERCENT (0.55%) per year, in all cases computed
on the basis of a 360 day year, actual days elapsed. A Loan shall be a Prime
Loan any time it is not a LIBOR Loan.
3. NOTICE OF BORROWING AND INTEREST SELECTION. Borrower may request that
a Loan be a LIBOR Loan if herein allowed (including conversion of a Prime
Loan to a LIBOR Loan, or continuation of a LIBOR Loan as a LIBOR Loan upon
the expiration of the Interest Period) by delivering to CNB, no earlier than
two (2) Business Days before the LIBOR Loan is to be made, and no later than
one o'clock (1:00) p.m., Pacific Time, on the day the Loan is to be made, its
irrevocable written Notice of Borrowing/Interest Selection. The Notice shall
designate (a) the date of the Loan, (b) the principal amount of the Loan, (c)
whether the Loan will be a LIBOR Loan or a Prime Loan, and (d) if a LIBOR
Loan, the Interest Period. The Notice shall be delivered to CNB at 400 N.
ROXBURY DR., BEVERLY HILLS, CA, 90210, ATTENTION: GARY SHEV, WESTSIDE
COMMERCIAL BANKING CENTER, or by telephone facsimile to CNB at (310)
888-6146, or such other address or facsimile number as CNB advises Borrower
in writing. The Notice will not be effective until actually received by CNB
as herein provided. If Borrower fails to select a LIBOR Loan in accordance
herewith, any Loan made shall be a Prime Loan, and any outstanding LIBOR Loan
shall be deemed a Prime Loan upon expiration of the Interest Period.
4. AVAILABILITY OF LIBOR LOANS. Notwithstanding anything herein to the
contrary, each LIBOR Loan shall be in the minimum amount of $100,000.00 and,
thereafter, in increments of $100,000.00. Borrower may not have more than ten
(10) LIBOR Loans outstanding at any one time under the Revolving Credit
Commitment. Borrower may have Prime Loans and LIBOR Loans outstanding
simultaneously.
5. PREPAYMENT OF PRINCIPAL. Borrower may prepay the principal amount
outstanding on a prime loan at any time and in any amount without a
prepayment fee. Borrower may prepay the full amount of a LIBOR Loan at the
end of the interest period; borrower may not make a partial principal
prepayment on a LIBOR Loan at any time. borrower may prepay the full
outstanding principal balance on a LIBOR Loan prior to the end of the
Interest Period, provided, however, that such prepayment is accompanied by a
fee ("LIBOR Prepayment Fee") equal to the amount, if any, by which (a) the
additional interest which would have been earned by CNB on the LIBOR Loan had
it not been paid until the last day of the Interest Period, exceeds (b) the
interest which would have been recoverable by CNB placing the amount of the
LIBOR Loan on deposit in the LIBOR market for a period starting on the date
on which it was prepaid and ending on the last day of the applicable Interest
Period. CNB'S calculation of the LIBOR Prepayment Fee shall be conclusive
absent manifest error.
Borrower must deliver to CNB written notice of its intention to make a
LIBOR Prepayment at least two (2) Business Days prior to the intended payment
date specifying the amount and date of the LIBOR Prepayment.
6. SUSPENSION OF LIBOR LOANS. In the event CNB, on any Business Day, is
unable to determine the LIBOR Base Rate applicable for a new, continued, or
converted LIBOR Loan for any reason, or any law, regulation, or governmental
order, rule or determination, makes it unlawful
3
<PAGE>
for CNB to make a LIBOR Loan, Borrower's right to select LIBOR Loans shall be
suspended until CNB is again able to determine the LIBOR Base Rate or make
LIBOR Loans, as the case may be. During such suspension, new Loans and LIBOR
Loans whose Interest Period terminates, may only be Prime Loans.
The occurrence of any of the following with respect to Borrower shall
constitute an "Event of Default" hereunder:
1. Failure to make any payment of principal or interest when due under this
Note, when such failure continues for ten (10) days after notice from CNB
that Borrower is in default hereunder if payment is not made;
2. Filing of a petition by or against Borrower under any provision of the
BANKRUPTCY CODE;
3. Appointment of a receiver or an assignee for the benefit of Borrower's
creditors;
4. Commencement of dissolution or liquidation proceedings (under any
applicable law or regulation) of Borrower;
5. Any financial statement provided by Borrower to CNB is materially false
or misleading;
6. Any material default in the payment or performance of any material
obligation, or any material default under any material provisions of
any material contract or instrument pursuant to which Borrower has
incurred any material obligation for borrowed money, to any person or
entity (including CNB), only if such default continues beyond any
applicable grace period provided therein and if the effect of such
failure is to cause such person or entity to declare any obligation for
borrowed money to be due and payable prior to its stated maturity date;
7. Any sale or transfer of (1) all or substantially all of the assets of
Borrower, (2) a material part of such assets other than in the ordinary
course of business or for fair value; or
8. Any material violation, breach or default under this Note, any letter
agreement or any other contract or instrument executed in connection with
this Note.
Upon the occurrence of any Event of Default, CNB, at its option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, protest or notice of
dishonor all of which are expressly waived by Borrower, and CNB shall have no
obligation to make further advances hereunder. Borrower agrees to pay all
costs and expenses, including reasonable attorneys' fees, expended or
incurred by CNB (or allocable to CNB's in-house counsel) in connection with
the enforcement of this Note or the collection of any sums due hereunder and
irrespective of whether suit is filed.
Upon the occurrence of any Event of Default and the acceleration of
all sums of principal or interest to be due and payable (and without
constituting a waiver of the Event of Default), and until the Event of
Default has been cured, the outstanding principal (and unpaid
4
<PAGE>
interest, to the extent permitted by law) shall bear increased interest at a
rate equal to two percent (2%) per annum higher than the interest rate as
determined above; provided, however, for purposes hereof, a LIBOR Loan shall
be treated as a Prime Loan upon the termination of the Interest Period.
This Note and all matters relating thereto, shall be governed by the
laws of the State of California.
ZENITH NATIONAL INSURANCE CORP., a
Delaware corporation
By: /s/ Stanley R. Zax
------------------------------------
STANLEY R. ZAX, President and
Chairman of the Board
5
<PAGE>
EXHIBIT A
NOTICE OF BORROWING/INTEREST SELECTION
This Notice of Borrowing/Interest Selection ("Notice") is executed and
delivered by ZENITH NATIONAL INSURANCE CORP., a Delaware corporation
("Borrower"), to CITY NATIONAL BANK, a national banking association ("CNB"),
pursuant to that Revolving Note ("Note") dated July 1, 1997, executed by
Borrower in favor of CNB. Any terms not defined herein shall have the
meanings defined in the Note or the Interest Rate Provision.
1. REQUEST FOR A LOAN. Borrower requests a Loan under the Notes as follows:
1.1 Interest Selection- State "LIBOR" or "Prime":_______________
1.2 Principal Amount of Loan: $_______________ (IF LIBOR LOAN, MINIMUM OF
$100,000 AND INCREMENTS OF $100,000)
1.3 LIBOR Loan- Effective Date of Interest Period:_______________, 19___
1.4 LIBOR Loan - Interest Period ____ month(s) [1,2,3 or 6 months only]
2. CONVERSION TO LIBOR LOAN. Borrower requests conversion of the outstanding
Prime Loan to a LIBOR Loan.
2.1 Effective Date of Conversion: __________________, 19___
2.2 Principal Amount of Conversion $_________________ (MINIMUM OF
$100,000 AND INCREMENTS OF $100,000)
2.3 Interest Period: _____ month(s) [1,2,3 or 6 months only]
3. RENEWAL OF LIBOR LOAN. Borrower requests renewing an outstanding LIBOR
Loan as follows:
3.1 Principal Amount of Renewal of LIBOR Loan: $_______________
(INCREMENTS OF $___________/(Amount of LIBOR Loan not renewed as a
LIBOR Loan will be a Prime Loan)
3.2 Date of Renewal: ________________, 19___ [LAST DATE OF CURRENT
INTEREST PERIOD]
3.3 Interest Period: ______ month(s) [1,2, 3 or 6 months only]
4. CONVERSION TO PRIME LOAN. LIBOR Loans shall automatically convert to a
Prime Loan at the end of an Interest Period if CNB fails to timely receive a
Notice for an outstanding LIBOR Loan.
5. WARRANTY. In connection with the advance/conversion/renewal of the Loans
requested herein, Borrower hereby represents and warrants to CNB that, as of
the date of the such advance/conversion/renewal of the Loan requested herein,
no Event of Default has occurred and is continuing. (If the foregoing
statement is not true and correct, attach a statement specifying in detail
the circumstances thereof and the actions Borrower is taking or proposes to
take with respect thereto.)
This Notice is executed on _______________, 19____, by an authorized
officer of Borrower, on behalf of Borrower.
"Borrower" ZENITH NATIONAL INSURANCE CORP. a
Delaware corporation
By: ____________________________
Its: ____________________________
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of July 24, 1997
between
ZENITH NATIONAL INSURANCE CORP.,
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . 12
1.3 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE II THE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Amounts and Terms of Commitments. . . . . . . . . . . . . . . . . . 13
(a) The Tranche A Credit . . . . . . . . . . . . . . . . . . . . . 13
(b) The Tranche B Credit . . . . . . . . . . . . . . . . . . . . . 13
2.2 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . 13
2.4 Conversion and Continuation Elections . . . . . . . . . . . . . . . 14
2.5 Voluntary Termination or Reduction of Commitments . . . . . . . . . 15
2.6 Optional Prepayments. . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) The Tranche A Credit . . . . . . . . . . . . . . . . . . . . . 15
(b) The Tranche B Credit . . . . . . . . . . . . . . . . . . . . . 15
2.8 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Arrangement Fee. . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . 16
2.10 Computation of Fees and Interest. . . . . . . . . . . . . . . . . . 16
2.11 Payments by the Company . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY. . . . . . . . . . . . . 17
3.1 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.3 Increased Costs and Reduction of Return . . . . . . . . . . . . . . 18
3.4 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.5 Inability to Determine Rates. . . . . . . . . . . . . . . . . . . . 19
3.6 Certificates of Bank. . . . . . . . . . . . . . . . . . . . . . . . 20
3.7 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Conditions of Effectiveness . . . . . . . . . . . . . . . . . . . . 20
(a) Credit Agreement and Notes . . . . . . . . . . . . . . . . . . 20
(b) Resolutions; Incumbency. . . . . . . . . . . . . . . . . . . . 20
(c) Organization Documents; Good Standing. . . . . . . . . . . . . 20
(d) Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . 20
(e) Payment of Fees. . . . . . . . . . . . . . . . . . . . . . . . 20
(f) Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . 21
(g) Other Documents. . . . . . . . . . . . . . . . . . . . . . . . 21
4.2 Conditions to All Borrowings. . . . . . . . . . . . . . . . . . . . 21
(a) Notice of Borrowing or Conversion/ Continuation. . . . . . . . 21
(b) Continuation of Representations and Warranties . . . . . . . . 21
(c) No Existing Default. . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . 21
5.1 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . 21
5.2 Corporate Authorization; No Contravention . . . . . . . . . . . . . 22
5.3 Governmental Authorization. . . . . . . . . . . . . . . . . . . . . 22
5.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.6 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7 ERISA Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . 23
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<PAGE>
Section Page
5.8 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . 23
5.9 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 23
5.12 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 24
5.13 Regulated Entities. . . . . . . . . . . . . . . . . . . . . . . . . 24
5.14 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . . . . 24
5.15 Copyrights, Patents, Trademarks and Licenses, etc.. . . . . . . . . 24
5.16 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.18 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 25
6.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . 26
6.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.4 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . 28
6.5 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . 28
6.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.7 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . 28
6.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 29
6.9 Inspection of Property and Books and Records. . . . . . . . . . . . 29
6.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 29
7.1 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . 30
7.3 Consolidations and Mergers. . . . . . . . . . . . . . . . . . . . . 30
7.4 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . 30
7.5 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . . . 30
7.6 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . 30
7.7 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.8 Change in Business. . . . . . . . . . . . . . . . . . . . . . . . . 31
7.9 Accounting Changes. . . . . . . . . . . . . . . . . . . . . . . . . 31
7.10 Minimum Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.11 Debt to Total Capitalization. . . . . . . . . . . . . . . . . . . . 31
7.12 Risk-Based Capital. . . . . . . . . . . . . . . . . . . . . . . . . 31
7.13 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . 31
(a) Non-Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Representation or Warranty . . . . . . . . . . . . . . . . . . 31
(c) Specific Defaults. . . . . . . . . . . . . . . . . . . . . . . 31
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . 32
(e) Cross-Payment and Acceleration . . . . . . . . . . . . . . . . 32
(f) Insolvency; Voluntary Proceedings. . . . . . . . . . . . . . . 32
(g) Involuntary Proceedings. . . . . . . . . . . . . . . . . . . . 32
(h) ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(i) Monetary Judgments . . . . . . . . . . . . . . . . . . . . . . 33
(j) Non-Monetary Judgments . . . . . . . . . . . . . . . . . . . . 33
(k) Change of Control. . . . . . . . . . . . . . . . . . . . . . . 33
(l) Loss of Licenses . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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<PAGE>
Section Page
8.3 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . . 34
9.4 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 34
9.5 Company Indemnification . . . . . . . . . . . . . . . . . . . . . . 35
9.6 Marshalling; Payments Set Aside . . . . . . . . . . . . . . . . . . 35
9.7 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 35
9.8 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . 35
9.9 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.12 No Third Parties Benefited. . . . . . . . . . . . . . . . . . . . . 37
9.13 Governing Law and Jurisdiction. . . . . . . . . . . . . . . . . . . 37
9.14 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . 37
9.15 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 38
-iii-
<PAGE>
SCHEDULES
Schedule 5.5 Litigation
Schedule 5.7 ERISA
Schedule 5.12 Environmental Matters
Schedule 5.16 Subsidiaries
Schedule 5.17 Insurance Matters
Schedule 9.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F-1 Form of Tranche A Note
Exhibit F-2 Form of Tranche B Note
-iv-
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of July 24, 1997, between ZENITH
NATIONAL INSURANCE CORP., a Delaware corporation (the "COMPANY") and Bank of
America National Trust and Savings Association (together with its successors
and assigns, the "BANK").
WHEREAS, the Bank has agreed to make available to the Company a revolving
credit facility upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"ADJUSTED CAPITAL" shall mean, as to any Insurance Subsidiary, as of
any date, the total adjusted surplus to policyholders shown on line 25, page
22, column 1 of the Annual Statement of such Insurance Subsidiary, or an
amount determined in a consistent manner for any date other than one as of
which an Annual Statement is prepared.
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power
to direct or cause the direction of the management and policies of the other
Person, whether through the ownership of voting securities, membership
interests, by contract, or otherwise.
"AGREEMENT" means this Credit Agreement.
"AMOUNTS AVAILABLE FOR DIVIDENDS" shall mean, without duplication,
the amount that is paid or may be paid by ZIC as a dividend at any time
during the then current calendar year without being an "extraordinary
dividend" under Section 1215.5(c) of the California Insurance Code.
"ANNUAL STATEMENT" shall mean, as to any Insurance Subsidiary, the
annual financial statement of such Insurance Subsidiary as required to be
filed with the applicable Department, together with all exhibits or schedules
filed therewith, prepared in conformity with SAP. References to amounts on
particular exhibits, schedules, lines, pages and columns of the Annual
Statement are based on the format promulgated by the NAIC for 1996 Property
and Casualty Company Annual Statements. If such format is changed in future
years so that different information is contained in such items or they no
longer exist, it is understood that the reference is to information
consistent with that reported in the referenced item in the 1996 Annual
Statement of such Insurance Subsidiary.
"APPLICABLE INSURANCE CODE" shall mean, as to any Insurance
Subsidiary, the insurance code of any state where such Insurance Subsidiary
is domiciled or doing insurance business and any successor statute of similar
import, together with the regulations thereunder, as amended or otherwise
modified and in effect from time to time. References to sections of the
Applicable Insurance Code shall be construed to also refer to successor
sections.
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"APPLICABLE MARGIN" means (a) as to Base Rate Loans, 0% per annum,
(b) as to Tranche A Loans that are Offshore Rate Loans, .375% per annum and
(c) as to Tranche B Loans that are Offshore Rate Loans, the margin set forth
in the table below based on the debt rating of the Company by Moody's and/or
S&P:
LONG-TERM DEBT RATING
OF COMPANY APPLICABLE MARGIN
--------------------- -----------------
A/A2 or higher .275%
A-/A3 .350%
BBB+/Baa1 .475%
BBB/Baa2 or lower .75%
Any adjustment in the applicable margin as a result of a change in
the rating of the company's long-term public debt by moody's and/or s& p's
shall be effective as of the effective date of the change in such rating. In
the event the rating by moody's and s&p's corporation do not fall in the same
category provided above, the applicable margin shall be determined by adding
one level to the lower of the two rating levels.
"ASSIGNEE" has the meaning specified in SECTION 9.8(a).
"ATTORNEY COSTS" means and includes all fees and disbursements of
any law firm or other external counsel and without duplication, the allocated
cost of internal legal services and all disbursements of internal counsel.
"BANK" has the meaning specified in the introductory clause hereto.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. Section 101, ET SEQ.).
"BASE RATE" means, for any day, the higher of:
(a) 0.50% per annum above the latest Federal Funds Rate; and
(b) the rate of interest in effect for such day as publicly
announced from time to time by the Bank in San Francisco, California, as
its "reference rate."
(The "reference rate" is a rate set by the Bank based upon various
factors including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing
some loans, which may be priced at, above, or below such announced rate.)
Any change in the reference rate announced by the Bank shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"BASE RATE LOAN" means a Loan that bears interest based on the Base
Rate.
"BORROWING" means a borrowing hereunder consisting of Loans of the
same Type made to the Company on the same day by the Bank under ARTICLE II,
and, other than in the case of Base Rate Loans, having the same Interest
Period.
"BORROWING DATE" means any date on which a Borrowing occurs under
SECTION 2.3.
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"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago or San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Loan, means such a day on which dealings are carried on in the
applicable offshore dollar interbank market.
"CALFARM" means CalFarm Insurance Company, a California corporation.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"CAPITAL AND SURPLUS" shall mean, as to any Insurance Subsidiary, as
of the date of the Annual Statement, the total amount shown on line 25, page
3, column 1 of the Annual Statement of such Insurance Subsidiary, or an
amount determined in a manner consistent with the Annual Statement for any
fiscal quarter which does not end on the date of the Annual Statement.
"CHANGE OF CONTROL" means (a) any Person, or two or more Persons,
acting in concert, directly or indirectly acquire after the Closing Date
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended) of
51% or more of the outstanding shares of voting stock of the Company or (b)
individuals who as of the Closing Date constituted the Company's Board of
Directors (together with any new director whose election by the Company's
Board of Directors or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved), for any reason, cease to constitute a majority of the directors at
any time then in office or (c) the Company ceases to own 100% of the capital
stock of any of the following on a fully-diluted basis: ZIC or CalFarm.
"CLOSING DATE" means the date on which this Agreement is effective
which shall be the date on which all the conditions in SECTION 4.1 are
satisfied.
"CODE" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"COMMITMENT" means the Tranche A Commitment and the Tranche B
Commitment.
"COMPANY" has the meaning specified in the introductory clause
hereto.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the
form of EXHIBIT C.
"CONTINGENT OBLIGATION" shall mean any agreement, undertaking or
arrangement (other than insurance and reinsurance obligations and surety
bonds, in each case entered into in the ordinary course of business) by which
any Person guarantees, endorses or otherwise becomes or is contingently
liable for (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss but excluding the
Company's agreement to subordinate debt owed to it by Perma-Bilt, a Nevada
corporation, to amounts owed to the Bank) the debt, obligation or other
liability of any other Person (other than by endorsements of instruments in
the course of collection), or guarantees the payment of dividends or other
distributions
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upon the shares of any other Person. The amount of any Person's obligation
under any Contingent Obligation shall (subject to any limitation set forth
therein) be deemed to be the outstanding principal amount of the debt,
obligation or other liability guaranteed thereby.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound other than insurance and reinsurance obligations and surety
bonds, in each case entered into in the ordinary course of business.
"CONVERSION/CONTINUATION DATE" means any date on which, under
SECTION 2.4, the Company (a) converts Loans of one Type to another Type, or
(b) continues as Loans of the same Type, but with a new Interest Period,
Loans having Interest Periods expiring on such date.
"DEBT TO TOTAL CAPITALIZATION RATIO" shall mean the ratio of (a) the
principal of all Indebtedness of the Company described in clauses (a), (d) or
(f) of the definition thereof for which the Company is directly liable or
which is a Contingent Obligation of the Company to (b) Total Capitalization.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEPARTMENT" means, as to any insurance company, the state
department of insurance of the state of domicile of such insurance company.
"DISPOSITION" means (a) the sale, lease, assignment, conveyance or
other disposition or transfer of property, and (b) the sale or transfer by
the Company or any Subsidiary of the Company of any equity securities issued
by any Subsidiary of the Company and held by such transferor Person.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (b) a commercial bank organized
under the laws of any other country which is a member of the Organization for
Economic Cooperation and Development (the "OECD"), or a political subdivision
of any such country, and having a combined capital and surplus of at least
$100,000,000; PROVIDED, THAT such bank is acting through a branch or agency
located in the United States; and (c) a Person that is primarily engaged in
the business of commercial banking and that is (i) a Subsidiary of the Bank,
(ii) a Subsidiary of a Person of which the Bank is a Subsidiary, or (iii) a
Person of which the Bank is a Subsidiary.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land
use matters.
"ENVIRONMENTAL PERMITS" has the meaning specified in SECTION 5.12(b).
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"ERISA" means the Employee Retirement Income Security Act of 1974,
and regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Plan;
(b) a withdrawal by the Company or any ERISA Affiliate from a Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial
employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of
operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan
is in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Plan or
Multiemployer Plan; (e) an event or condition which would reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Company or any ERISA Affiliate.
"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the
definition of "Offshore Rate".
"EVENT OF DEFAULT" means any of the events or circumstances
specified in SECTION 8.1.
"EXCHANGE ACT" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor to release H.15(519)) on the preceding Business Day opposite
the caption "Federal Funds (Effective)"; or, if for any relevant day such
rate is not so published on any such preceding Business Day, the rate for
such day will be the arithmetic mean as determined by the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
City time) on that day by each of three leading brokers of Federal funds
transactions in New York City which are selected by the Bank.
"FIXED INTEREST CHARGES" shall mean interest paid or, without
duplication, accrued but unpaid on the Loans or any other Indebtedness
described in clauses (a) or (d) of the definition thereof, which shall be
determined at the end of each fiscal quarter for the four consecutive fiscal
quarters then ended.
"FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles in the United
States, which are applicable to the circumstances as of the date of
determination.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state
or other political subdivision thereof, any central bank (or similar monetary
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or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"GUARANTY OBLIGATION" means to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof.
"HAZARDOUS MATERIALS" means all those substances that are regulated
by, or which may form the basis of liability under, any Environmental Law,
including all substances identified under any Environmental Law as a
pollutant, contaminant, hazardous waste, hazardous constituent, special
waste, hazardous substance, hazardous material, or toxic substance, or
petroleum or petroleum derived substance or waste.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or
businesses; (e) all indebtedness created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in either
case with respect to property acquired by the Person (even though the rights
and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property); (f) all
obligations with respect to capital leases; (g) all net obligations with
respect to Swap Contracts; (h) all indebtedness referred to in clauses (a)
through (g) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien
upon or in property (including accounts and contracts rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (i) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (g) above.
"INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 9.5.
"INDEMNIFIED PERSON" has the meaning specified in SECTION 9.5.
"INDEPENDENT AUDITOR" has the meaning specified in SECTION 6.1(a).
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; undertaken under U.S. Federal, state or
foreign law, including the Bankruptcy Code.
"INSURANCE SUBSIDIARY" shall mean any Subsidiary of the Company
(other than ZIC Lloyd's Underwriting Limited, Zenith Risk Management, Inc.
and CalFarm Insurance Agency or any other Subsidiary which does not issue or
underwrite insurance or reinsurance) that is authorized or admitted to carry
on or transact one or more aspects of the business of selling, issuing or
underwriting insurance or reinsurance.
"INTEREST COVERAGE RATIO" shall mean the ratio of (a) (i) Amounts
Available for Dividends, plus (ii) pre-tax income from the Non-Insurance
Subsidiaries as of the end of each fiscal quarter for the four quarters then
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ended, plus (iii) without duplication, pre-tax, pre-interest income of the
Company as of the end of each fiscal quarter for the four quarters then ended
to (b) Fixed Interest Charges.
"INTEREST PAYMENT DATE" means, as to any Loan other than a Base Rate
Loan, the last day of each Interest Period applicable to such Loan and, as to
any Base Rate Loan, the last Business Day of each calendar quarter and each
date such Loan is converted into another Type of Loan; PROVIDED, HOWEVER,
that if any Interest Period for an Offshore Rate Loan exceeds three months
the date that falls three months after the beginning of such Interest Period
and after each Interest Payment Date thereafter is also an Interest Payment
Date.
"INTEREST PERIOD" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/
Continuation Date on which the Loan is converted into or continued as an
Offshore Rate Loan, and ending on the date one, two, three or six months
thereafter as selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation; PROVIDED, THAT:
(a) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(b) any Interest Period pertaining to an Offshore Rate Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last Business Day of
the calendar month at the end of such Interest Period; and
(c) no Interest Period for any Loan shall extend beyond (i) in the
case of Tranche A Loans, the Tranche A Termination Date and (ii) in the
case of Tranche B Loans, the Tranche B Termination Date.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"LENDING OFFICE" means the office or offices of the Bank specified
as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending
Office", as the case may be, on SCHEDULE 9.2, or such other office or offices
as the Bank may from time to time notify the Company.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the foregoing,
or the filing of any financing statement naming the owner of the asset to
which such lien relates as debtor, under the Uniform Commercial Code or any
comparable law) and any contingent or other agreement to provide any of the
foregoing, but not including the interest of a lessor under an operating
lease.
"LOAN" means an extension of credit by the Bank to the Company under
ARTICLE II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a
"TYPE" of Loan), and includes any Tranche A Loan or Tranche B Loan.
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"LOAN DOCUMENTS" means this Agreement, any Notes and all other
documents delivered to the Bank in connection herewith.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or
a material adverse effect upon, the operations, business, properties or
condition (financial or otherwise) of the Company or the Company and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of
the Company to perform under any Loan Document and to avoid any Event of
Default; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Company of any Loan Document.
"MOODY'S" shall mean Moody's Investors Service, Inc. and any
successor thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA
Affiliate makes, is making, or is obligated to make contributions or, during
the preceding three calendar years, has made, or been obligated to make,
contributions.
"NAIC" shall mean the National Association of Insurance
Commissioners, or any successor organization.
"NON-INSURANCE SUBSIDIARY" means any Subsidiary which is not an
Insurance Subsidiary.
"NOTES" means, collectively, the Tranche A Note and the Tranche B
Note.
"NOTICE OF BORROWING" means a notice in substantially the form of
EXHIBIT A.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially
the form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company to
the Bank or any Indemnified Person, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due,
now existing or hereafter arising.
"OECD" has the meaning specified in the definition of "Eligible
Assignee".
"OFFSHORE RATE" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined by
the Bank as follows:
Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day which is
applicable to the Bank under regulations issued from time to time by the FRB
for determining the maximum reserve requirement (including any emergency,
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supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency liabilities").
"IBOR" means the rate of interest per annum determined by the
Bank as the rate at which dollar deposits in the approximate amount of the
Bank's Offshore Rate Loan for such Interest Period would be offered by the
Bank's Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as may
be designated for such purpose by the Bank), to major banks in the offshore
dollar interbank market at their request at approximately 11:00 a.m. (New
York City time) two Business Days prior to the commencement of such Interest
Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any change
in the Eurodollar Reserve Percentage.
"OFFSHORE RATE LOAN" means a Loan that bears interest based on the
Offshore Rate.
"ORGANIZATION DOCUMENTS" means, for any corporation, partnership or
limited liability company, the certificate or articles of incorporation,
partnership agreement, operating agreement, bylaws or similar document,
certificate of determination or instrument relating to the rights of
preferred shareholders of such corporation, shareholder rights agreement, and
all applicable resolutions of the board of directors (or any committee
thereof) or similar body of such entity.
"OTHER TAXES" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to this Agreement or any other
Loan Documents.
"PARTICIPANT" has the meaning specified in SECTION 9.8(c).
"PAYMENT OFFICE" means 231 South LaSalle Street, Chicago, Illinois
60697 or such other office as may be designated by the Bank to the Company in
writing.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"PERMITTED LIENS" has the meaning specified in SECTION 7.1.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association or Governmental Authority.
"PLAN" means a pension plan (as defined in Section 3(2) of ERISA
which is subject to Title IV of ERISA) which the Company sponsors or
maintains or to which the Company makes, is making, or is obligated to make
contributions or in the case of a multiple employer plan (as described in
Section 4064(a) of ERISA) has made contributions at any time during the
immediately preceding five (5) plan years.
"REPORTABLE EVENT" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"REQUIREMENT OF LAW" means, as to any Person, any law, treaty, rule
or regulation or determination of an arbitrator or of a Governmental
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Authority, in each case applicable to or binding upon the Person or any of
its property or to which the Person or any of its property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of the Company, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief executive officer, chief financial officer or the
treasurer of the Company, or any other officer having substantially the same
authority and responsibility.
"RISK-BASED CAPITAL" shall mean, with respect to any Insurance
Subsidiary, the ratio of Adjusted Capital of such Insurance Subsidiary to the
Company Action Level of such Insurance Company (as determined by the NAIC or
the applicable Department). In the event that there is a conflict between
the Risk-Based Capital formulas adopted by the NAIC and any applicable
Department, the calculation of the Department shall govern.
"S&P'S" shall mean Standard & Poor's Ratings Group and any successor
thereto.
"SAP" shall mean, as to any Insurance Subsidiary, the statutory
accounting practices prescribed or permitted by the Department.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SIGNIFICANT SUBSIDIARY" means a "significant subsidiary" as such
term is defined in Regulation S-X of the Securities Act of 1933, as amended.
"SOLVENT" means, as to any Person at any time, that (a) the fair
value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(31) of the Bankruptcy Code and, in the alternative,
for purposes of the Uniform Fraudulent Transfer Act; (b) the present fair
saleable value of the property of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person is able to realize
upon its property and pay its debts and other liabilities (including
disputed, contingent and unliquidated liabilities) as they mature in the
normal course of business; (d) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability
to pay as such debts and liabilities mature; and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business
or a transaction, for which such Person's property would constitute
unreasonably small capital.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests or
other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of
the Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Company.
"SURETY INSTRUMENTS" means all letters of credit (including standby
and commercial), banker's acceptances, surety bonds and similar instruments
but excluding insurance and reinsurance obligations and surety obligations,
in each case entered into in the ordinary course of business.
"SWAP CONTRACT" means any agreement (including any master agreement
and any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward
rate
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agreement, commodity swap, commodity option, equity or equity index swap or
option, bond option, interest rate option, forward foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement,
cross-currency rate swap agreement, swaption, currency option or any other,
similar agreement (including any option to enter into any of the foregoing).
"TAXES" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of the Bank, such taxes (including income
taxes or franchise taxes) as are imposed on or measured by each Bank's net
income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Bank, as the case may be, is organized or maintains a
Lending Office.
"TOTAL CAPITALIZATION" shall mean (a) principal of all Indebtedness
of the Company described in clauses (a), (d) or (f) of the definition thereof
for which the Company is directly liable or a Contingent Obligation of the
Company related to Indebtedness described in one of such clauses plus (b) the
Total Shareholders' Equity of the Company.
"TOTAL SHAREHOLDERS' EQUITY" shall mean the total shareholders'
equity of a Person as determined in accordance with GAAP (calculated
excluding unrealized gains (losses) of securities as determined in accordance
with FASB 115).
"TRANCHE A COMMITMENT" has the meaning specified in SECTION 2.1(a).
"TRANCHE A LOAN" has the meaning specified in SECTION 2.1.
"TRANCHE A NOTE" means a promissory note executed by the Company in
favor of the Bank pursuant to SECTION 2.2, in substantially the form of
EXHIBIT F-1.
"TRANCHE A TERMINATION DATE" means the earlier to occur of:
(a) July 23, 1998; and
(b) the date on which the Tranche A Commitment terminates in
accordance with the provisions of this Agreement.
"TRANCHE B COMMITMENT" has the meaning specified in SECTION 2.1(b).
"TRANCHE B LOAN" has the meaning specified in SECTION 2.1.
"TRANCHE B NOTE" means a promissory note executed by the Company in
favor of the Bank pursuant to SECTION 2.2, in substantially the form of
EXHIBIT F-2.
"TRANCHE B TERMINATION DATE" means the earlier to occur of:
(a) July 24, 2002; and
(b) the date on which the Tranche B Commitment terminates in
accordance with the provisions of this Agreement.
"Type" has the meaning specified in the definition of "Loan."
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Plan pursuant to Section 412 of the Code for the applicable plan
year.
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"UNITED STATES" and "U.S." each means the United States of America.
"WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock of
every other class, in each case, at the time as of which any determination is
being made, is owned, beneficially and of record, by the Company, or by one
or more of the other Wholly-Owned Subsidiaries, or both.
"ZIC" means Zenith Insurance Company, a California corporation.
1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms
are equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means "to
and including."
(iv) The term "property" includes any kind of property or asset,
real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications are
not prohibited by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are separate and
distinct limitations, tests and measurements and shall each be performed in
accordance with their terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Bank and the
Company and are the products of all parties. Accordingly, they shall not be
construed against the Bank merely because of its involvement in their
preparation.
1.3 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be
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construed, and all financial computations required under this Agreement shall
be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
ARTICLE II
THE CREDITS
2.1 AMOUNTS AND TERMS OF COMMITMENTS.
(a) THE TRANCHE A CREDIT. The Bank agrees, on the terms and
conditions set forth herein, to make loans to the Company (each such Loan, a
"TRANCHE A LOAN") from time to time on any Business Day during the period
from the Closing Date to the Tranche A Termination Date in an aggregate
amount not to exceed at any time outstanding $20,000,000 (such amount as the
same may be reduced under SECTION 2.5, the "TRANCHE A COMMITMENT"). Within
the limits of the Tranche A Commitment, and subject to the other terms and
conditions hereof, the Company may borrow under this SECTION 2.1(a), prepay
under SECTION 2.6 and reborrow under this SECTION 2.1(a).
(b) THE TRANCHE B CREDIT. The Bank agrees, on the terms and
conditions set forth herein, to make loans to the Company (each such loan, a
"TRANCHE B LOAN") from time to time on any Business Day during the period
from the Closing Date to the Tranche B Termination Date, in an aggregate
amount not to exceed at any time outstanding $30,000,000 (such amount as the
same may be reduced under SECTION 2.5, the "TRANCHE B COMMITMENT"). Within
the limits of the Tranche B Commitment, and subject to the other terms and
conditions hereof, the Company may borrow under this SECTION 2.1(b), prepay
under SECTION 2.6 and reborrow under this SECTION 2.1(b).
2.2 NOTES. The Loans made by the Bank shall be evidenced by the Notes.
The Bank shall record on the schedules annexed to its Notes the date, amount
and maturity of each Loan made by it and the amount of each payment of
principal made by the Company with respect thereto. The Bank is irrevocably
authorized by the Company to record on its Notes and the Bank's record shall
be conclusive and binding unless the Company objects to such record within 30
days of having notice of any notation thereon; PROVIDED, HOWEVER, that the
failure of the Bank to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of
the Company hereunder or under any such Note to the Bank.
2.3 PROCEDURE FOR BORROWING. (a) Each Borrowing shall be made upon the
Company's irrevocable written notice delivered to the Bank in the form of a
Notice of Borrowing (which notice must be received by the Bank prior to 11:00
a.m. (Chicago time) (i) three Business Days prior to the requested Borrowing
Date, in the case of Offshore Rate Loans and (ii) on the requested Borrowing
Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $250,000 or any multiple of $10,000 in
excess thereof;
(B) the requested Borrowing Date, which shall be a Business Day;
(C) the Type of Loans comprising the Borrowing;
(D) the duration of the Interest Period applicable to such
Loans included in such notice. If the Notice of Borrowing fails to
specify the duration of the Interest Period for any
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Borrowing comprised of Offshore Rate Loans, such Interest Period shall
be three months; and
(E) whether such Loan is a Tranche A Loan or a Tranche B Loan.
(b) The proceeds of all Loans will be made available to the Company
by the Bank by crediting the account of the Company on the books of the Bank
with the aggregate of such Loan or by wire transfer in accordance with
written instructions provided to the Bank by the Company.
(c) After giving effect to any Borrowing, there may not be more than
fifteen different Interest Periods in effect.
2.4 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may, upon
irrevocable written notice to the Bank in accordance with SECTION 2.4(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the
case of any other Type of Loans, to convert any such Loans (or any part
thereof in an amount not less than $250,000, or that is in an integral
multiple of $1,000 in excess thereof) into Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods expiring on such
day (or any part thereof in an amount not less than $250,000, or that is
in an integral multiple of $1,000 in excess thereof);
PROVIDED, THAT if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $250,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the
right of the Company to continue such Loans as, and convert such Loans into
Offshore Rate Loans shall terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Bank not later than 11:00 a.m. (Chicago time) at least (i)
three Business Days in advance of the Conversion/Continuation Date, if the
Loans are to be converted into or continued as Offshore Rate Loans and (ii)
on the Conversion/Continuation Date, if the Loans are to be converted into
Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
renewed;
(C) the Type of Loans resulting from the proposed conversion
or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans or if any Default or
Event of Default then exists, the Company shall be deemed to have elected to
convert such Offshore Rate Loans into Base Rate Loans effective as of the
expiration date of such Interest Period.
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(d) During the existence of a Default or Event of Default, the
Company may not elect to have a Loan converted into or continued as an
Offshore Rate Loan.
(e) After giving effect to any conversion or continuation of Loans,
there may not be more than fifteen different Interest Periods in effect.
2.5 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Company may,
upon not less than one Business Days' prior notice to the Bank, terminate the
Tranche A Commitment or the Tranche B Commitment, or permanently reduce the
Tranche A Commitment or the Tranche B Commitment by an aggregate minimum
amount of $1,000,000 or any multiple of $100,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Tranche A Loans or
Tranche B Loans made on the effective date thereof, the then-outstanding
principal amount of such Loans would exceed the amount of the Tranche A
Commitment or the Tranche B Commitment (as applicable) then in effect. Once
reduced in accordance with this Section, the Commitments may not be
increased. All accrued commitment fees to, but not including the effective
date of any reduction or termination of the Commitment, shall be paid on the
effective date of such reduction or termination.
2.6 OPTIONAL PREPAYMENTS. Subject to SECTION 3.4, the Company may, at
any time or from time to time, upon not less than two (2) Business Days'
irrevocable notice to the Bank in the case of Offshore Rate Loans and upon
same day irrevocable notice to the Bank in the case of Base Rate Loans,
prepay Loans in whole or in part, in minimum amounts of $250,000 or any
multiple of $10,000 in excess thereof (or, if less, the outstanding amount of
such Loans). Such notice of prepayment shall specify the date and amount of
such prepayment and the Type(s) of Loans to be prepaid. If such notice is
given by the Company, the Company shall make such prepayment and the payment
amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to SECTION 3.4.
2.7 REPAYMENT.
(a) THE TRANCHE A CREDIT. The Company shall repay to the Bank in
full on the Tranche A Termination Date the aggregate principal amount of
Tranche A Loans outstanding on such date and all related Obligations.
(b) THE TRANCHE B CREDIT. The Company shall repay to the Bank in
full on the Tranche B Termination Date the aggregate principal amount of
Tranche B Loans outstanding on such date and all related Obligations.
2.8 INTEREST. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per
annum equal to the Offshore Rate or the Base Rate, as the case may be (and
subject to the Company's right to convert to other Types of Loans under
SECTION 2.4), PLUS the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of
Loans under SECTION 2.6 for the portion of the Loans so prepaid and upon
payment (including prepayment) in full thereof and, during the existence of
any Event of Default, interest shall be paid on demand of the Bank.
(c) Notwithstanding subsection (a) of this Section, while any Event
of Default exists or after acceleration, the Company shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal amount of all outstanding Obligations, at a rate per
annum which is determined by adding 2% per annum to the Applicable Margin
then
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in effect for such Loans and, in the case of Obligations not subject to
an Applicable Margin, at a rate per annum equal to the Base Rate plus 2%;
PROVIDED, HOWEVER, that, on and after the expiration of any Interest Period
applicable to any Offshore Rate Loan outstanding on the date of occurrence of
such Event of Default or acceleration, the principal amount of such Loan
shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate plus
2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Company to the Bank hereunder shall be subject to the
limitation that payments of interest shall not be required, for any period
for which interest is computed hereunder, to the extent (but only to the
extent) that contracting for or receiving such payment by the Bank would be
contrary to the provisions of any law applicable to the Bank limiting the
highest rate of interest that may be lawfully contracted for, charged or
received by the Bank, and in such event the Company shall pay the Bank
interest at the highest rate permitted by applicable law.
2.9 FEES.
(a) ARRANGEMENT FEE. The Company shall pay an arrangement fee to
the Bank on the Closing Date in the amount of $25,000.
(b) COMMITMENT FEE. The Company shall pay to the Bank a commitment
fee on the average daily unused portion of the Commitment, computed on a
quarterly basis in arrears on the last Business Day of each calendar quarter
based upon the daily utilization for that quarter as calculated by the Bank,
equal to .10% per annum on the Tranche A Commitment and equal to the
applicable per annum rate based on the grid set forth below for the Tranche B
Commitment:
LONG-TERM DEBT RATING
OF COMPANY COMMITMENT FEE
--------------------- --------------
A/A2 or higher .100%
A-/A3 .125%
BBB+/Baa1 .150%
BBB/Baa2 or lower .200%
Any adjustment to the commitment fee as a result of a change in the
rating of the Company's long-term public debt by Moody's and/or S&P's shall be
effective as of the effective date of the change in such rating. In the event
the rating by Moody's & S&P's do not fall in the same category provided above,
the commitment fee shall be determined by adding one level to the lower of the
two rating levels.
Such commitment fee shall accrue from the Closing Date to the Tranche
A Termination Date or the Tranche B Termination Date, as applicable, and shall
be due and payable quarterly in arrears on the last Business Day of each fiscal
quarter of the Company commencing on September 30, 1997 through such Termination
Date, with the final payment to be made on such Termination Date; PROVIDED, THAT
in connection with any reduction or termination of Commitments under SECTION
2.5, the accrued commitment fee calculated for the period ending on such date
shall also be paid on the date of such reduction or termination, with the
following quarterly payment being calculated on the basis of the period from
such reduction or termination date to such quarterly payment date. The
commitment fees provided in this subsection shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article IV are not met.
2.10 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by the Bank's "reference
rate" shall be made on the basis of a year of 365 or 366 days, as
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the case may be, and actual days elapsed. All other computations of fees and
interest shall be made on the basis of a 360-day year and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last day
thereof.
(b) Each determination of an interest rate by the Bank shall be
conclusive and binding on the Company unless the Company objects in writing
to such determination within thirty days of having notice thereof. The bank
will, at the request of the Company, deliver to the Company a statement
showing the quotations used by the Bank in determining any interest rate and
the resulting interest rate.
2.11 PAYMENTS BY THE COMPANY. (a) all payments to be made by the Company
shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the company shall be
made to the Bank at the Payment Office, and shall be made in dollars and in
immediately available funds, no later than 1:00 p.m. (Chicago time) on the
date specified herein. any payment received by the Bank later than 3:00 p.m.
(Chicago time) shall be deemed to have been received on the following
Business Day and any applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 TAXES. (a) Subject to clause (c) below, any and all payments by the
Company to the Bank or under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction or withholding for any Taxes. In
addition, the Company shall pay all other Taxes.
(b) Without duplication of any amounts paid by the Company under
SECTIONS 3.1(c)(i) and (iv), the Company agrees to indemnify and hold
harmless the Bank for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section) paid by the Bank and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days
after the date the Bank makes written demand therefor.
(c) If the Company shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to
the Bank, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section) the Bank receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(ii) the Company shall make such deductions and withholdings;
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(iii) the Company shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) without duplication, the Company shall also pay to the
Bank at the time interest is paid, all additional amounts which the Bank
specifies as necessary to preserve the after-tax yield the Bank would
have received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the Company of
Taxes or Other Taxes, the Company shall furnish the Bank the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Bank.
(e) If the Company is required to pay additional amounts to the
Bank pursuant to subsection (c) of this Section, then the Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Company which may thereafter accrue, if such change
in the judgment of the Bank is not otherwise disadvantageous to the Bank.
3.2 ILLEGALITY. (a) If the Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for the Bank or its applicable Lending Office
to make Offshore Rate Loans, then, on notice thereof by the Bank to the
Company, any obligation of the Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Company that the circumstances giving
rise to such determination no longer exist.
(b) If the Bank determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of such
fact and demand from the Bank, prepay in full such Offshore Rate Loans of the
Bank then outstanding, together with interest accrued thereon and amounts
required under SECTION 3.4, either on the last day of the Interest Period
thereof, if the Bank may lawfully continue to maintain such Offshore Rate
Loans to such day, or immediately, if the Bank may not lawfully continue to
maintain such Offshore Rate Loan. If the Company is required to so prepay
any Offshore Rate Loan, then concurrently with such prepayment, the Company
shall borrow from the Bank, in the amount of such repayment, a Base Rate Loan
or otherwise pay such Loan and all accrued interest thereon in full in cash.
(c) Before giving any notice under this Section, the Bank shall
designate a different Lending Office with respect to its Offshore Rate Loans
if such designation will avoid the need for giving such notice or making such
demand and will not, in the judgment of the Bank, be illegal or otherwise
disadvantageous to the Bank.
3.3 INCREASED COSTS AND REDUCTION OF RETURN. (a) If the Bank determines
that, due to either (i) the introduction of or any change (other than any
change by way of imposition of or increase in reserve requirements included
in the calculation of the Offshore Rate or in respect of the assessment rate
payable by the Bank to the FDIC for insuring U.S. deposits) in or in the
interpretation of any law or regulation or (ii) the compliance by the Bank
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any
increase in the cost to the Bank of agreeing to make or making, funding or
maintaining any Offshore Rate Loans, then the Company shall be liable for,
and shall from time to time, upon demand, pay to the Bank, additional amounts
as are sufficient to reimburse the Bank for the costs associated with such
increased costs.
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(b) If the Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration the Bank's or
such corporation's policies with respect to capital adequacy and the Bank's
desired return on capital) determines that the amount of such capital is to
be increased as a consequence of the Commitments, loans, credits or
obligations under this Agreement, then, upon demand of the Bank to the
Company, the Company shall pay to the Bank, from time to time as specified by
the Bank, amounts sufficient to reimburse the Bank for the additional costs
resulting from such increase.
3.4 FUNDING LOSSES. The Company shall reimburse the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or incur as
a consequence of:
(a) the failure of the Company to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a
Loan after the Company has given a Notice of Borrowing or a Notice of
Conversion/Continuation;
(c) the failure of the Company to make any prepayment in
accordance with any notice delivered under SECTION 2.6;
(d) the prepayment or other payment (including after acceleration
thereof) of an Offshore Rate Loan on a day that is not the last day of
the relevant Interest Period; or
(e) the automatic conversion under SECTION 2.4 of any Offshore
Rate Loan to a Base Rate Loan on a day that is not the last day of the
relevant Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its Offshore Rate Loans or
from fees payable to terminate the deposits from which such funds were
obtained. For purposes of calculating amounts payable by the Company to the
Bank under this Section and under SECTION 3.3(a), each Offshore Rate Loan
made by the Bank (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at the IBOR
used in determining the Offshore Rate for such Offshore Rate Loan by a
matching deposit or other borrowing in the interbank eurodollar market for a
comparable amount and for a comparable period, whether or not such Offshore
Rate Loan is in fact so funded.
3.5 INABILITY TO DETERMINE RATES. If the Bank determines that for any
reason adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan, or that the Offshore Rate for any requested Interest
Period with respect to a proposed Offshore Rate Loan does not adequately and
fairly reflect the cost to the Bank of funding such Loan, the Bank will
promptly so notify the Company. Thereafter, the obligation of the Bank to
make or maintain Offshore Rate Loans, as the case may be, hereunder shall be
suspended until the Bank revokes such notice in writing. Upon receipt of
such notice, the Company may revoke any Notice of Borrowing or Notice of
Conversion/ Continuation then submitted by it. If the Company does not revoke
such Notice, the Bank shall make, convert or continue the Loans, as proposed
by the
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Company, in the amount specified in the applicable notice submitted by the
Company, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans, as the case may be.
3.6 CERTIFICATES OF BANK. In the event of the Bank claiming
reimbursement or compensation under this ARTICLE III, the Bank shall deliver
to the Company a certificate setting forth in reasonable detail the amount
payable to the Bank hereunder and such certificate shall be conclusive and
binding on the Company unless objected to by the Company in writing within 30
days of the Company receiving such certificate.
3.7 SURVIVAL. The agreements and obligations of the Company in this
ARTICLE III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS OF EFFECTIVENESS. The effectiveness of this Agreement is
subject to the condition that the Bank shall have received all of the
following, in form and substance and dated a date satisfactory to the Bank:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the Notes
executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY. (i) Copies of the resolutions of the
board of directors of the Company authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Company; and (ii) a certificate of the Secretary or
Assistant Secretary of the Company certifying the names and true signatures
of the officers of the Company authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be delivered by
it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents:
(i) the articles or certificate of incorporation and the
bylaws of the Company as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of the Company as of the Closing Date;
and
(ii) a good standing and tax good standing certificate for the
Company from the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation and each state where the
Company is qualified to do business as a foreign corporation as of a
recent date, together with a bring-down certificate by facsimile, dated
the date of the effectiveness of this Agreement;
(d) LEGAL OPINION. An opinion of each of Skadden, Arps, Slate,
Meager & Flom LLP and Hyman J. Lee, Jr., vice-president-legal of the Company,
in each case addressed to the Bank and together covering those matters
addressed in EXHIBIT D;
(e) PAYMENT OF FEES. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and
payable on or before the date of the effectiveness of this Agreement,
together with Attorney Costs of the Bank to the extent invoiced prior to or
on such date, plus such additional amounts of Attorney Costs as shall
constitute the Bank's reasonable estimate of Attorney Costs incurred or to be
incurred by it through the closing proceedings (provided that such estimate
shall not thereafter
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preclude final settling of accounts between the Company and the Bank);
including any such costs, fees and expenses arising under or referenced in
SECTIONS 2.9 and 9.4;
(f) CERTIFICATE. A certificate signed by a Responsible Officer,
dated as of such date, stating that:
(i) the representations and warranties contained in ARTICLE
V are true and correct on and as of such date, as though made on and as
of such date;
(ii) no Default or Event of Default exists on the date of the
effectiveness;
(iii) there has occurred since December 31, 1996, no event or
circumstance that has resulted or would reasonably be expected to result
in a Material Adverse Effect; and
(iv) all necessary material governmental, creditor,
shareholder, and third party approvals in connection with the
transactions contemplated herein have been obtained and remain in
effect, and all applicable waiting periods shall have expired without,
in all such cases, any action being taken by any competent authority
that restrains, prevents, or imposes materially adverse conditions upon
the consummation of the transaction contemplated hereby.
(g) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Bank may reasonably request.
4.2 CONDITIONS TO ALL BORROWINGS. The obligation of the Bank to make
any Loan to be made by it (including its initial Loan) or to continue or
convert any Loan under SECTION 2.4 is subject to the satisfaction of the
following conditions precedent on the relevant Borrowing Date or Conversion/
Continuation Date:
(a) NOTICE OF BORROWING OR CONVERSION/ CONTINUATION. The Bank
shall have received a Notice of Borrowing or a Notice of Conversion/
Continuation, as applicable;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in ARTICLE V (other than those contained in
SECTION 5.5) shall be true and correct on and as of such Borrowing Date or
Conversion/Continuation Date with the same effect as if made on and as of
such Borrowing Date or Conversion/Continuation Date (except to the extent
such representations and warranties expressly refer to an earlier date, in
which case they shall be true and correct as of such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall exist
or shall result from such Borrowing or continuation or conversion.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Bank that:
5.1 CORPORATE EXISTENCE AND POWER. The Company and each of its
Subsidiaries:
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(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all material governmental
licenses, authorizations, consents and approvals to own its assets,
carry on its business and to execute, deliver, and perform its
obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and
in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license, except to the extent that
failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect; and
(d) is in compliance with all Requirements of Law, except to the
extent that the failure to do so would not reasonably be expected to
have a Material Adverse Effect.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by the Company of this Agreement and each other Loan
Document, have been duly authorized by all necessary corporate action, and do
not and will not:
(a) contravene the terms of any of the Company's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any Lien under, any document evidencing any Contractual
Obligation to which the Company is a party or any order, injunction,
writ or decree of any Governmental Authority to which the Company or its
property is subject; or
(c) violate any Requirement of Law.
5.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company of
the Agreement or any other Loan Document.
5.4 BINDING EFFECT. This Agreement and each other Loan Document to
which the Company is a party constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by equitable principles relating to
enforceability.
5.5 LITIGATION. Except as specifically disclosed in SCHEDULE 5.5, there
are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of the Company, threatened or contemplated, at law, in equity,
in arbitration or before any Governmental Authority, against the Company, or
its Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other
Loan Document, or any of the transactions contemplated hereby or
thereby; or
(b) if determined adversely to the Company or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect.
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5.6 NO DEFAULT. As of the Closing Date, no Default or Event of Default
exists or would result from the incurring of any Obligations by the Company.
As of the Closing Date, neither the Company nor any Subsidiary is in default
under or with respect to any Contractual Obligation in any respect which,
individually or together with all such defaults, would reasonably be expected
to have a Material Adverse Effect, or that would, if such default had
occurred after the Closing Date, create an Event of Default under SECTION
8.1(e).
5.7 ERISA COMPLIANCE. Except as specifically disclosed in SCHEDULE 5.7:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law,
except to the extent any such non-compliance would not reasonably be
expected to have a Material Adverse Effect. The Company and each ERISA
Affiliate has made all required contributions to any Plan subject to
Section 412 of the Code, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has
resulted or would reasonably be expected to result in a Material Adverse
Effect.
(c) No ERISA Event has occurred or is reasonably expected to occur
except to the extent such ERISA Event would not reasonably be expected
to have a Material Adverse Effect.
5.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by SECTION 6.10
and SECTION 7.7. Neither the Company nor any Subsidiary will take any action
which will cause the Bank to violate or not be in compliance with Regulations
G, T, U or X of the FRB.
5.9 TITLE TO PROPERTIES. The Company and each Subsidiary have title to,
or valid leasehold interests in, all real property necessary or used in the
ordinary conduct of their respective businesses, except for such defects in
title as would not, individually or in the aggregate, have a Material Adverse
Effect. As of the Closing Date, the property of the Company and its
Subsidiaries is subject to no Liens, other than Permitted Liens.
5.10 TAXES. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income
or assets otherwise due and payable, except those (a) which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided in accordance with GAAP or (b) for which
appropriate extensions have been obtained. There is no proposed tax
assessment against the Company or any Subsidiary that would, if made, have a
Material Adverse Effect.
5.11 FINANCIAL CONDITION. (a) The audited consolidated financial
statements of the Company and its Subsidiaries dated December 31, 1996 and
the unaudited consolidated financial statements of the Company and its
Subsidiaries dated March 31, 1997 and, in each case, the related consolidated
statements of income or operations, shareholders' equity and cash flows for
the fiscal year or fiscal quarter ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except
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as otherwise expressly noted therein, subject to ordinary, good faith
year end audit adjustments; and
(ii) fairly present the financial condition of the Company and
its Subsidiaries as of the date thereof and results of operations for
the period covered thereby.
(b) Since December 31, 1996, there has been no Material Adverse
Effect.
5.12 ENVIRONMENTAL MATTERS. (a) Except as specifically disclosed in
SCHEDULE 5.12, the on-going operations of the Company and each of its
Subsidiaries comply in all material respects with all Environmental Laws.
(b) Except as specifically disclosed in SCHEDULE 5.12, the Company
and each of its Subsidiaries have obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("ENVIRONMENTAL PERMITS") and the Company and each of its Subsidiaries are in
compliance with all material terms and conditions of such Environmental
Permits.
(c) Except as specifically disclosed in SCHEDULE 5.12, there are no
Hazardous Materials existing with respect to any property of the Company or
any Subsidiary, or arising from operations prior to the Closing Date, of the
Company or any of its Subsidiaries that would reasonably be expected to have
a Material Adverse Effect.
5.13 REGULATED ENTITIES. None of the Company, any Person controlling the
Company, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act,
the Interstate Commerce Act, any state public utilities code, or any other
Federal or state statute or regulation limiting its ability to incur
Indebtedness.
5.14 NO BURDENSOME RESTRICTIONS. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which
would reasonably be expected to have a Material Adverse Effect.
5.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company or
its Subsidiaries own or are licensed or otherwise have the right to use all
of the patents, trademarks, service marks, trade names, copyrights,
authorizations and other rights that are reasonably necessary for the
operation of their respective businesses, without conflict with the rights of
any other Person. To the best knowledge of the Company, no slogan or other
advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by the Company or
any Subsidiary infringes upon any rights held by any other Person. Except as
specifically disclosed in SCHEDULE 5.5, no claim or litigation regarding any
of the foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or
code is pending or, to the knowledge of the Company, proposed, which, in
either case, would reasonably be expected to have a Material Adverse Effect.
5.16 SUBSIDIARIES. As of the Closing Date, the Company has no
Subsidiaries other than those specifically disclosed in SCHEDULE 5.16 hereto.
5.17 INSURANCE. Except as specifically disclosed in SCHEDULE 5.17, the
properties of the Company and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Company, in
such amounts, with such deductibles and covering such risks as are
customarily
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carried by companies engaged in similar businesses and owning similar
properties in localities where the Company or such Subsidiary operates.
5.18 FULL DISCLOSURE. None of the representations or warranties made by
the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate
furnished by or on behalf of the Company or any Subsidiary in connection with
the Loan Documents, contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as the Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing:
6.1 FINANCIAL STATEMENTS. The Company shall deliver to the Bank:
(a) as soon as available, but not later than one hundred twenty
(120) days after the end of each fiscal year, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such year, setting
forth in each case in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of Coopers & Lybrand LLP or
another nationally-recognized independent public accounting firm
("INDEPENDENT AUDITOR") which report shall state that such consolidated
financial statements present fairly the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years. Such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent
Auditor of any material portion of the Company's or any Subsidiary's
records;
(b) as soon as available, but not later than seventy-five (75) days
after the end of each of the first three fiscal quarters of each fiscal
year, a copy of the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of the end of such quarter and the related
consolidated statements of income, shareholders' equity and cash flows
for the period commencing on the first day and ending on the last day of
such quarter (or, at the option of the Company, its 10-Q filing for such
fiscal quarter);
(c) as soon as possible, but in any event within one hundred twenty
(120) days after the end of each fiscal year of ZIC, a copy of the
Annual Statement of ZIC and its Subsidiaries on a combined basis, in
each case, for such fiscal year prepared in accordance with SAP;
(d) as soon as possible, but in any event within seventy-five (75)
days after the end of each of the first three fiscal quarters of each
fiscal year of ZIC, a copy of the quarterly statement of ZIC and its
Subsidiaries on a combined basis, in each case, for such fiscal quarter,
all prepared in accordance with SAP and accompanied by the certification
of the chief financial
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<PAGE>
officer or a vice-president with responsibility for or knowledge of
financial matters of ZIC and its Subsidiaries that (i) such quarterly
financial statement has been prepared principally for the internal use
of management and is not required by, or filed with, any regulatory
agencies, (ii) such quarterly statement contains combined data for and
the consolidated financial statements of Zenith Insurance Company with
its wholly owned affiliated Property and Casualty Insurers, CalFarm
Insurance Company, ZNAT Insurance Company, and Zenith Star Insurance
Company that, to the best of the certifying officer's information,
knowledge and belief, were compiled in accordance with the NAIC
instructions for the completion of quarterly statements and (iii) for
purposes of such quarterly financial statements, all significant
intercompany balances and transactions have been eliminated in
consolidation;
(e) within thirty (30) days after being delivered to ZIC, any final
Triennial Examination Report issued by the applicable Department;
(f) within one hundred twenty (120) days after the close of each
fiscal year of ZIC, a copy of the "Statement of Actuarial Opinion" and
"Combined Management Discussion and Analysis" for ZIC and its
Subsidiaries which is provided to the applicable Department (or
equivalent information should such Department no longer require such a
statement) as to the adequacy of loss reserves of ZIC and its
Subsidiaries. Such opinion shall be in the format prescribed by the
Applicable Insurance Code of the state of domicile of ZIC.
6.2 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to the
Bank:
(a) concurrently with the delivery of the financial statements
referred to in Sections 6.1(a) and (b), a Compliance Certificate
executed by a Responsible Officer;
(b) promptly, copies of all financial statements and reports that
the Company sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms
10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file
with, the SEC or that ZIC and its Subsidiaries on a combined basis may
make to, or file with, the Department;
(c) promptly, copies of all material Insurance Holding Company
System Act filings with Governmental Authorities by the Company or any
of its Subsidiaries, including, without limitation, filings which seek
approval of Governmental Authorities with respect to transactions
between the Company and its Affiliates;
(d) within five (5) Business Days of notice, notice of actual
suspension, termination or revocation of any License or restriction
thereon (material to the Insurance Subsidiaries taken as a whole) of any
of the Insurance Subsidiaries by any Governmental Authority or of
receipt of notice from any Governmental Authority notifying any of the
Insurance Subsidiaries of a hearing (which is not withdrawn within ten
(10) days) relating to such a suspension, termination, revocation or
restriction, including any request by a Governmental Authority which
commits any of the Insurance Subsidiaries to take, or refrain from
taking, any action which affects the authority of any of the Insurance
Subsidiaries to conduct its business in each case
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only if the underlying event would reasonably be expected to have a
Material Adverse Effect; and
(e) promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary, the
Bank may from time to time reasonably request.
6.3 NOTICES. The Company shall promptly notify the Bank:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeable will
become a Default or Event of Default;
(b) of (i) any breach or non-performance of, or any default under,
any Contractual Obligation of the Company or any of its Subsidiaries
which would reasonably be expected to have a Material Adverse Effect;
and (ii) any dispute, litigation, investigation, proceeding or
suspension which may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority which would result in a
Material Adverse Effect;
(c) of the commencement of, or any material development in, any
litigation or proceeding affecting the Company or any Subsidiary (i) in
which the amount of damages claimed, if awarded, would result in a
Material Adverse Effect, (ii) in which injunctive or similar relief is
sought and which, if adversely determined, would reasonably be expected
to have a Material Adverse Effect, or (iii) in which the relief sought
is an injunction or other stay of the performance of this Agreement or
any Loan Document;
(d) of (i) any and all enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened
against the Company or any Subsidiary or any of their respective
properties pursuant to any applicable Environmental Laws, and (ii) all
other Environmental Claims, which in each case would reasonably be
expected to have a Material Adverse Effect;
(e) of any of the following events affecting the Company unless
such event would not reasonably be expected to have a Material Adverse
Effect, together with a copy of any notice with respect to such event
that may be required to be filed with a Governmental Authority and any
notice delivered by a Governmental Authority to the Company with respect
to such event:
(i) an ERISA Event;
(ii) the adoption of any amendment to a Plan , if such
amendment results in a material increase in contributions or
Unfunded Pension Liability; or
(iii) the commencement of contributions to any Plan subject to
Section 412 of the Code;
(f) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated
Subsidiaries;
(g) within three (3) Business Days of such notice, of any pending
or threatened investigation or regulatory proceeding (other than routine
periodic investigations or reviews) by any Governmental Authority
concerning the business, practices or operations of any of the Insurance
Subsidiaries and within three
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(3) Business Day of the Company having knowledge thereof, of any agent
or managing general agent thereof, which would be reasonably expected to
have a Material Adverse Effect; and
(h) of notice of any change in the rating of the Company's
long-term debt rating by Moody's and/or S&P's.
Each notice under this Section shall be accompanied by a written statement
by a Responsible Officer setting forth details of the occurrence referred to
therein in form and substance reasonably satisfactory to the Bank.
6.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Company shall,
and shall cause each Significant Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction
of incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises
necessary or desirable in the normal conduct of its business;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names, service marks and Licenses, the non-preservation of which
would reasonably be expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is
used or useful in its business in good working order and condition, ordinary
wear and tear excepted and make all necessary repairs thereto and renewals
and replacements thereof except where the failure to do so would not
reasonably be expected to have a Material Adverse Effect. The Company and
each Subsidiary shall use the standard of care typical in the industry in the
operation and maintenance of its facilities except where the failure to do so
would not reasonably be expected to have a Material Adverse Effect.
6.6 INSURANCE. Except as disclosed on SCHEDULE 5.17, the Company shall
maintain, and shall cause each of its Subsidiaries to maintain, with
financially sound and reputable independent insurers, insurance with respect
to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar
business, of such types and in such amounts as are customarily carried under
similar circumstances by such other Persons; including workers' compensation
insurance, public liability and property and casualty insurance. Upon
request of the Bank, the Company shall furnish the Bank, at reasonable
intervals (but not more than once per calendar year) a certificate of a
Responsible Officer of the Company setting forth the nature and extent of all
insurance maintained by the Company and its Subsidiaries in accordance with
this Section.
6.7 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable,
all their respective material obligations and liabilities except where the
failure to do so would not reasonably be expected to have a Material Adverse
Effect, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings
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and adequate reserves in accordance with GAAP are being maintained by
the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property; and
(c) all indebtedness, as and when due and payable (after giving
effect to applicable grace periods), but subject to any subordination
provisions contained in any instrument or agreement evidencing such
Indebtedness.
6.8 COMPLIANCE WITH LAWS. The Company shall comply, and shall
cause each Subsidiary (or, in the case of ERISA, each ERISA Affiliate in
which the Company owns a controlling interest) to comply, in all
material respects with all Requirements of Law of any Governmental
Authority having jurisdiction over it or its business (including the
Federal Fair Labor Standards Act, ERISA and the Environmental Laws),
except such as may be contested in good faith or as to which a bona fide
dispute may exist.
6.9 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company
shall maintain and shall cause each Subsidiary to maintain proper books
of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of the
Company and such Subsidiary. The Company shall permit, and shall cause
each Subsidiary to permit, representatives and independent contractors
of the Bank to visit and inspect any of their respective properties, to
examine their respective corporate, financial and operating records, and
make copies thereof or abstracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective
directors, Responsible Officers, and independent public accountants (at
which discussions the Company's representatives may be present unless a
Default has occurred and is continuing), all at the expense of the Bank
and at such reasonable times during normal business hours and as often
as may be reasonably desired, upon reasonable advance notice to the
Company; PROVIDED, HOWEVER, when a Default exists the Bank may do any of
the foregoing at the expense of the Company at any time during normal
business hours and without advance notice.
6.10 USE OF PROCEEDS. The Company shall use the proceeds of the
Loans for working capital, other general corporate purposes and
acquisitions which are negotiated and consummated with the consent of
the company to be acquired and, in each case which are not in
contravention of any Requirement of Law or of any Loan Document.
6.11 FURTHER ASSURANCES. The Company shall ensure that all written
information, exhibits and reports furnished to the Bank do not and will
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which made, and will
promptly disclose to the Bank and correct any material misstatement or
omission that may be discovered therein or in any Loan Document or in
the execution or acknowledgement thereof.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Bank waives
compliance in writing:
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7.1 LIMITATION ON LIENS. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than Liens which would not,
individually or in the aggregate, have or cause a Material Adverse Effect
("PERMITTED LIENS").
7.2 DISPOSITION OF ASSETS. The Company shall not, and shall not suffer
or permit any Significant Subsidiary to, make a Disposition of (whether in
one or a series of transactions) any property (including accounts and notes
receivable, with or without recourse) or enter into any agreement to do so,
except:
(a) in the ordinary course of business and consistent with past
practices;
(b) Dispositions made for fair market value; PROVIDED, THAT at the
time of any Disposition under this CLAUSE (b), no Event of Default shall
exist or shall result from such Disposition; and
(c) Dispositions permitted under SECTION 7.3.
7.3 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not
suffer or permit any Significant Subsidiary to, merge, consolidate with or
into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to or in favor of any
Person, except:
(a) any Subsidiary may merge with the Company, provided that the
Company shall be the continuing or surviving corporation, or with any
one or more Subsidiaries; PROVIDED, THAT if any transaction shall be
between a Subsidiary and a Wholly- Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation;
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Company or another
Wholly-Owned Subsidiary; and
(c) a merger where the Company or one of its Subsidiaries is the
surviving corporation in the merger and no Default exists immediately
prior to or immediately following such merger.
7.4 LOANS AND INVESTMENTS. The Company shall not and shall not permit
any Subsidiary to extend credit or make investments in Perma-Bilt in excess
of $45,000,000.
7.5 LIMITATION ON INDEBTEDNESS. The Company shall not permit its
Insurance Subsidiaries to create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness defined in clauses (a), (c), (d) or (f) of the definition
thereof exceeding $20,000,000 at any one time outstanding.
7.6 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction (other than
(i) pooling arrangements entered into in the ordinary course of business
between Insurance Subsidiaries and (ii) the tax-sharing agreement between the
Company and its Subsidiaries) with any Affiliate of the Company, except upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would obtain in a comparable arm's-length transaction with a Person not
an Affiliate of the Company or such Subsidiary.
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7.7 USE OF PROCEEDS. The Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds, directly or
indirectly, (a) in a manner that would cause the Bank to violate or not to
comply with Regulations G, T, U or X of the FRB, (b) to repay or otherwise
refinance indebtedness of the Company or others incurred to purchase or carry
Margin Stock, (c) to extend credit for the purpose of purchasing or carrying
any Margin Stock, or (d) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
7.8 CHANGE IN BUSINESS. The Company shall not, and shall not suffer or
permit any Significant Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on by the
Company and its Significant Subsidiaries on the date hereof.
7.9 ACCOUNTING CHANGES. The Company shall not, and shall not suffer or
permit any Subsidiary (other than ZIC Lloyd's Underwriting Limited) to, make
any significant change in accounting treatment or reporting practices, except
as required by GAAP or SAP, or change the fiscal year of the Company or of
any Subsidiary.
7.10 MINIMUM SURPLUS. The Company shall not permit Capital and Surplus
of ZIC as reported on a combined basis to be less than $140,000,000 as of the
end of any fiscal quarter.
7.11 DEBT TO TOTAL CAPITALIZATION. The Company shall not permit the Debt
to Total Capitalization Ratio to exceed .40:1 as of the end of any fiscal
quarter.
7.12 RISK-BASED CAPITAL. The Company shall not permit the Risk-Based
Capital of ZIC, as reported on a combined basis as of the end of any fiscal
quarter, to fall below 150%.
7.13 INTEREST COVERAGE RATIO. The Company shall not permit the Interest
Coverage Ratio to be less than 2.00:1 as of the end of any fiscal quarter.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT
OF DEFAULT":
(a) NON-PAYMENT. The Company fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii)
within five (5) days after the same becomes due, any interest, fee or
any other amount payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty by
the Company or any Subsidiary made herein, in any other Loan Document,
or which is contained in any certificate, document or financial or other
statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other
Loan Document, is incorrect in any material respect on or as of the date
made; or
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe
any term, covenant or agreement contained in any of SECTION 6.3(a) or in
ARTICLE VII; or
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(d) OTHER DEFAULTS. The Company fails to perform or observe any
other term or covenant contained in this Agreement or any other Loan
Document, and such default shall continue unremedied for a period of 30
days after the date upon which written notice thereof is given to the
Company by the Bank; PROVIDED, THAT if the default cannot be cured
within 30 days after such notice but the Company commences a cure within
30 days and the default is ultimately cured within 90 days of such
notice, then no Event of Default shall be deemed to have occurred
hereunder; or
(e) CROSS-PAYMENT AND ACCELERATION. The Company or any Subsidiary
(i) fails to make any payment in respect of any Indebtedness defined in
clauses (a), (c), (d) or (f) or any Contingent Obligations related
thereto having an aggregate principal amount (including undrawn
committed or available amounts and including amounts owing to all
creditors under any combined or syndicated credit arrangement) of more
than $10,000,000 when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified
in the relevant document on the date of such failure; or (ii) fails to
perform or observe any other condition or covenant, or any other event
shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, and such
failure continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure if the
effect of such failure, event or condition is to cause such Indebtedness
to be declared to be due and payable prior to its stated maturity, or
such Contingent Obligation to become payable or cash collateral in
respect thereof to be demanded; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any
Significant Subsidiary (i) ceases or fails to be Solvent, or generally
fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace periods, if any, whether at
stated maturity or otherwise; (ii) voluntarily ceases to conduct its
business in the ordinary course; (iii) commences any Insolvency
Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Significant
Subsidiary, or any writ, judgment, warrant of attachment, execution or
similar process, is issued or levied against a substantial part of the
Company's or any Significant Subsidiary's properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement,
filing or levy;(ii) the Company or any Significant Subsidiary admits the
material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law)
is ordered in any Insolvency Proceeding; or (iii) the Company or any
Significant Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or
agent therefor), or other similar Person for itself or a substantial
portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Plan
or Multiemployer Plan which has resulted or would
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reasonably be expected to result in liability of the Company under Title
IV of ERISA to the Plan, Multiemployer Plan or the PBGC in an aggregate
amount in excess of $10,000,000; or (ii) the aggregate amount of
Unfunded Pension Liability among all Plans at any time exceeds
$10,000,000; or (iii) the Company or any ERISA Affiliate shall fail to
pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under
Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount
in excess of $10,000,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered
against the Company or any Subsidiary involving in the aggregate a
liability (to the extent not covered by independent third-party
insurance as to which the insurer does not dispute coverage) as to any
single or related series of transactions, incidents or conditions, of
$10,000,000 or more, and the same shall remain unsatisfied, unvacated or
unstayed pending appeal for a period of the longer of (i) 30 days after
the entry thereof or (ii) the expiration of the applicable period for
filing notice of an appeal; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or
decree is entered against the Company or any Significant Subsidiary
which does or would reasonably be expected to have a Material Adverse
Effect, and there shall be any period of 10 consecutive days during
which such judgment is not vacated or a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; or
(k) CHANGE OF CONTROL. There occurs any Change of Control; or
(l) LOSS OF LICENSES. Any Governmental Authority revokes or fails
to renew any material insurance license, permit or franchise of the
Company or any Significant Subsidiary, or the Company or any Significant
Subsidiary for any reason loses any material insurance license, permit
or franchise, or the Company or any Significant Subsidiary suffers the
imposition of any restraining order, escrow, suspension or impound of
funds in connection with any proceeding (judicial or administrative)
with respect to any material insurance license, permit or franchise.
8.2 REMEDIES. If any Event of Default occurs, the Bank may:
(a) declare the Commitment to be terminated, whereupon such
Commitment shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due
and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Company; and
(c) exercise all rights and remedies available to it under the
Loan Documents or applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in
subsection (f) or (g) of SECTION 8.1 (in the case of clause (i) of subsection
(g) upon the expiration of the 60-day period mentioned therein), the
obligation of the Bank to make Loans shall automatically terminate and the
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unpaid principal amount of all outstanding Loans and all interest and other
amounts as aforesaid shall automatically become due and payable without
further act of the Bank.
8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall
be in writing and signed by the Bank and the Company, and then any such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
9.2 NOTICES. (a) All notices and other communications shall be in
writing and mailed, faxed or delivered, to the address or facsimile number
specified for notices on SCHEDULE 9.2; or, as directed to the Company or the
Bank, to such other address as shall be designated by such party in a written
notice to the other party.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon receipt, or if delivered, upon
delivery; except that notices pursuant to ARTICLE II shall not be effective
until actually received by the Bank.
(c) Any agreement of the Bank herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request of the
Company. The Bank shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by the Company to give such notice and the
Bank shall not have any liability to the Company or other Person on account of
any action taken or not taken by the Bank in reliance upon such telephonic or
facsimile notice. The obligation of the Company to repay the Loans shall not be
affected in any way or to any extent by any failure by the Bank to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Bank of a confirmation which is at variance with the terms understood by the
Bank to be contained in the telephonic or facsimile notice.
9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Bank, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.
9.4 COSTS AND EXPENSES. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Bank within five Business Days after
demand (subject to SECTION 4.1(e)) for all costs and expenses incurred
by the Bank in connection with the preparation, delivery and execution
of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and
any other documents prepared in connection herewith or therewith, and
the consummation of the
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transactions contemplated hereby and thereby, including reasonable
Attorney Costs incurred by the Bank with respect thereto; and
(b) pay or reimburse the Bank within five Business Days after
demand (subject to SECTION 4.1(e)) for all costs and expenses (including
Attorney Costs) incurred by it in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under
this Agreement or any other Loan Document during the existence of an
Event of Default or after acceleration of the Loans (including in
connection with any "workout" or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding).
9.5 COMPANY INDEMNIFICATION. (a) Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify, defend and
hold the Bank and each of its respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "INDEMNIFIED PERSON")
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including Attorney Costs) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the
Loans) be imposed on, incurred by or asserted against any such Person in any
way relating to or arising out of this Agreement or any document contemplated
by or referred to herein, or the transactions contemplated hereby, or any
action taken or omitted by any such Person under or in connection with any of
the foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding)
related to or arising out of this Agreement or the Loans or the use of the
proceeds thereof, whether or not any Indemnified Person is a party thereto
(all the foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED,
THAT the Company shall have no obligation hereunder to any Indemnified Person
with respect to Indemnified Liabilities resulting solely from the gross
negligence or willful misconduct of such Indemnified Person. The agreements
in this Section shall survive payment of all other Obligations.
(b) SURVIVAL; DEFENSE. The obligations in this Section shall
survive payment of all other Obligations. At the election of any Indemnified
Person, the Company shall defend such Indemnified Person using legal counsel
satisfactory to such Indemnified Person in such Person's sole discretion, at
the sole cost and expense of the Company. All amounts owing under this
Section shall be paid within 30 days after demand.
9.6 MARSHALLING; PAYMENTS SET ASIDE. The Bank shall not be under any
obligation to marshall any assets in favor of the Company or any other Person
or against or in payment of any or all of the Obligations. To the extent
that the Company makes a payment to the Bank, or the Bank exercises its right
of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required (including pursuant to any settlement
entered into by the Bank in its discretion) to be repaid to a trustee,
receiver or any other party, in connection with any Insolvency Proceeding or
otherwise, then to the extent of such recovery the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such set-off had not
occurred.
9.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective permitted successors and assigns, except that the Company may not
assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of the Bank.
9.8 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) The Bank may, with the
written consent of the Company at all times other than during the existence
of
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<PAGE>
an Event of Default which consent shall not be unreasonably withheld, at any
time assign and delegate to one or more Eligible Assignees (provided that no
written consent of the Company shall be required in connection with any
assignment and delegation by a Bank to an Eligible Assignee that is an
Affiliate of the Bank) (each an "ASSIGNEE") all, or any ratable part of all,
of the Loans, the Commitment and the other rights and obligations of the Bank
hereunder, in a minimum amount of $10,000,000; PROVIDED, HOWEVER, that the
Company may continue to deal solely and directly with the Bank in connection
with the interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the
Company by the Bank and the Assignee; and (ii) the Bank and its Assignee
shall have delivered to the Company an Assignment and Acceptance in the form
of EXHIBIT E ("ASSIGNMENT AND ACCEPTANCE") together with any Note or Notes
subject to such assignment and any tax forms required to be provided by the
Assignee under Section 6 of the Assignment and Acceptance.
(b) The Bank may at any time sell to one or more Persons which
would qualify as an Eligible Assignee (a "PARTICIPANT") participating
interests in any Loans, the Commitment and the other interests of the Bank
(the "originating Bank") hereunder and under the other Loan Documents;
PROVIDED, HOWEVER, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain
solely responsible for the performance of such obligations, (iii) the Company
shall continue to deal solely and directly with the originating Bank in
connection with the originating Bank's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Bank shall transfer or
grant any participating interest under which the Participant has rights to
approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would do any of the following:
(A) increase or extend any Commitment;
(B) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or
other amounts due hereunder or under any other Loan Document; or
(C) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable
hereunder or under any other Loan Document.
In the case of any such participation, the Participant shall be entitled to
the benefit of SECTIONS 3.1, 3.3 and 9.5 as though it were also a Bank
hereunder, and if amounts outstanding under this Agreement are due and
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as the Bank under this
Agreement.
(c) Notwithstanding any other provision in this Agreement, the Bank
may at any time create a security interest in, or pledge, all or any portion
of its rights under and interest in this Agreement and the Note held by it in
favor of any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted
under applicable law.
9.9 SET-OFF. In addition to any rights and remedies of the Bank
provided by law, if an Event of Default exists or the Loans have been
accelerated, the Bank is authorized at any time and from time to time,
without
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prior notice to the Company, any such notice being waived by the Company to
the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, the Bank to or for
the credit or the account of the Company (excluding any account which is
expressly designated as a custodial or trust account on the books and records
of the Bank) against any and all Obligations owing to the Bank, now or
hereafter existing, irrespective of whether or not the Bank shall have made
demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. The Bank agrees promptly to
notify the Company after any such set-off and application made by the Bank;
PROVIDED, HOWEVER, that the failure to give such notice shall not affect the
validity of such set-off and application.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
9.11 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not
in any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required
hereunder.
9.12 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into
for the sole protection and legal benefit of the Company and the Bank and
their permitted successors and assigns, and no other Person shall be a direct
or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents.
9.13 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF CALIFORNIA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES; PROVIDED, THAT
THE PARTIES SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE
BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND THE BANK
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
THE COMPANY AND THE BANK EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.
9.14 WAIVER OF JURY TRIAL. THE COMPANY AND THE BANK WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK EACH
AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL
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APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.15 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company
and the Bank, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in California by their proper and duly authorized
officers as of the day and year first above written.
ZENITH NATIONAL INSURANCE CORP.
By: /s/ STANLEY R. ZAX
----------------------------
Title: CHAIRMAN
-------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ MICHAEL T. ERNST
----------------------------
Title: VICE PRESIDENT
-------------------------
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EXHIBIT A
FORM OF NOTICE OF BORROWING
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: ____________________
Ladies and Gentlemen:
This Notice of Borrowing is delivered to you pursuant to SECTIONS
2.3 and 4.2(a) of the Credit Agreement, dated as of _______________, 1997 (as
amended or modified, the "Credit Agreement"), between Zenith National
Insurance Corp., a Delaware corporation (the "Company") and Bank of America
National Trust and Savings Association (the "Lender"). Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in
the Credit Agreement.
The Company hereby requests that a [Tranche A Loan] [Tranche B Loan]
be made in the aggregate principal amount of $________________ on
_____________, 19___ as a [Base Rate Loan] [Offshore Rate Loan having an
Interest Period of ___ months].
The Company hereby certifies and warrants that on the date the
Borrowing requested hereby is made, after giving effect to the making of such
Borrowing, the conditions set forth in SECTION 4.2 of the Credit Agreement are
satisfied.
The Company agrees that if prior to the time of the Borrowing
requested hereby any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately so notify the
Lender. Except to the extent, if any, that prior to the time of the Borrowing
requested hereby the Lender shall receive written notice to the contrary from
the Company, each matter certified to herein shall be deemed once again to be
certified as true and correct at the date of such Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of
the following persons as set forth on ANNEX I attached hereto.
<PAGE>
The Company has caused this Notice of Borrowing to be executed and
delivered, and the certification and warranties contained herein to be made, by
a Responsible Officer this ____ day of ___________, 19__.
ZENITH NATIONAL INSURANCE CORP.
By:____________________________________
Name:__________________________________
Title:_________________________________
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<PAGE>
ANNEX I
AMOUNT TO BE PERSON TO BE PAID NAME, ADDRESS, ETC.
TRANSFERRED ----------------- OF TRANSFEREE LENDER
- ------------ ---------------------
NAME ACCOUNT NO.
-------------- ----------
$___________ ______________ __________ _____________________
_____________________
Attention:___________
$___________ ______________ __________ _____________________
_____________________
Attention:___________
Balance of The Company ___________ _____________________
such proceeds
_____________________
Attention:___________
<PAGE>
EXHIBIT B
FORM OF NOTICE OF CONVERSION/CONTINUATION
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: _________________
Ladies and Gentlemen:
This Conversion/Continuation Notice is delivered to you pursuant to
SECTIONS 2.4(b) and 4.2(a) of the Credit Agreement, dated as of ___________,
1997 (as amended or modified, the "Credit Agreement"), between Zenith
National Insurance Corp., a Delaware corporation (the "Company") and Bank of
America National Trust and Savings Association (the "Lender"). Unless
otherwise defined herein, capitalized terms used herein have the meanings
provided in the Credit Agreement.
The Company hereby requests that on ___________, 19__,
(1) $___________ of the presently outstanding principal amount of
the [Tranche A Loans] [Tranche B Loans] originally made on ___________,
19__ [and $___________ of the presently outstanding principal amount of the
[Tranche A Loans] [Tranche B Loans] originally made on ___________,
19__],
(2) and all presently being maintained as (1)[Base
Rate Loans] [Offshore Rate Loans],
(3) be [converted into] [continued as],
(4) (2)[Base Rate Loans] [Offshore Rate Loans having an
Interest Period of____ months].
The Company hereby represents and warrants that the
conditions set forth in SECTION 4.2 of the Credit Agreement are met.
______________________
(1) Select appropriate interest rate option.
(2) Insert appropriate interest rate option.
<PAGE>
Except to the extent, if any, that prior to the time of the
continuation or conversion requested hereby the Lender shall receive written
notice to the contrary from the Company, each matter certified to herein
shall be deemed to be certified at the date of such continuation or
conversion as if then made.
The Company has caused this Continuation/Conversion Notice to be
executed and delivered, and the certification and warranties contained herein
to be made, by a Responsible Officer this ____ day of _________, 19__.
ZENITH NATIONAL INSURANCE CORP.
By: ________________________________
Name:_______________________________
Title:______________________________
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EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: __________________
Ladies and Gentlemen:
This certificate (the "Certificate") is delivered to you pursuant
to SECTION 6.2(a) of the Credit Agreement, dated as of _______________, 1997
(as amended or modified, the "Credit Agreement"), between Zenith National
Insurance Corp., a Delaware corporation (the "Company") and Bank of America
National Trust and Savings Association (the "Lender"). Unless otherwise
defined herein, capitalized terms used herein have the meanings provided in
the Credit Agreement.
The undersigned hereby certifies and warrants to the Lender that he
is a Responsible Officer of the Company and that, as such, he is authorized
to execute this Certificate on behalf of the Company and further certifies
and warrants to the Lender on behalf of the Company that as at ____________,
19__ (the "Computation Date") the following is a true and correct computation
of the ratios and financial restrictions contained in the Credit Agreement:
1. SECTION 7.10 - MINIMUM SURPLUS
The Capital and Surplus of ZIC on a combined basis is
$___________ (cannot be less than $140,000,000).
2. SECTION 7.11 - DEBT TO TOTAL CAPITALIZATION
(a) Debt $__________
(b) Total Capitalization $__________
(c) Ratio of (a) to (b) (cannot
exceed .40:1) ___:___
3. SECTION 7.12 - RISK BASED CAPITAL
The Risk-Based Capital of ZIC on a combined basis
is ___% (cannot be less than 150%).
<PAGE>
4. SECTION 7.13 - INTEREST COVERAGE
(a) Amounts Available for Dividends. $__________
(b) Pre-tax income from Non-
Insurance Subsidiaries
for the four quarters ending
on the Computation Date $__________
(c) Pre-tax, pre-interest income of
the Borrower for the four
quarters ending on the
Computation Date $__________
(d) Sum of (a) + (b) + (c) $__________
(e) Fixed Interest Charges $__________
(f) Ratio of (d:e) (cannot be less
than 2:1) _____:1
The Company further certifies that no Default or Event of Default has
occurred and is continuing under the Credit Agreement as of the date hereof.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed and delivered and the certifications and warranties contained herein to
be made, by a Responsible Officer this ____ day of ______________, 19__.
ZENITH NATIONAL INSURANCE CORP.
By:___________________________________
Name:_________________________________
Title:________________________________
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<PAGE>
EXHIBIT D
FORM OF OPINION OF COMPANY'S COUNSEL
________ __, 1997
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, Illinois 60697
Attention: ___________________
Ladies and Gentlemen:
We have acted as counsel for Zenith National Insurance Corp., a
Delaware corporation (the "Company") in connection with the preparation,
authorization, execution and delivery of, and the consummation of the
transactions contemplated by, the Credit Agreement (hereinafter defined).
Unless otherwise defined herein, capitalized terms used herein have the
meanings provided in the Credit Agreement. This opinion is delivered to you
pursuant to SECTION 4.1(d) of the Credit Agreement.
In connection with this opinion, we have examined the following:
(a) the Credit Agreement (the "Credit Agreement"), dated as of the
date hereof, between the Company and Bank of America National Trust and
Savings Association (the "Lender");
(b) the Tranche A Note of the Company, dated the date hereof and
delivered pursuant to the Credit Agreement; and
(c) the Tranche B Note of the Company, dated the date hereof and
delivered pursuant to the Credit Agreement.
The foregoing documents (a) through (c) are hereinafter collectively referred
to as the "Loan Documents".
In connection with this opinion, we also have been furnished with
and have examined the originals, or certified, conformed or reproduction
copies, of certificates of public officials and officers of the Company and
such other records,
<PAGE>
agreements, instruments and documents as we have deemed relevant and
necessary as the basis for the opinions hereinafter expressed. In stating
our opinion, we have assumed the genuineness of all signatures, the
authenticity of documents submitted to us as originals, the conformity to
original or certified copies of all copies submitted to us as certified or
reproduction copies, and the legal capacity of natural persons.
As to various questions of fact material to our opinions, we have
relied upon the representations and warranties in the Loan Documents and upon
certificates of the Company's public officials.
Based upon the foregoing, and upon such further matters as we have
deemed necessary or appropriate, and subject to the qualifications,
limitations and assumptions set forth herein, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of its incorporation
and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted. The Company is duly qualified to transact business and is in
good standing as a foreign corporation in each jurisdiction where the
nature of its business makes such qualification necessary or the failure
of the Company to be so qualified could have a Material Adverse Effect.
2. The Company has the corporate power to execute, deliver and
perform the terms and provisions of each of the Loan Documents and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of each of such Loan Documents.
3. The execution, delivery and performance by the Company of the
Loan Documents to which it is a party, and compliance by the Company
with the terms and provisions thereof, will not (i) contravene or
conflict with any provision of any existing law, statute, rule or
regulation applicable to the Company, (ii) to the best of our knowledge,
contravene or conflict with, result in any breach of, or constitute a
default under, any indenture, mortgage, deed of trust, credit agreement,
loan agreement or other agreement, contract or instrument binding on it,
or (iii) result in the creation or imposition of (or the obligation to
create or impose) any Lien (except for Permitted Liens) upon any of the
-2-
<PAGE>
property or assets of the Company pursuant to the terms of any of the
indentures, mortgages, deeds of trust, credit agreements, loan
agreements or other agreements, contracts or instruments to which the
Company is a party, or (iv) contravene or conflict with any of the
articles of incorporation or by-laws of the Company.
4. No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as may
be required to be made or obtained by you as a result of your
involvement in the transactions contemplated by the Loan Documents), or
exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in
connection with, the execution and delivery of any Loan Document by the
Company and the performance by the Company of its obligations thereunder.
5. The Company has duly executed and delivered each of the Loan
Documents and each of such Loan Documents constitutes the legal, valid
and binding obligation of the Company, enforceable in accordance with
its terms.
6. The Company is not engaged principally, or in one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying "margin stock" within the meaning of
Regulations G and U of the Board of Governors of the Federal Reserve
Board.
7. None of the Company or its Subsidiaries are an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
8. None of the Company or its Subsidiaries are a "holding
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
[Add exceptions and qualifications.]
Very truly yours,
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<PAGE>
EXHIBIT E(1)
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") dated as of
____________, 19__ is made between BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Assignor") and _______________________________________ (the
"Assignee").
RECITALS
WHEREAS, the Assignor is party to that certain Credit Agreement dated as
of _____________, 1997 between Zenith National Insurance Corp., a Delaware
corporation (the "Company") and the Assignor (the "Credit Agreement"). Terms
defined in the Credit Agreement are used herein with the same meaning;
WHEREAS, as provided under the Credit Agreement, the Assignor has
committed to make tranche A loans (the "Tranche A Loans") to the Company in
an aggregate amount not to exceed Twenty Million United States dollars
(U.S.$20,000,000) (the "Tranche A Commitment");
WHEREAS, as provided under the Credit Agreement, the Assignor has
committed to make tranche B loans (the "Tranche B Loans") to the Company in
an aggregate amount not to exceed Thirty Million United States dollars
(U.S.$30,000,000) (the "Tranche B Commitment" and together with the Tranche A
Commitment, the "Commitments"); and
WHEREAS, the Assignor wishes to assign to the Assignee part of the
rights and obligations of the Assignor under the Credit Agreement in respect
of its Commitment [(pro rata in accordance with the Assignor's Tranche A
Commitment and Tranche B Commitment)], [together with a corresponding portion
of each of its outstanding Loans,] in an amount equal to ______________
United States dollars (U.S.$_____) (the "Assigned Amount") on the terms
listed on Schedule I hereto and subject to the conditions set forth herein,
and the Assignee wishes to accept assignment of such rights and to assume
such obligations from the Assignor on such terms and subject to such
conditions;
___________________
(1) In connection with an assignment, the Credit Agreement will need to be
amended to reflect the addition of an agent etc.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
1. ASSIGNMENT AND ASSUMPTION.
(a) With effect on and after the Effective Date (as defined in Section
5 hereof), the Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, the
Assigned Amount, which shall be equal to ________ percent (___%) (the
"Assignee's Percentage Share") of all of the Assignor's rights and
obligations under the Credit Agreement, including, without limitation,
the Assignee's Percentage Share of the Assignor's Commitment and any
outstanding Loans. The assignment set forth in this Section 1(a) shall
be without recourse to, or representation or warranty (except as
expressly provided in this Agreement) by, the Assignor.
(b) With effect on and after the Effective Date, the Assignee shall be
a party to the Credit Agreement and succeed to all of the rights and be
obligated to perform all of the obligations of a Lender under the Credit
Agreement with a Commitment in an amount equal to the Assigned Amount.
The Assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Lender. It is the intent of the
parties hereto that the Commitment of the Assignor shall, as of the
Effective Date, be reduced by an amount equal to the Assigned Amount and
the Assignor shall relinquish its rights and be released from its
obligations under the Credit Agreement to the extent such obligations
have been assumed by the Assignee.
(c) After giving effect to the assignment and assumption, on the
Effective Date, the Assignee's Tranche A Commitment will be
_______________________________ United States dollars (U.S.$__________).
After giving effect to such assignment and assumption, on the Effective
Date, the Assignee's Tranche B Commitment will be _______________ United
States dollars (U.S.$________).
2. PAYMENTS.
(a) As consideration for the sale, assignment and transfer contemplated
in Section 1 hereof, the Assignee shall pay to the Assignor on the
Effective Date in immediately available funds an amount equal to
_____________________________ United
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<PAGE>
States dollars (U.S.$_________), representing the Assignee's Percentage
Share of the principal amount of all Loans previously made, and
currently owned, by the Assignor to the Company under the Credit
Agreement and outstanding on the Effective Date.
[(b) The Assignee further agrees to pay to the Agent a processing or
transfer fee in the amount of $ _________.]
[(c) The Assignee agrees to pay the Assignor a fee in an amount equal to
percent ( %) of all interest, commissions and fees paid by the Company
to the Assignee under the Credit Agreement. Such fee shall be payable
quarterly in arrears on the last business day of each ________________,
_____________________, ________________ and _______________, commencing on
________________, PROVIDED, HOWEVER, that such fee shall not be due and
payable hereunder if the Company has not made a payment of interest,
commissions or fees during such immediately preceding quarterly period.
All payments to the Assignor pursuant to this Section 2(c) shall be made
by wire transfer in immediately available funds to Bank of America National
Trust and Savings Association, Attention: Asset Sales Processing, Dept.
#6563, Bancontrol Account #12334-10284, Reference: Auxiliary Fee/Zenith
National Insurance Corp., or to such other person or place as the Assignor
may designate in writing to the Assignee from time to time.]
(e) To the extent payment to be made by the Assignee pursuant to
Section(s) 2(b) or (c) hereof are not made when due, the Assignor shall
be entitled to recover such amount together with interest thereon at the
Federal Funds Rate per annum accruing from the date such amounts were
due. For purposes hereof, "Federal Funds Rate" shall mean, for any day,
the weighted average of the rate on overnight Federal funds
transactions, with members of the Federal Reserve System, only, arranged
by Federal funds brokers, as published as of such day by the Federal
Reserve Bank of New York.
3. REALLOCATION OF PAYMENTS.
Any interest, commissions, fees and other payments accrued to but
excluding the Effective Date with respect to the Loans and the Commitment,
shall be for the account of the Assignor. Any interest, fees and other
payments accrued on and after the Effective Date with respect to the
Assigned Amount shall be for the account of the Assignee. Each of the
Assignor and the Assignee agree that it will hold in trust for the other
-3-
<PAGE>
party any interest, commissions, fees and other amounts which it may receive
to which the other party is entitled pursuant to the preceding sentence and
pay to the other party any such amounts which it may receive promptly upon
receipt. The Assignor and the Assignee's obligations to make the payments
referred to in this Section 3 are non-assignable.
4. INDEPENDENT CREDIT DECISION.
The Assignee (i) acknowledges that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred
to in Section __ thereof, and such other documents and information as it has
deemed appropriate to make its own credit and legal analysis and decision to
enter into this Agreement; and (ii) agrees that it will, independently and
without reliance upon the Assignor, the Agent or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit and legal decisions in taking or not taking
action under the Credit Agreement.
5. EFFECTIVE DATE.
The effective date for this Agreement shall be ____________________
(the "Effective Date"); PROVIDED that the following conditions precedent have
been satisfied on or before the Effective Date:
(i) this Agreement shall be executed and delivered by the Assignor
and the Assignee;
(ii) the requirements for an effective assignment by a Lender set
forth in Section 9.8 of the Credit Agreement shall be satisfied with
respect to the Assigned Amount; and any consents required for an
effective assignment of the Assigned Amount by the Assignor to the
Assignee shall have been duly obtained and shall be in full force and
effect as of the Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts due to the
Assignor under this Agreement; and
[(iv) the processing or transfer fee referred to in Section 2(b)
shall have been paid to the Agent.]
6. WITHHOLDING TAX.
If the Assignee is organized under the laws of any jurisdiction
other than the United States or any state or other
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<PAGE>
political subdivision thereof it agrees that it will furnish the Company,
concurrently with the execution of this Agreement, either U.S. Internal
Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein
the Assignee claims entitlement to complete exemption from or reduced rate of
U.S. federal withholding tax on all interest payments under the Credit
Agreement) and, upon the expiration or obsolescence of any previously
delivered form, with a new U.S. Internal Revenue Service Form 4224 or Form
1001 and comparable statements in accordance with applicable U.S. laws and
regulations and amendments duly executed and completed by the Assignee,
PROVIDED, HOWEVER, that the Assignee shall not be required to deliver a Form
4224 or 1001 under this Section 6 to the extent that the delivery of such
form is not authorized by law.
7. REPRESENTATIONS AND WARRANTIES.
(a) The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any lien, security interest or other
adverse claim; (ii) it is duly organized and existing and it has the
full power and authority to take, and has taken, all action necessary to
execute and deliver this Agreement and any other documents required or
permitted to be executed or delivered by it in connection with this
Agreement and to fulfill its obligations hereunder, (iii) no notices to,
or consents, authorizations or approvals of, any person are required
(other than any already given or obtained) for its due execution,
delivery and performance of this Agreement, and apart from any
agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any person is
required of it for such execution, delivery or performance; and (iv)
this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligations of the Assignor,
enforceable against the Assignor in accordance with the terms hereof,
except subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable
principles.
(b) The Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto. The Assignor makes no
-5-
<PAGE>
representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or
statements of the Company or any guarantor or the performance or
observance by the Company or any guarantor of any of its respective
obligations under the Credit Agreement or any other instrument or
document furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly organized and
existing and it has full power and authority to take, and has taken, all
action necessary to execute and deliver this Agreement and any other
documents required or permitted to be executed or delivered by it in
connection with this Agreement, and to fulfill its obligations hereunder;
(ii) no notices to, or consents, authorizations or approvals of, any person
are required (other than any already given or obtained) for its due
execution, delivery and performance of this Agreement; and apart from any
agreements or undertaking or filings required by the Credit Agreement, no
further action by, or notice to, or filing with, any person is required of
it for such execution, delivery or performance; (iii) this Agreement has
been duly executed and delivered by it and constitutes the legal, valid and
binding obligations of the Assignee, enforceable against the Assignee in
accordance with the terms hereof, except subject, as to enforcement, to
bankruptcy, insolvency, moratorium, reorganization and other laws of
general application relating to or affecting creditors' rights and to
general equitable principles; and (iv) it is eligible under the Credit
Agreement to be an assignee of the Loans and the Commitment.
8. FURTHER ASSURANCES.
The Assignor and the Assignee each hereby agrees to execute and
deliver such other instruments, and take such other action, as either party
may reasonably request in connection with the transactions contemplated by
this Agreement, including, without limitation, the delivery of any notices or
other documents or instruments to the Company or any guarantor which may be
required in connection with the assignment and assumption contemplated hereby.
9. INDEMNITY.
The Assignee agrees to indemnify and hold harmless the Assignor
against any and all losses, costs, expenses (including, without limitation,
reasonable attorneys' fees and the allocated cost of internal legal services
and all disbursements of internal
-6-
<PAGE>
counsel) and liabilities incurred by the Assignor in connection with or
arising in any manner from the non-performance by the Assignee of any
obligation assumed by the Assignee under this Agreement.
10. MISCELLANEOUS.
(a) Any amendment or waiver of any provision of this Agreement shall be in
writing signed by the parties hereto. No failure or delay by either party
hereto in exercising any right, power or privilege hereunder shall operate
as a waiver thereof and any waiver of any breach of the provisions of this
Agreement shall be without prejudice to any rights with respect to any
other or further breach hereof.
(b) All payments made hereunder shall be made without any set-off or
counterclaim.
(c) All communications among the parties or notices in connection herewith
shall be in writing, hand-delivered, telex or facsimile transmitter,
addressed as follows: (i) if to the Assignor or the Assignee, at their
respective addresses set forth on the signature pages hereof and (ii) if to
the Company or any guarantor, at their respective addresses set forth in
the Credit Agreement or other documents or instruments. All such
communications and notices shall be effective upon receipt. [The Assignee
specifies as its Domestic and Offshore Lending Office(s) the offices set
forth beneath its name on the signature pages hereof.
(d) The Assignor and the Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation,
execution and performance of this Agreement.
(e) The representations and warranties made herein shall survive the
consummation of the transactions contemplated hereby.
(f) This Agreement shall be binding upon and inure to the benefit of the
Assignor and the Assignee and their respective successors and assigns;
provided, however, that no party shall assign its rights hereunder without
the prior written consent of the other party and any purported assignment,
absent such consent, shall be void. The preceding sentence shall not limit
the right of the Assignee to assign or participate all or part of the
Assignee's
-7-
<PAGE>
Percentage Share and the Assigned Amount and any outstanding
Loans attributable thereto in the manner contemplated by the Credit
Agreement.
(g) The Assignor may at any time or from time to time grant to the others
assignments or participations in Assignor's Commitment or the Loans but not
in the portions thereof assigned to the Assignee pursuant to this
Agreement.
(h) This Agreement may be executed in any number of counterparts and all
of such counterparts taken together shall be deemed to constitute one and
the same instrument.
(i) This Agreement shall be governed by and construed in accordance with
the law of the State of California. The Assignor and the Assignee each
irrevocably submits to the non-exclusive jurisdiction of any California
State or Federal court sitting in The City of San Francisco over any suit,
action or proceeding arising out of or relating to this Agreement and
irrevocably agrees that all claims in respect of such action or proceeding
may be heard and determined in such California State or Federal court.
Each party to this Agreement hereby irrevocably waives, to the fullest
extent it may effectively do so, the defense of an inconvenient forum to
the maintenance of such action or proceeding.
(j) This Agreement and any agreement, document or instrument attached
hereto or referred to herein integrate all the terms and conditions
mentioned herein or incidental hereto, constitutes the entire agreement and
understanding between the parties hereto and supersedes any and all prior
agreements and understandings related to the subject matter hereof. In the
event of any conflict between the terms, conditions and provisions of this
Agreement and any such agreement, document or instrument, the terms,
conditions and provisions of this Agreement shall prevail.
(k) In the event of any inconsistency between the provisions of this
Agreement and Schedule I hereto, this Agreement shall control. Headings
are for reference only and are to be ignored in interpreting this
Agreement.
(l) The illegality or unenforceability of any provision of this Agreement
or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability of the remaining provisions
of this Agreement or any instrument or agreement required hereunder.
-8-
<PAGE>
(m) Any controversy or claim between the Assignor and the Assignee,
including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The
arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrators shall give effect to
statutes of limitation in determining any claim. Any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrator. Judgment upon the arbitration award may be entered in any
court having jurisdiction. The institution and maintenance of an action
for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief. This section shall not limit the
right of either party to this Agreement to exercise self-help remedies such
as setoff, to foreclose against or sell any real or personal property or
collateral or security or to obtain provisional or ancillary remedies from
a court of competent jurisdiction before, after, or during the pendency of
any arbitration or other proceeding. The exercise of a remedy does not
waive the right of either party to resort to arbitration.
-9-
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
Assignor
By:____________________________________
Title: ________________________________
_______________________________________
Assignee
By:____________________________________
Title:_________________________________
Domestic Lending Office
_______________________________________
_______________________________________
_______________________________________
_______________________________________
Offshore Lending Office
_______________________________________
_______________________________________
_______________________________________
_______________________________________
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<PAGE>
SCHEDULE I
to
Assignment and Assumption Agreement
1. COMPANY: Zenith National Insurance Corp.
2. DATE OF CREDIT AGREEMENT: ____________________, 1997
3. ASSIGNOR: Bank of America National Trust and Savings Association
4. ASSIGNEE:
5. DATE OF ASSIGNMENT AGREEMENT:
6. EFFECTIVE DATE:
7. ASSIGNEE'S TRANCHE A TRANCHE B
SHARE COMMITMENT COMMITMENT
---------- ---------- ----------
(a) Assignee's
Percentage
Share
(b) Assigned Amount
8. FEES:
9. INTEREST: PAYMENT BY PAYMENT BY
COMPANY TO ASSIGNEE TO
ASSIGNEE ASSIGNOR
--------- ---------- ------------
(i) Base Rate Loan
(ii) Offshore Rate Loan
10. PAYMENT INSTRUCTIONS:
Assignor:
Assignee:
11. ASSIGNEE'S NOTICE:
INSTRUCTIONS
------------------
12. OTHER INFORMATION:
-11-
<PAGE>
EXHIBIT F-1
FORM OF
TRANCHE A NOTE
$20,000,000 July 24, 1997
On or before July 23, 1998 the undersigned, FOR VALUE RECEIVED,
promises to pay to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Lender") at its principal office at 231 South LaSalle
Street in Chicago, Illinois, TWENTY MILLION DOLLARS ($20,000,000) or, if
less, the aggregate unpaid principal amount of all Tranche A Loans (as
defined in the Credit Agreement hereinafter referred to) made by the Lender
to the undersigned pursuant to the Credit Agreement, as shown in the schedule
attached hereto (and any continuation thereof).
The undersigned also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the date hereof
until maturity (whether by acceleration or otherwise) and, after maturity,
until paid, at the rates per annum and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful
money of the United States of America in same day or immediately available
funds.
This Note is the Tranche A Note described in, and is subject to the
terms and provisions of, a Credit Agreement, dated as of July 24, 1997 (as
the same may at any time be amended or modified and in effect, the "Credit
Agreement"), between the undersigned and the Lender. Reference is hereby
made to the Credit Agreement for a statement of the prepayment rights and
obligations of the undersigned and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon
the occurrence of any Event of Default as specified in the Credit Agreement,
the principal balance hereof and the interest accrued hereon may be declared
to be forthwith due and payable, and any indebtedness of the holder hereof to
the undersigned may be appropriated and applied hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject
only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the
holder of
<PAGE>
this Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
ZENITH NATIONAL INSURANCE CORP.
By:______________________________________
Name:____________________________________
Title:___________________________________
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<PAGE>
EXHIBIT F-2
FORM OF
TRANCHE B NOTE
$30,000,000 July 24, 1997
On or before July 24, 2002 the undersigned, FOR VALUE RECEIVED,
promises to pay to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Lender") at its principal office at 231 South LaSalle
Street in Chicago, Illinois, THIRTY MILLION DOLLARS ($30,000,000) or, if
less, the aggregate unpaid principal amount of all Tranche B Loans (as
defined in the Credit Agreement hereinafter referred to) made by the Lender
to the undersigned pursuant to the Credit Agreement, as shown in the schedule
attached hereto (and any continuation thereof).
The undersigned also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the date hereof
until maturity (whether by acceleration or otherwise) and, after maturity,
until paid, at the rates PER ANNUM and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful
money of the United States of America in same day or immediately available
funds.
This Note is the Tranche B Note described in, and is subject to the
terms and provisions of, a Credit Agreement, dated as of July 24, 1997 (as
the same may at any time be amended or modified and in effect, the "Credit
Agreement"), between the undersigned and the Lender. Reference is hereby
made to the Credit Agreement for a statement of the prepayment rights and
obligations of the undersigned and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon
the occurrence of any Event of Default as specified in the Credit Agreement,
the principal balance hereof and the interest accrued hereon may be declared
to be forthwith due and payable, and any indebtedness of the holder hereof to
the undersigned may be appropriated and applied hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject
only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the
holder of
<PAGE>
this Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
ZENITH NATIONAL INSURANCE CORP.
By:____________________________
Name:__________________________
Title:_________________________
-2-
<PAGE>
TRANCHE A NOTE
$20,000,000 July 24, 1997
On or before July 23, 1998 the undersigned, FOR VALUE RECEIVED,
promises to pay to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Lender") at its principal office at 231 South LaSalle
Street in Chicago, Illinois, TWENTY MILLION DOLLARS ($20,000,000) or, if
less, the aggregate unpaid principal amount of all Tranche A Loans (as
defined in the Credit Agreement hereinafter referred to) made by the Lender
to the undersigned pursuant to the Credit Agreement, as shown in the schedule
attached hereto (and any continuation thereof).
The undersigned also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the date hereof
until maturity (whether by acceleration or otherwise) and, after maturity,
until paid, at the rates PER ANNUM and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful
money of the United States of America in same day or immediately available
funds.
This Note is the Tranche A Note described in, and is subject to the
terms and provisions of, a Credit Agreement, dated as of July 24, 1997 (as
the same may at any time be amended or modified and in effect, the "Credit
Agreement"), between the undersigned and the Lender. Reference is hereby
made to the Credit Agreement for a statement of the prepayment rights and
obligations of the undersigned and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon
the occurrence of any Event of Default as specified in the Credit Agreement,
the principal balance hereof and the interest accrued hereon may be declared
to be forthwith due and payable, and any indebtedness of the holder hereof to
the undersigned may be appropriated and applied hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject
only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the
holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
<PAGE>
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
ZENITH NATIONAL INSURANCE CORP.
By: /s/ STANLEY R. ZAX
----------------------------
Name:
--------------------------
Title: Chairman
-------------------------
-2-
<PAGE>
TRANCHE B NOTE
$30,000,000 July 24, 1997
On or before July 24, 2002 the undersigned, FOR VALUE RECEIVED,
promises to pay to the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION (the "Lender") at its principal office at 231 South LaSalle
Street in Chicago, Illinois, THIRTY MILLION DOLLARS ($30,000,000) or, if
less, the aggregate unpaid principal amount of all Tranche B Loans (as
defined in the Credit Agreement hereinafter referred to) made by the Lender
to the undersigned pursuant to the Credit Agreement, as shown in the schedule
attached hereto (and any continuation thereof).
The undersigned also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the date hereof
until maturity (whether by acceleration or otherwise) and, after maturity,
until paid, at the rates PER ANNUM and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made in lawful
money of the United States of America in same day or immediately available
funds.
This Note is the Tranche B Note described in, and is subject to the
terms and provisions of, a Credit Agreement, dated as of July 24, 1997 (as
the same may at any time be amended or modified and in effect, the "Credit
Agreement"), between the undersigned and the Lender. Reference is hereby
made to the Credit Agreement for a statement of the prepayment rights and
obligations of the undersigned and for a statement of the terms and
conditions under which the due date of this Note may be accelerated. Upon
the occurrence of any Event of Default as specified in the Credit Agreement,
the principal balance hereof and the interest accrued hereon may be declared
to be forthwith due and payable, and any indebtedness of the holder hereof to
the undersigned may be appropriated and applied hereon.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject
only to any limitation imposed by applicable law, to pay all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the
holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
<PAGE>
All parties hereto, whether as makers, endorsers, or otherwise,
severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
ZENITH NATIONAL INSURANCE CORP.
By: /s/ STANLEY R. ZAX
----------------------------
Name:
--------------------------
Title: Chairman
-------------------------
-2-
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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0
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248,194
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